Information from the Commission - Forward Programme for Steel for the first half of 1998 and for 1998 as a whole
29. 1. 98 EN Official Journal of the European Communities C 31/3 FORWARD PROGRAMME FOR STEEL FOR THE FIRST HALF OF 1998 AND FOR 1998 AS A WHOLE (98/C 31/03) (Text with EEA relevance) INTRODUCTION representing an upward revision of the spring forecasts of 0,2Ø% for 1997 and 1998. A more marked economic upturn than expected in the European Union in 1997 underlies the much improved climate of confidence in industry and among consumers indicated by the most recent economic surveys. Even if this recovery was largely export led initially, helped by the strength of the dollar, its momentum is gradually being increased by the improving performance of various internal factors. This expansion of the Community economy, set to in 1998 thanks to the knock on effect on intensify lead to a further industrial activity, will presumably in the steelÜ increase construction consuming industry. in production industries, including the even levels, and In this developing context, the Union’s steel industry should benefit in future not only from good export prospects, but also from the improved conditions on the Community steel market already evident in 1997 and set to improve further still during 1998. steel None the less, given the longer term trends in interÜ national risk of supply and especially disturbance that any shift in certain trade flows might cause in the short term, the Commission would urge those concerned to exercise caution in their strategies so as to ensure greater stability on the Community steel market, which is wide open and, of course, more vulnerable to alternations in the business cycle. the its is confirmed by through The EU’s economic activity, as measured quarterly GDP figures, grew as expected during the first half of 1997. This industrial production, which grew in annual terms by 4,5Ø% in July, and by the findings of surveys (up to October) indiÜ cating gradual but quickening recovery. Industry and consumers alike have gradually gained confidence over recent months. Indeed, industry’s confidence has been riding above long term average since April, and consumer confidence since July, and even the building renewed industry confidence. Order books have filled up nicely, both for the national markets and for exports. signs of tentative showing its is low and So the stage is set for the recovery to gather pace in 1998. The supply side basics are favourable: return on investments is high and getting higher and inflation is traditionally increasingly predictable, which helps companies calculate their costs. External demand remains firm. The rest of the world economy should grow by 4,5Ø% over the forecast period, thanks not least to a major expansion of international trade. Estimates suggest world imports outside of the Union will grow by in 1998. Europe’s export 10Ø% in 1997 and 7,5Ø% prospects are also helped by the improved competiÜ tiveness resulting from domestic cost cutting and the strong dollar. Monetary conditions are conducive to growth, following impressive and credible efforts to achieve convergence and thanks to a sensible approach to pay. Interest rates remain lack of exchange rate pressure between Member State currencies is encouraging. low and the Despite this, 1998 offers excellent prospects for the industry given the expected develÜ Community steel opment of a series of favourable factors, and particularly in view of the healthier economic situation in all the EU Member States. At the beginning of the recovery, growth was exportÜ driven. However, endogenous development of domestic demand should quickly take over and so reduce the external sector’s contribution to growth. 1. ECONOMIC SITUATION IN THE EUROPEAN UNION Growth in the Union’s overall GDP should rise from 1,8Ø% in 1996, to 2,6Ø% in 1997 and 3,0Ø% in 1998, Private consumption, sustained by modest increases in real pay, a fall in precautionary saving and, increasingly, by higher employment, should continue to grow by around 2Ø% in 1997, rising to a forecast 2,5Ø% in 1998. C 31/4 EN Official Journal of the European Communities 29. 1. 98 a in significant improvement Growing foreign and domestic demand, ever higher returns on investment and low interest rates will bring about investment performance. This will promote growth, in the short term as a demand factor and in the long term through its impact on production capacity. Total investment in the Union is expected to pick up to 2,6Ø% this year and 4,7Ø% next year. Equipment investment should rise sharply, from 3Ø% in 1996 to 4,5Ø% this year and 6,3Ø% in 1998. After the stagnation of 1996, the building industry too is expected to see a gradual recovery (1,2Ø% in 1997 and 3,3Ø% in 1998). is helping Faster growth the employment situation. Employment in the EU should grow by 0,5Ø% this year and 0,8Ø% next year, representing a net figure of around 700Ø000 new jobs in 1997 and some 1,3 million in 1998. However, an increase in the working population means the creation of jobs is unlikely to be matched by a correÜ sponding fall in unemployment. Average unemployment in the EU should thus fall from a little under 11Ø% in 1996 to 10,7Ø% this year and 10,3Ø% next year. The average inflation rate in the EU, measured by the private consumption deflator, fell from 2,6Ø% in 1996 to 2,1Ø% in 1997, despite the strong dollar. The average depreciation of EU currencies on a trade weighted basis is around 5,5Ø% compared with 1996. However, the resulting upward pressure on import prices should not have any major impact on the overall rate of inflation, as the moderate rise in unit labour costs will serve to offset imported inflation. The public finance forecasts for 1997 are based on actual budgetary implementation. For 1998 they are based on the Commission’s evaluation of the budgets adopted by the national governments (where this has happened). The average public deficit in the EU should fall from a peak of 6,1Ø% of GDP in 1993 to 4,2Ø% in 1996 and 2,2Ø% in 1998, a major part of the effort being concentrated in 1997, when the average deficit should be reduced to 2,6Ø%. 