Chinese exports of steel were a record 8.52m tonnes last month, an increase of 73 per cent from a year earlier, according to customs data.

Hit by slowing domestic demand, tighter environmental regulations and growing debt loads that are becoming harder to pay back from sales to the domestic market, China’s steelmakers are looking to export their way out of trouble.

But their action could trigger a backlash in the US, which recently approved anti-dumping measures against South Korea and other producers of steel pipes, as well as in Europe, where a steel industry case was filed in mid-May.

The industry is “mired in overcapacity,” China’s customs spokesman Zheng Yusheng said in Beijing during the release of export data this month. So much so that prices for steel in some parts of China are now as low as the price of cabbage.

Although most of China’s exports are generally directed towards Asia rather than Europe, there is a knock-on effect on prices and global steel trade flows.

“The US steel industry is facing a very sizeable increase in imports from around the world,” Kevin Dempsey, senior vice-president of the American Iron and Steel Institute, says. “We’re seeing some signs of improvement in the US economy and it seems that all of the growth in steel is being taken from imports, including that from China.”

The exports are driven by a state-owned industry focused on output rather than price, says Mr Dempsey. Removing government intervention in the industry “is an important goal that we should be pursuing,” he adds.

“As the Chinese economy has slowed they are looking to export the steel that they can’t sell domestically and that’s disrupting markets around the world,” Mr Dempsey says.

This is being reflected in the market place. Global steel prices have fallen 7 per cent since January, according to an index run by London-based metal consultancy CRU. Falling global prices for iron ore, the main ingredient in steel production, have also lowered costs for mills and allowed them to sell steel more cheaply.

“Chinese exports are at record levels and global steel demand on a regional basis is nothing like record levels,” says Mike Shillaker, managing director of Global Steel and European miners at Credit Suisse.

Source – Financial Times 2014 / Henry Sanderson and Shawn Donnan

Turnover in the EU steel sector is approximately €150 billion. The sector employs 410 000 people, representing 1.25% of the total employment in EU manufacturing. With a production of around 200 million tonnes of crude steel in 2008, the EU represents 16% of world output and is the second biggest producer behind China.

Today, the EU steel sector is a modern industry with its main customer base found within the EU home markets, particularly in high-end segments. The main competitive strength is based on high quality products, product innovation and technological development, efficiency, and skilled manpower.

The main challenges for the EU steel industry are linked to obligation to reduce emissions, to the cost and availability of inputs (raw materials, energy), competition from third country producers, and the need of attracting and keeping a skilled workforce.

Important challenges for the steel industry

The European steel industry finds itself hit by the simultaneous effects of low demand and worldwide overcapacity whilst at the same time being confronted with high energy prices and investment needs to adjust to the green economy by producing innovative products in a sustainable manner.

… but global steel demand will increase

Steel demand in Europe is currently 27% below the pre-crisis level. Employment in the sector fell by 10% from 2007 to 2011. Despite this, the EU is still the second largest producer of steel in the world, with an output of over 177 million tonnes of steel a year, accounting for 11% of the global output and employing over 360 000 people.

According to the OECD, global steel demand is expected to increase to 2,3 billion tonnes by 2025, mainly from the construction, transport and mechanical engineering sectors, in particular in emerging economies. It is vital that the EU steel industry is fit to take full advantage of this competitive market.

The current situation requires a new political strategy for the steel sector. Therefore the Commission is:

• Ensuring the right regulatory framework is put in place: Measures include assessing by end 2013 the overall regulatory burden on the steel industry from different policies and its impact on competitiveness.
• Addressing skills needs and easing restructuring: Promoting skills development measures and measures targeting youth employment in the sector to boost the sector’s competitiveness as well as exploring the possibility to use relevant EU funds to help workers to find alternative employment in cases of production site closures. The European Social Fund and the European Globalisation Adjustment Fund will to continue to contribute to this effort. All EU funds will follow the principle of regional smart specialisation, taking into account the durability of the investment in creating and maintaining jobs in a particular region.
• Boosting demand for Steel: Measures include implementing targeted action to stimulate demand in the car and sustainable construction sectors.
• Improving access to foreign markets and ensuring a level playing field so as to support EU steel exports, fight unfair practices and ensure access to vital raw materials. Scrap markets will be monitored to enhance security of supply for EU steelmakers using scrap as a raw material.
• Ensuring affordable energy costs: The completion of the internal energy market and diversification of supply as well as increased energy efficiency will contribute to lower costs. The Commission is willing to provide guidance on long term electricity contracts between suppliers and customers to increase the predictability of such costs. In the short term reduction of energy costs for Energy Intensive Industry will depend on Member States. The Commission is committed to work towards this goal
• Climate policy: The EU’s 2030 climate policy framework will be key in ensuring the competitiveness of the industry as will be the negotiations for a binding international agreement on climate change. Manufacturing of certain forged ferrous products will be added to the carbon leakage list and MS are invited to earmark revenue from the ETS auction to R&D projects for Energy Intensive Industry
• Boosting innovation: Promotion of environmentally friendly technologies through the development of new types of steel, and stimulation of innovative R&D, particularly for the very expensive pilot and demonstration phases. For 2014-2020, research and innovation is to be funded mainly through the Horizon 2020 programme, which places a strong emphasis on industrial leadership in innovation. The steel sector also benefits from the European Innovation Partnership for Raw materials and for 280 million over the same programming period from the Research Fund for Coal and Steel

The Commission proposes to formally create a High-Level Group, which will oversee the implementation of the plan. The Commission will take stock of the progress made in 12 months.

