A European sector chief said that the European Union's steel industry may need to shut three quarters of its capacity in the next two decades because of declining demand, rising costs and cheap imports.
Mr Wolfgang Eder president of European steel industry body EUROFER told Reuters in an interview that "It is foreseeable in the next 10, 15, 20 years, at least for normal grade steel, that production in Europe will not be competitive any more."
Mr Eder, also chief executive of Austrian group voestalpine, said that the competitive threat came less from producing giants such as Brazil and China, kept at bay by high shipping costs, but from nearby Russia, Turkey and Ukraine. He added that "They will extend their deliveries into the European Union and we think that commodity steel making will not be viable any more in the EU."
The industry, employing some 360,000 people in the EU, already faces overcapacity, with 210 million tonnes of output potential against annual demand that has dropped to between 150 and 160 million since the 2008 crisis. Many companies have idled capacity, but permanent shutdowns, such as ArcelorMittal's plan for two blast furnaces in Liege, Belgium, are an exception. Normal grades, such as those used in bulk by the construction industry, make up three quarters of EU steel production.
Mr Eder said that "In the long run, this is the volume that might be questioned. We are talking about a timeframe of 20 years so in 2030 I would not be surprised to see steel production in Europe to be somewhere around 60 million tonnes."
In the short term, Mr Eder was hopeful in April of a pick up, but this optimism has waned with the euro zone debt crisis destroying confidence and stalling steel price increases. He added that "Suddenly in April to May 2012, steel prices started to stabilise and in June 2012 started deteriorating because everyone was hesitant."
On a positive note for the sector, iron ore and coking coal costs have declined, albeit with a time lag, which has led to margin squeezes for now. Iron ore prices have dropped from some USD 190 per tonne in October to USD 135.
Mr Eder said that he saw a further drop from artificial levels, possibly below USD 100 over the next 12 to 18 months. He said Chinese steel demand growth had dropped to 6% to 7% per year from 9% to 10%, US demand was steady, but not spectacular and European consumption was likely to decline, with infrastructure investments delayed and no further upturn seen for cars. He added that "I think the boom in steel consumption is coming to an end."
Mr Eder said that a lot of new entrants had been drawn to mining by the high profitability of recent years and a lot of new capacity was coming on stream in the next three years. He added that "This means we are running into overcapacity, especially in iron ore. This will lead to a further deterioration of prices. I think a fair price for a tonne would be USD 75 to USD 90."
Source - Reuters
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