European Steel Output Projected to Grow 10 Percent in 2010

In a recent interview, Wolfgang Eder, president of the European Confederation of Iron and Steel Industries (Eurofer; Brussels, Belgium), expressed optimism that the European steel market will witness an increase in real demand, which will lead to an estimated 5 percent to 10 percent increase in production.

According to research by Industrial Info Resources (Sugar Land, TX), despite a slump of 8 percent in steel production last year, the 360 billion euro ($500 billion) industry is expected to witness slow but steady economic recovery. Growth is expected to come from the restocking of depleted inventories and new demand spurred by the energy and automotive sectors. Earlier, several governments in the European Union implemented car-scrapping schemes and economic stimulus packages to revive their slumping steel sectors and declining economies. Eder was confident that despite the withdrawal of these schemes in many countries, demand for steel demand would stabilize.

A decline in demand from the small-cars segment is expected. However, this will likely be offset with an increase in steel demand from the large and luxury car segments. Rental car companies are also expected to help in demand growth as they replace old vehicles.

In 2010, imports from Indian and Chinese steelmakers are not expected to impact the European steel industry. Eder observed that shipping costs significantly impact steel prices and that tapping into the European steel markets would cause Asian steel producers to lose substantial amounts in transportation costs. In 2009, China became the largest steelmaker in the world, producing 567.8 million tons. During this period, China recorded a year-on-year increase of 13.5 percent, making the country responsible for 46.5 percent of global production. In comparison to other countries, China is a relatively new entrant in international steel trade.

In 2010, the European steel industry is expected to witness an increase in raw-material prices, which will eventually be passed to the end consumers. The present economic condition will make it difficult for steelmakers to absorb the increase in prices.

Eder also observed that one of the largest hurdles faced by the region's steel industry is overcapacity. The region, which requires 170 million to 175 million tons of steel production per year, has an existing production capacity of about 210 million tons. Overcapacity could present a big deterrent to growth in the next eight years, and steelmakers will have to take steps to reduce excess capacity by about 15 percent.

In a market report published in September 2009, Eurofer forecast that growth in 2010 is expected to begin in the second quarter. Year-on-year growth is expected to be positive, but modest. However, in 2011 the region's steel sector is set for 4 percent predicted growth.

In a related development, a steel industry report published by MEPS International (London, England) indicated that steel manufacturing activity in Europe was slow in the first two weeks of 2010. This has been attributed to economic conditions and severe weather. Germany is witnessing slow recovery in end-user steel consumption.

With steel producers pushing for price hikes, there has been a marginal increase in new orders. In France, steelmakers are contemplating an increase in prices during the second quarter of this year. While there is a slight increase in demand, there is no significant rise in real consumption. Italian steel producers are also pushing for an increase in steel prices due to the rise in raw material and iron ore costs.

While stock levels are low, a possible increase in steel prices is making distributors wary of placing large orders. In Belgium, steel prices and demand have plummeted. There is uncertainty in the domestic market about steelmakers' proposal to increase prices. In Spain, while the automotive industry is showing signs of recovery, there is no apparent increase in consumption. Although inventory has been depleted in the country, consumers are being cautious about restocking.