Background

With a workforce of 360,000 people, turnover of around €170 bn and a presence in the manufacturing value chain of many downstream sectors, the steel industry has a strategic place in the economy.

Steel is closely linked to many other downstream industrial sectors such as automotive, construction, electronics, mechanical and electrical engineering. It has a very significant cross-border dimension: within the EU, 500 production sites are spread around 23 Member States, making it a truly European industry both historically and today. Steel was at the birth of the European project with the European Coal and Steel Community.

Europe needs its basic industries, to help other industries with the re-industrialization process. Materials like steel, chemicals, glass and cement are essential elements of the industrial value chain for greening the economy. Steel is 100% recyclable and is the most basic material in the manufacturing value chain of a product.

The division includes operations in Scunthorpe and Teesside in England, and Dalzell and Clydebridge in Scotland.

It also includes sites in Workington and York, as well as other operations in France and Germany.

But the company’s sheet and speciality steel operations in South Wales and South Yorkshire are unaffected.

Billionaire buyer

The Long Products division manufactures transport rails and steel sections for use in construction, heavy industry and excavation, and accounts for about a third of Tata Steel’s UK employees.

The sale, if it goes ahead, will reduce the number of Tata Steel’s UK employees from 17,500 to 11,500.

Tata has signed a memorandum of understanding with the industrial and commodities investment company, Klesch Group, formalising its intention to agree a sale.

Tata’s Scunthorpe works is one of the sites up for sale

“We will now move into detailed due diligence and negotiations, though no assurance can be given about the outcome,” Karl Koehler, chief executive of Tata Steel’s European operations, said in a statement.

The Klesch Group, run by US billionaire investor Gary Klesch, is also investing in an oil refinery in Milford Haven in Wales and already operates two steel plants in northern Italy.

In a statement, Mr Klesch said: “We believe there is a growing market for the first class products made by this business and we intend to capitalise on this demand.”

‘Extremely disappointed’

Tata Steel said it would consult trade unions throughout the process.

However, Roy Rickhuss, general secretary of the steelworkers’ union Community, said members were not satisfied.

“We’re extremely disappointed with the way that Tata Steel have handled this announcement, which does not reflect well on Tata’s values,” he said.

The three unions covering Tata’s UK workforce, Community, Unite and the GMB, said in a joint statement: “Tata Steel has failed to consult at all with the trade unions before making this move, which could have serious consequences for employees and contractors right across Tata Steel, not just within the Long Products business that it wants to sell.”

Following a sale the company said it would refocus its resources on its other two European divisions – stripped products and speciality steel.

Tata’s stripped products business makes sheet steel for domestic appliances, the automotive industry and consumer electronics and is based mostly in South Wales and the Midlands. Its speciality steel business in South Yorkshire provides premium products for the automotive and aerospace industries.

Demand for steel has only partially recovered in the wake of the financial crisis and in July Tata announced the loss of 400 jobs at Port Talbot in Wales.

Prime Minister David Cameron has agreed to meet MPs representing communities affected by the sale.

Mr Cameron said he was “very happy” to hold discussions with the cross-party group of MPs about “this vitally important issue” after being asked to do so by Labour MP for Scunthorpe Nic Dakin.

SOURCE – BBC 

“We will need Chinese equipment and technology suppliers for our steel industry’s growth, since China has a mature steel industry after decades of development,” said T V Narendran, managing director of Tata Steel.

India now has 80 million metric tons of steel production capacity and it is expected to grow to 300 million tons in the next 15 years in tandem with the pace of economic development as the country embarked on massive expansion of infrastructure.

China is now facing severe overcapacity in the steel industry, which has been hit by weak demand and continued losses.

Narendran said India’s steel industry will continue to grow on the strength of the government’s decision to focus on infrastructure construction.

“For Chinese steel companies facing overcapacity problems in their domestic market, it can be a good idea to invest in India,” said Narendran, adding that India’s steel market is open to foreign investors.

Indian and Chinese businesses looked to enhance tie ups specially in the back drop of improved relations as well as high profile visit of Chinese President, Xi Jinping to India during which China has committed USD 20 billion investments to build two industrial parks as well as modernisation of railways.

The Chinese equipment stated to be cheaper compared to other countries may have good chance to play a big part in the high cost Indian steel manufacturing expansion.

What is the outlook for the global and domestic steel industry ?