1998 all the Member States will have diminishing debt ratios except France and Luxembourg, whose ratios will nonetheless remain below 60Ø% of GDP. 2. REVIEW AND PROSPECTS IN THE STEEL MARKET 2. 1. CRUDE STEEL PRODUCTION IN THE EUROPEAN UNION Monthly steel production in the EU has been growing increasingly rapidly since the beginning of 1997 in response to a considerable increase in domestic demand and thanks to excellent export levels. While Community steel production during the first quarter of 1997 was up only 2,3Ø% on the same period in 1996, it rose by over 10Ø% during the second quarter of the year, so that its average increase during the first half of 1997 was around 6,4Ø% , i. e. slightly higher than forecastØ(˛). During the third quarter of 1997 Community steel production was again well up (+ 10,1Ø%) on 1996. Thus for the first nine months of 1997 the cumulative increase ovr the same period in 1996 was 7,5Ø%. Production was again up 8Ø% in both October and November, and the continuing excellent export prospect and expected consolidation of demand from the steelÜ consuming in the months ahead suggest a substantial rise even during the fourth quarter, so that for 1997 as a whole Community steel production might just exceed the 157 million tonnes last forecast. industries The increasing pace of steel production throughout 1997 has meant better use of capacity, helping make the operation of EU steel companies more profitable and, consequently, helping results appreciably. improve operating to and figures The table in Annex I "Crude steel supply and demand’ gives in summarizes consumption, foreign trade, production and stocks of steel in the 15 Member States of the Community and estimates the changes expected in the first half of 1998 and for 1998 as a whole. trends recent This deficit reduction is reflected in lower debt ratios in most Member States. The average public debt in the EU is expected to fall from 73Ø% of GDP in 1996 to 72,4Ø% in 1997, with the downward trend continuing. As from (˛) OJ C 225, 24. 7. 1997. 29. 1. 98 EN Official Journal of the European Communities C 31/5 For the sake of consistency, the table provides figures for all 15 Member States of the European Union, even for the period before 1995. 2. 2. OUTLOOK FOR THE FIRST HALF OF 1998 AND FOR 1998 AS A WHOLE The economic upturn, more pronounced in the EU than expected, will have contributed throughout 1997 to a considerable increase in manufacturing activity in general in response to growing demand, both domestically and on the export market. The Community steel industry, while benefiting from improved conditions on the steel market, has none the less failed to make the most of the potential offered by increased foreign demand and prices, being under pressure during traditional its the year customers in the Community. supply to into These developments have breathed optimism in October 1997, business circles, so much so that according to the Commission’s monthly survey, the indicator of economic confidence in industry reached a seven year high. This optimism seems justified by very good results in terms of orders for durable goods and by the notable improvement in capacity utilization rates. improve Consumer confidence has also continued to in over recent months and reached a 10Üyear high October, reflecting excellent growth and employment prospects. While sharing the general optimism, the Union’s steel producers made a point, in recent consultations, of stressing the precarious balance of the steel market, which despite everything remains under the cloud of a certain excess supply upsetting the world market. in Since 1997 the generalized upturn in steel prices on the large part Community market has been achieved thanks to a gradual restoration of the balance between supply and demand, despite the upward trend in imports, especially of long products as from the second quarter. In fact, steel producers believe the upward trend in demand and prices could be even more pronounced during the first half of 1998, and slowing only a little in the second half, even if some temporary rebuilding of stocks were to occur. The Union’s steel dealers, on the other hand, report a in steel disappointing performance in terms of trade products on the Community market during 1997, though they recognize that results in terms of volumes and margins were better than in 1996, particularly for large export oriented concerns. Meanwhile, their expectations for 1998 reveal a growing optimism, albeit qualified by fears as stockpiling to a potential resumption of throughout the industrial chain. that fact remains The the EU’s excellent general economic outlook will no doubt lead to an eventual picking up of activity in the steel consuming industries in 1998 (some of which are analysed more closely below), particularly fields of vehicles, electric and non electric machinery and metal articles. The building industry in general should also benefit more fully from the Union’s economic performance in 1998 thanks to the the expected upswing forecast upturn in public investment. in private consumption and the in Tables 2 and 2a in the Annexes show indicators of activity in the main steel consuming industries for the first half of 1998 and for the year as a whole. The data have been supplied by the national representatives of the sectors concerned, but since their opinions do not always accord with the trends identified these figures should be treated with caution. 