Чехия – 2010 – Сталелитейная промышленность
Чехія – 2010 – Сталеплавильна промисловість (анг.)
Steel Industry on the Rise Again
Jan Linhart, KPMG Česká republika, www.kpmg.cz
In 2010, the steel industry witnessed a marked growth after two years of massive decline. Despite a certain slowdown in the new trend in the latter half of 2010, steel consumption in 2011 is expected to rise worldwide. In the Czech Republic, too, the steel industry seems to have good prospects, with forecasts of a two-digit steel consumption growth in 2011.
In 2008 and 2009, global recession affected world steel production, which declined by a massive margin. In the situation of falling production in the last quarter of 2008, the output of the branch plummeted to a record low, when the capacity of steel facilities was used at a mere 71.6%. In 2009, world crude steel production dropped by 8%1) in comparison with the previous year.
The first signs of improvement appeared in the first quarter of 2009, with the World Steel Association (WSA, associating steel and iron manufacturers) anticipating a nearly 11% growth of steel consumption in 2010 and a more than 5% growth in 2011. These expectations are voiced despite a massive decline in steel demand in the last quarter of 2010. While the car industry is showing a certain revival, which is pulling demand forward, a drawback is the exhaustion of the effect of government stimulation packages and the continuing unfavourable situation in the building industry. Following their maximum in April 2010 (82%), the crude steel manufacturing plants’ capacity utilisation in September 2010 was at 74%, which corresponds to the August 2009 level. Therefore, despite the revival of the steel industry in EU countries in 2010 and the expected growth in 2011, it must be recalled that steel demand in EU countries will only be at 75% of the year 2007, when the steel industry was at its highest.
As regards the Czech Republic, WSA expects steel consumption in 2011 to grow by nearly 18%, following single-digit growth in 2010. Already now, the Czech steel industry is showing signs of revival, which is coming after a relatively dramatic fall in 2009. On the other hand, it has to be taken into account that in addition to raw material imports, manufacturers are also dependent on the export of their products, as only a part of the output finds outlets in the Czech Republic. An additional complication is the close intertwining of the supplier-customer chain in the branch, which often provokes disputes concerning delivery terms.
Delicate Balance: Supply and Demand
Inadequate stocks and a growing demand for steel products faces manufacturers with a demanding task: getting access to raw materials and ensuring production so as to fulfil their clients’ orders in time. In this situation, it is important more than ever before to have a flexible and compliant supplier chain that will support the company and help it meet its growth targets. Together with the gradual revival of steel-using branches, this requirement will be essential for the success of the steel industry itself.
How to Make Profit: Input Costs and Their Impact on Prices
Perhaps the greatest problem for steel manufacturers and distributors is the rapidly rising iron ore and coal prices, which as yet has not been reflected in the prices charged to customers. On the contrary, a turn in the price situation occurred in mid-2009, when world steel prices showed a growth, for the first time in 11 months.2) Since then, the price level has been relatively stable, including the first quarter of 2010. It is to be expected, however, that when manufacturers begin to run out of stocks, already now in short supply, and will have to react to growing input costs, the prices will probably rise.3) Standing behind the growth of input costs is growing worldwide demand for commodities, investments needed to obtain the required commodities and other factors, such as growing energy prices.
Growth Prospects: Mergers and Acquisitions
The economic revival, growth of demand and higher productivity of labour in the steel industry will necessarily call for mergers and acquisitions. Most of these transactions are taking place in the Central Asia and Pacific regions, the main acquirer today being China.4) Its leading position is a reflection of the fact that in the domestic metalworking industry the prevailing force are old, inefficient companies controlled by provincial administrations. The national government therefore supports their consolidation that will help raise efficiency and satisfy China’s huge demand for steel products. In 2009, China imported 627.8 million tonnes of iron ore and raised its dependence on imported ore to 63.9 of its needs.5) Trying to lessen this dependence Chinese companies are seeking acquisitions overseas that will secure for them more reliable raw material supplies.
New Strategies for a New Economy
Steel companies wishing to take the best advantage of today’s opportunities and strengthen their position in case the process of revival slows down or stops completely, have several ways of coping with the situation. For example, they can make analyses of their prognostication systems and improve their efficiency. This will enable them to better forecast demand for products or the need for raw materials, and assess what products and what quantities to manufacture, and when and where to make them, without having to maintain high stocks.
The development in the past eighteen months has shown that one thing which is certain to be expected is uncertainty. Suppliers and manufacturers can soften the impacts of high oil prices, sudden exchange rate fluctuations and lay-offs due to economic, political, or environmental legislation changes by creating joint ventures that will bring greater stability to both sides. In the steel industry, business continuity depends primarily on the availability of raw materials. Today, steel manufacturers can once again obtain easier financing for the acquisition of key suppliers and ensure better access to raw material sources. They can also make their raw material consumption, purchase, and replenishing planning more efficient.
1) World crude steel output decreases by -8.0% in 2009, World Steel Association News, 22 January 2010.
2) World carbon steel prices increase again in July, Steel Grips,
3 August 2009.
3) Steel prices to Gain on Low Inventories, Costs, Baoshan Says Bloomberg Business Week, 25 March 2010.
4) Race for rare metal – and China is winning, CommodityOnline.com, 17 July 2009.
5) China near-term steel demand high, growth low, China Daily, 25 March 2010.
Supplemet of Czech Business and Trade 1-2/2011