The steel industry has undergone a few structural changes in the past 3-4 years. So, the outlook for the next few years is likely to be driven by the kind of consolidation that has taken place in the past few years. The other factor that is likely to affect outlook is the extent of demand emerging from BRIC countries.

In addition to these two major factors, a cost-push is coming from raw material suppliers. Hence, steel manufacturers have to contend with strong demand on one hand, and cost-push on the other. The outlook for the domestic industry looks bright, since India has good iron ore deposits, skilled manpower and growing demand for steel.

There is an apprehension that if China slows down, it may dump its surplus steel into India. Do you think this can be a distinct possibility? An analysis of global data shows that even if an economy slows down, steel consumption does not fall dramatically.

In the case of China, a slowdown can mean that the growth rate may fall from 19-20% to a lower level. But that doesn’t mean growth will not take place. China produced around 470 million tonnes (mt) of steel last year, out of which, 66 mt was exported and the rest was consumed within the country. The measures undertaken by the Chinese government recently will reduce exports significantly in the current year. There is also a change in the consumption pattern. For instance, if construction activity slows down, the consumption of white goods will pick up and demand for flat steel products will go up.

The new capacities coming up in China are on the flat products side and not on the long products side. Overall, the impact on the supply side will be less. Similarly, the cost of production is very high — it costs around $500 per tonne to produce more than 100 mt of steel in China. Since the cost of production is very high and exports are not allowed, many of these plants will be closed down by ’09-10.This will reduce the supply of steel.

There’s a feeling that India doesn’t have much iron ore, considering the recent capacity expansion plans of domestic and foreign steel companies in India.

There is a possibility that if we continue exporting iron ore, we may run out of reserves. Currently, we export 90-100 mt every year and this is steadily increasing. Ideally, we should increase our steel production capacity — we are a net importer of steel — so that rather than exporting iron ore, we can add value to it. We should also look at investing in exploring new mines.

SOURCE – FINANCIAL TIMES

The real picture on pay settlements, and the relationship with inflation, over the past 18 months is roughly as follows. Inflation rose sharply at the end of 2006, to over 4 per cent on the main RPI measure. Pay settlements responded very soon afterwards, and our median measure of pay rises – which had been at or around 3 per cent since the late 1990s – rose sharply too, to 3.5 per cent. It pretty much remained there until April 2008. Since then, the median settlement has risen higher, to 3.8 per cent. The main influence on the rise is the number of higher-level increases being awarded in sectors such as chemicals, engineering and the utilities.

In addition, we have found that a range of leading firms, in different sectors, are awarding higher pay increases in 2008 than in 2007. Firms paid comparatively lower increases last year partly in the expectation that inflation would fall. That it has remained high, and that the outlook for food and fuel prices means that the inflation picture is likely to remain volatile, is a factor behind higher 2008 pay awards in comparison with 2007. Increases under long-term deals, with a specific link to RPI inflation, have also driven the rise in the median, though such arrangements are an established part of many private firms’ approach to wage-setting, and are in no way a novel development.

These figures are for the economy as a whole. However, if we compare private sector settlement levels with those in the public sector, there is a gap of a little over 1 per cent on average. This is due mainly to the Government’s determination to keep public spending under control, and it has deployed arguments about the relationship between pay rises and inflation in order to achieve this. As more public sector awards are made at comparatively lower levels, it may well be the case that the whole-economy median will be revised down. But the private sector developments outlined above are still a key part of the picture, and our expectation is that private sector settlements will maintain their lead on those in the public sector.

However the current picture is a long way from describing a ‘wages-prices spiral’, if such a phenomenon can be said to have ever really existed. We need to be careful to avoid any such generalisation about the impact of a single pay agreement, such as that for oil tanker drivers, which is as much the product of special circumstances as it is of the broader economic backdrop. Inflation in the UK economy is currently being driven by external factors, principally prices for food and fuel, rather than by domestic considerations. On the main RPI measure, the one that is used almost universally in the private sector for pay bargaining, it stands at 4.3 per cent in the year to May 2008. In the 1970s, by contrast, inflation was frequently in double-digits. And while wage rises followed it upwards, as employees tried to maintain the purchasing power of their salaries, they never matched it.

Today, inflation has risen and may continue to do so, but remains at much lower levels than in the 1970s. Just as in previous periods of higher inflation, private sector settlement levels have moved upwards following the rise in inflation, but overall they have tended to remain just below the RPI line. In the past we have commented that settlement levels ‘hung like washing’ from the hoisted inflation line. This is the broad picture at present. Some of it is explained by the time lag between the release of the inflation statistics, but also by the different circumstances facing firms – affordability and market factors, as well as whether there’s collective bargaining or not.

The data on pay settlements is important for economic decision-making, but commentators on all sides need to be cautious when drawing conclusions from it. And it certainly doesn’t follow from the recent modest pick-up in settlement levels that we’re returning, a bit like Sam Tyler in the BBC sci-fi serial ‘Life On Mars’, to a version of the 1970s.

SOURCE – RECRUITMENT TIMES