2. 2. 1. Primary processing in 1996, caused by the After rather poor results economic slowdown and compounded by the tendency to run down stocks, the Community primary processing industry saw a new trend emerge at the beginning of 1997. However, the rate at which its various sectors are now catching up has been tied to the economic progress of its customer industries. Generally speaking, the sectors linked to the manuÜ facture of vehicles and electrical and non electrical in 1997, machinery will have done particularly well though some those in improvement was also seen depending on the building industry, which is in a phase of tentative recovery. Despite a forecast increase in imports, most sectors of the industry should be able to continue growing in 1998 given the good economic prospects within the Union and the very good chance of maintaining the excellent export performance of 1997. C 31/6 EN Official Journal of the European Communities 29. 1. 98 Despite increased activity and better use of production tools, various sectors of this intermediate industry are far from using their capacity to the full. B. The wire drawing industry A. Steel tubes In 1996 the Community steel tube industry achieved rather poor results, particularly in the first part of the year and particularly for small welded tubes and seamless tubes. The market situation during this period was characÜ terized by a significant drop in tube consumption in the EU, a sizeable rise in imports and a significant build up of stocks. The fallback in production was none the less kept to 3,6Ø% in 1996 thanks to a very sizeable increase in exports (+ 12Ø%). One disturbing element in 1996 was the increase in imports of seamless tubes, which captured more than a quarter of the Community market. Steel tube manufacture in the Union during the first part of 1997 was highly satisfactory: export performance was excellent (+ 33Ø%), even compared with the very good results of the same period in 1996, and a new trend emerged in domestic consumption, which was up by about 2,6Ø% on the first six months of 1996. For 1997 as a whole, the results of the steel tube industry should improve, despite pressure from certain imports, especially sensitive tubes, on seamless Community market. a highly In 1998, very good export levels should ensure the situation remains excellent for large welded tubes, this phenomenon having already been observed in 1996 and 1997. For small diameter welded tubes and seamless tubes, too, in principle be one of the market situation should economic gradual conditions even better than less, exports could slip slightly depending on the performance of the dollar. improvement, with in 1997. None the domestic All in all, 1998 should prove even better than 1997 for the Community steel tube industry as a whole, despite competition from imports, which will retain a sizeable share of the seamless tube market and could make appreÜ ciable inroads into the small welded tubes market. Low levels of activity in the building industry, the main user of drawn products, made 1996 a rather poor year for the Community wire drawing industry in terms of domestic consumption. However, increased exports offset the fall in production to some extent. The first six months of 1997 saw a firm increase in the volume of sales on the Community (+ 8Ø%) market, which was also under less pressure from imports of drawn products, while exports of the same, again improved somewhat over the period. since on Thus the recovery of this sector continues to be mainly export led, real consumption has increased much more slowly owing to a certain tendency to rebuild stocks and the very slow upturn in demand from the building industry. the domestic market improvement on For 1997 as a whole the wire drawing industry expects, despite everything, a clear its 1996 results, and even a consolidation of the trends which became apparent in the first half of the year. So much so that the rise in consumption is estimated at around 7Ø%, export growth at more than 13Ø% and the increase in production at 5Ø% compared with 1996. this favourable context, imports should increase only slightly. In Provided no unforeseeable factor emerges in the short in term, 1998 could see an eventual domestic demand, albeit partly offset by a shrinkage in exports. Production of drawn products should therefore continue to rise slightly, especially as imports of drawn products into the Community are expected to level off. improvement 1996 was even worse for the general drawing industry than for the wire drawing industry, despite the excellent performance of the motor industry, its main customer. intended almost Basically, deliveries of exclusively for the EU market, fell by 15Ø% in 1996 owing to the need to reduce stocks downstream. its products, At the beginning of 1997, however, a turnaround in domestic demand became apparent and in the first half 29. 1. 