The impact of the global economic crisis on the steel industry dominated the discussion by the government and industry representatives present at the OECD Steel Committee/ Malaysia/ World Steel Association workshop held in Kuala Lumpur, Malaysia on 15-16 December 2008. The current financial turmoil has a severe impact on the steel industry. Steel demand in all countries is linked to fixed capital investment, which in turn is highly dependent on capital availability. Tighter credit conditions will reduce construction activities and other related projects. Lower confidence also has a strong impact on the spending on durables such as automobiles, appliances and other steel-intensive goods.
As a consequence of the global economic meltdown, construction activities and capital investment are slowing down in emerging economies. Construction activity in China alone is estimated to contribute slightly less than a fourth of global steel demand. The investment in the real estate industry in China is showing signs of slowing and housing prices are dropping in many major cities. Property-market risks have heightened in India and Russia. Real estate investment in Russia in particular registered a sharp slowdown to 8% recently, down from 24% a year ago. This was due mainly to a tightening of credit from banks.
Steel demand, production and prices have plummeted. Demand for key raw materials such as iron ore, ferrous scrap and coal has weakened. Production cuts and major layoffs have been announced. For example, the worlda€?s largest steelmaker, Arcelor Mittal, has announced the possibility of laying off 6,000 workers in Europe and another 2,400 workers in USA in response to weaker global demand. In this situation, steel producers are obliged to prioritize cash preservation by reducing inventories, pulling back purchases of raw materials and delaying or cancelling expansion projects.
The decline in steel demand is also expected to lead to changes in trade policy in many countries, in order to encourage export growth in response to weakness in domestic markets and to support domestic producers. China, for example, has decided to remove export taxes on some finished steel products, including hot rolled coil, HR sheet, plate, most heavy sections (including H-beams, I-beams and angles), welded pipe, most wire products and most alloy steel, effective on December 1, 2008. However, export duties for semis, rebar, wire rod, bar and light sections remain unchanged. Taiwan has relaxed its control on exports of steel scrap, billet and rebar, by allowing exporters more freedom to export these products for the next six months from October 28, 2008. Vietnam recently removed export duty for billet (from 5% export duty previously), effective on November 17, 2008. At the same time, Vietnam also increased its import duty on cold rolled coil from 5% to 7%, effective on October 12, 2008. The countrya€?s Ministry of Industry and Trade has also proposed to the Ministry of Finance to increase import duties on long products (bar, wire rod, small-medium section, steel wire) from 8% to 20%.
Driven by the economic recession in advanced economies, global steel demand could slow down by 3-7% in 2009. However, on the assumption that banks are now rescued and that normal businesses will soon resume, OECD has predicted that the global economy would start to recover in late 2009. Chinaa€?s steel demand is expected to continue to increase in view of its expanding industrial production and urbanization trend. India, with its low steel consumption of 43 kg per capita in 2007, has tremendous potential for growth. Investment on infrastructure in other developing countries will continue. Strong population growth which results in the need for housing and rising incomes will add further stimulus to construction activity. This in turn will support steel demand growth in the future. As a result, steel demand will recover and is expected to expand by 6-7% in 2010 and will surpass the level of demand in
2008 by 2011.