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More restructuring inevitable
November 2001
The EU steel sector has moved into an extremely quiet phase. With no good news to report, the steelmakers, service centres and end-users are all looking inwards and contemplating their next moves to minimise the effects of the current downturn. Signals emanating from the steel producers suggest that drastic action will be taken over the next few months.
It is anticipated that a substantial number of steel plant output curbs over the Christmas and New Year holiday breaks. Several have already been announced and more will follow. The short term outlook is poor as customers hold back on forward order schedules. Quick and decisive action on curtailing steel production will pay dividends in the medium term.
Further steel price reductions are likely for most flat product categories when first quarter negotiations are completed. Slight signs of weakness are now appearing in the long products segment. Construction demand is less buoyant and the weather may not be so kind this year in the northern part of the continent. Deep supply cuts by the steel mills should hasten the date for a price recovery.
The next few months will be a difficult period for the EU steel businesses. Home market demand is expected to slip further. The threat from imports is likely to increase but as prices soften this will diminish. Export potential will decrease as global markets slow down. It is anticipated that a plethora of anti-dumping suits around the world as steelmakers seek to protect their industries.
Further consolidation of the EU steel sector is an obvious result of the weakening domestic and international economies. More job cuts will occur. Permanent closures of uneconomic units are likely to be precipitated. Future capital investment may be postponed to enable the mills to ride out the storm ahead.
It is, however, more difficult to assess the impact of this latest downturn in the steel sector. The past two cycles have been the result of oversupply in a steadily growing market. The situation could be easily remedied through supply side management. This time the problems may run deeper - with two of the world's major economies (the US and Japan) running headlong into recession and the EU on the brink of negative growth in the next quarter.
It is inevitable that further corporate restructuring will occur in the European steel industry if the gloomy economic outlook persists to the end of the year. Being competitive in global markets is the key to success. This invariably means rationalisation and is usually achieved through mergers or acquisitions - bringing together smaller units into one large enterprise.
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