98 EN Official Journal of the European Communities C 31/7 of the year it grew by around 4Ø%, prompting an accomÜ panying rise in the production of drawn products. though 1996, marked recovery. long formed products showed a less Given the positive developments in its main customer industries, the recovery of the general drawing industry seems set to continue, pushing up the volume of sales in 1997 by some 5Ø%, particularly given the significant fall in imports. The prospects in 1998 for wide formed products, and particularly sandwich panels, are very good despite low levels of activity in the EU building industry, for which all these products are intended. As for 1998, the foreseeable slowdown within the motor industry is an element of uncertainty which could have a major impact on the general drawing industry. However, the Union’s fairly positive general economic outlook would suggest that production and sales of drawn products should be the same as in 1997, or even slightly higher. C. Rolling and forming in 1997 the general economic recovery As announced in the previous programme, the cold rolled strip industry’s sales fell by around 15Ø% in 1996. However, is helping the industry to an unexpectedly good result, recouping almost entirely the lost volume of the previous year, albeit unevenly around the EU, with Germany enjoying a much more visible recovery and the United Kingdom a relatively weak one. The forecast recovery of the building industry and the need to rehabilitate old building structures and hangar covers suggest demand for wide formed products will grow by an estimated 5Ø% in 1998, and perhaps appreciably more in the years ahead, especially for sandwich panels. For long formed products, however, the vast majority of which are again industry, increased demand in 1997 will only have enabled part of the 10Ø% drop in sales in 1996 to be recouped. intended for the building None the less, the market in these products could see considerable progress in 1998, especially in view of the government measures being envisaged in some EU Member States to stimulate the recovery of the building industry. 2. 2. 2. Situation in the construction industry in 1998 In 1998 the industry is hoping for a further improvement of around 5Ø% in demand for strips thanks to orders from the motor industry, the mechanical industry and the electrical and electronic machinery industry. Having gone through a somewhat difficult period since the beginning of the 1990s, the building industry appears to be showing tangible signs of recovery in a number of Member States, including the United Kingdom, Italy, Portugal, Sweden and Finland. Trade on the Union’s cold rolled strip market should continue to see a sizeable increase in intraÜCommunity flows as a result of keen internal competition, while imports seem level off and exports should remain negligible. likely to improvements observed While the economic in most Member States have as yet brought only slight benefit for building activity in general, there is no doubt that the economic prospects for 1998 are restoring a degree of confidence in this important sector’s expected recovery. Despite the remarkable pick up in the industry’s activity, with the most productive companies achieving optimum utilization of remain somewhat narrow due to growing competition on the market from alternative products obtained from the slitting of cold rolled sheet. financial margins capacity, The situation on the cold forming market has gradually improved since the beginning of 1997, especially for wide formed products, with sales up by around 5Ø% on Better economic conditions in 1998, including a pick up in investment, continuing low interest rates, controlled inflation and a certain easing of restrictive official policies, should boost the recovery of the building industry in the Union. the German building Despite this positive outlook, in 1996, will industry, which dipped considerably continue to be in slight recession in 1997 and remain stable its poor performance in the new L…nder. in 1998, notably on account of C 31/8 EN Official Journal of the European Communities 29. 1. 98 All in all, the bottoming out of the industry’s downturn in Germany and the prospects of an upturn in France, Spain and Austria should support general building recovery in the EU. 2. 2. 3. The motor industry in the United Kingdom, Portugal, In 1997 Consistently low interest rates and improved employment prospects have boosted new residential construction, the particularly Netherlands, Sweden and Denmark. the construction of new housing also intensified in Spain and Belgium. On the other hand, the low level of demand resulting from fiscal pressure and the generally gloomy economic climate also affected building activity, which continued to decline in Germany, France, Austria and Italy. In the Community as a whole, residential construction should increase slightly in 1998. increase As regards non residential construction. 1997 saw a slight investment, while public investment continued its downward course of previous years. in private level, activity declined even further in At national France, Germany and Spain, while firm recovery became apparent in Italy, the United Kingdom, the Netherlands, Sweden, Portugal and Belgium. For 1998 the level of activity in the Union as a whole should be very slightly up, thanks mainly to private investment. Civil engineering projects, highly dependent on public investment, have continued to suffer the adverse impact of restrictive policies in various Member States. 1997 will thus have been the fifth year running of very low levels of activity, owing to the sharp fallbacks recorded in such countries as France, Spain, Germany and Austria. The only countries with an increased volume of public works in 1997 were the United Kingdom and Portugal, thanks to major infrastructure projects currently under way. For 1998, given the promising general economic outlook, civil engineering projects could resume a slightly upward trend, after a long period of lethargy. The pick up in demand for motor vehicles in the EU in 1996, with registrations of new vehicles up 6,4Ø%, was followed by a short lived dip in the market, though the resulting drop in new vehicle registrations was quickly offset after the first quarter of 1997. Since April 1997, shown registration substantial average increases each month in all Member States, so that the combined results for the first 11 months of the year were up by a further 4,4Ø% or so on the excellent results of the same period in 1996. figures have The improvement on Europe’s motor vehicle market is due essentially to a spectacular recovery (+ 41Ø%) in demand for new cars in Italy since incentives came into force at the beginning of the year. improvement was also shown by Considerable the Spanish market (+ 11Ø%), which also benefited from fiscal aid measures, and by the United Kingdom, Swedish, Irish, etc. markets. Over the same period, however, the end of motor vehicle support measures in France produced a decisive drop (å 22Ø%) in the number of registrations, as on the Austrian market, while the German market was virtually unchanged. Given these developments on the Union motor vehicle market, registrations in 1997 may be expected to be up by a further 3 to 4Ø% on 1996’s very good performance. It should also be noted that the Community motor industry’s exports remained very satisfactory in 1997. As for the forecast for the EU motor vehicle market in 1998, the beneficial impact of economic decisions should encourage its development still further. However, given that consumers may well adopt a wait and see attitude in the face of the tight budgetary regime generated by economic and monetary union, there can be little hope overall of very good registration figures, despite the appearance of new models on the market. 29. 1. 98 EN Official Journal of the European Communities C 31/9 So unless unforeseeable artificial phenomena occur, registrations of new vehicles in the EU should level out or even taper off slightly in 1998. 2. 3. OUTLOOK FOR IMPORTS AND EXPORTS OF STEEL PRODUCTS 2. 3. 1. European Union external trade statistics for steel Persistent delays by a number of Member States in forwarding their external trade statistics have meant that, despite the earlier efforts, a proper analysis cannot be made of recent developments on the steel market for the Community as a whole, thus making estimates of future trends more arbitrary. At the time of writing, the available external trade data barely cover the first quarter for all the Member States of the Union. However, by estimating the missing data for the various countries, it is possible to analyse trends for the first half of 1997, though with a small margin of inaccuracy which will inevitably affect the quality of the forecast. It thus appears that during the first half of 1997 the Community’s steel imports increased overall by around 3Ø%, while at the end of the first quarter they were some 11Ø% down. These figures suggest that as early as the second quarter of 1997 the upswing in steel prices in the EU had the effect suggested in the previous forecast. More detailed examination of these trends shows that growth in imports has been particularly marked for long products (+ 24Ø%), while for flat products the estimated data point to a slight fall (å 2Ø%). Considering the lack of statistical data for the second part of 1997, it is very hit and miss to estimate develÜ opments in steel imports on a very open and competitive they also play a very Community market, where important part. However, given the trend in imports into the market during the first half of 1997 and since both demand and prices went up during the second part of the year, the increase in imports for the year as a whole will quite likely be more pronounced than forecast. In the second half of 1997, the Union’s steel exports are holding up at very satisfactory levels thanks to the dollar’s good performance on the financial markets. For 1997 as a whole, however, the volume of Community steel exports is likely to be slightly down on that given in the previous forecast, representing quite a significant drop compared with exports in 1996. Steel imports should continue to rise slightly during the first half of 1998 given the prospect of further increases in both demand and prices on an increasingly attractive Community market. The export market, on the other hand, faces uncertainty, relating particularly to the movement of the dollar, but also to the financial crisis in certain SouthÜEast Asian countries. However, information available suggests that although slightly down on 1997, Community steel exports will remain at very satisfactory levels in 1998. collation of the None the less, considering the longer term trends in world supply, and despite the good short term prospects for demand both inside and outside the Union, the Commission is aware of the possibility that certain trade flows might shift due to the crisis in SouthÜEast Asia, and would renew its appeal to the Community industry not to let individual investment, business management the and commercial balance of the Community steel market, which is wide open and, needless to say, greatly influenced by business cycles. strategy decisions compromise It must be stressed, though, that the Union’s healthier general economic situation should ensure a degree of stability for all manufacturing activities, including the building industry, and so offer even more encouraging prospects for the Community steel industry in 1998. 2. 3. 2. The United States economy Economic growth in the USA remained very strong again during the first half of 1997, even though the three monthly growth rates have had to be revised downwards. At the moment at least, the US economy does not show any signs of weakness, which means that capacity can continue to be fully utilized, and there is not the slightest tension with regard to wages and prices, as in the past. For exports, however, the estimated statistics for the first half of 1997 show a drop of 11Ø% on the same period in 1996, spread fairly evenly over the first full quarter and the second estimated quarter. inflation occurs, the US economy Unless unexpected should see further growth rates of 3,6Ø% in 1997 and 2,6Ø% in 1998, buoyed up by continuing vigorous domestic demand and a further increase in investment. C 31/10 EN Official Journal of the European Communities 29. 1. 98 The strength of the US economy has produced a notable increase in steel imports and the 1997 figure may well exceed the record of 30 million tonnes set in 1994. However, apparent steel consumption could start to fall due to the trend towards reducing the stocks built up in 1996. Over the next few months, however, the increase in production, now that new capacity has been brought into service, and the greater demand in the main partner countries should lead to a gradual reduction in steel imports from the USA. in the economy, the Despite the forecast slowdown outlook for the development of the US steel market in 1998 is still good. Steel consumption could continue to increase slightly, though the expected rise in domestic production could well lead to a slackening off of imports and even a sharp rise in US steel exports to third countries. 2. 3. 3. Economic situation in Japan Mainly due to the collapse of private demand, the abolition of certain forms of tax relief and the increase in VAT, economic growth in Japan is expected to be lower in 1997 than in 1996, with GDP rising by only 1,3Ø%. The Japanese economy should nevertheless start to pick up gradually, with GDP rising by 2,6Ø% in 1998, unless there is any worsening of the economic and financial crisis affecting some countries of SouthÜEast Asia, which may adversely affect the Japanese economy. The sustained performance seen early on in the year in the motor industry and shipbuilding and, to a lesser extent, in mechanical and electrical engineering will not produce any significant increase in steel consumption in 1997 because of the need to reduce stocks previously built up, in particular motor cars and electronics goods. There also seems to be no short term prospect of any upturn in the construction industry or civil engineering given the fall in public investment. Steel production, however, has been seen to be rising more sharply to meet a temporary increase in internal demand in the early part of 1997 and, especially, foreign demand. is expected to In 1998, domestic steel consumption increase to some extent in Japan given the improved economic climate in the country, which suggests there will be less Japanese steel on the export market. 2. 3. 4. China and South East Asia The average growth rate in the economies of South East Asia should be around 6,5Ø% in 1997. However, despite some slowing down in its region, economic growth could still be an average of about 8Ø% in 1998. It may, however, be necessary to revise these forecasts if the economic and financial crisis affecting various countries in the region worsens. The improvements in the construction industry in South Korea, the electronics industry in Taiwan and investment in China have steel consumption and production despite the economic and financial difficulties in other countries in the region. increase to a slight led in On the trade front, even if steel imports are likely to fall, SouthÜEast Asia will still be a vigorous market in 1998, despite its substantial structural deficit, though this is set to come down further, especially when new capacity comes into use. the measures In China, for economic control and structural modernization already in place have helped to contain the country’s economic expansion and limit the increase in inflation. Nevertheless, economic growth in China is expected to be outstanding once again in 1997 and 1998. With regard to the steel market, consumption should stabilize in 1997 after the successive falls in 1994 and 1995, while domestic production, which is still rising slightly, has contributed to a further increase in stocks. For 1998, the need to reduce stocks and a possible slowdown in demand should nevertheless not severely reduce steel imports to the country, especially given the need for major conglomerates to export. 2. 3. 5. The economies of the countries of Latin America The economies of the countries of Latin America are going through a very sound period, having gradually increased their average growth and with year on year rates expected to be some 5Ø% in 1997 and 1998. The sharp improvement in the economic climate of most therefore also of this region has the countries in 29. 1. 98 EN Official Journal of the European Communities C 31/11 gradually boosted performance construction increase in steel consumption in 1997. industries, thus in the motor and leading to a significant Steel consumption in this region is expected to further increase by about 10Ø% in 1998 as a result of vigorous economic development in Mexico, Argentina and Brazil. However, even though these countries’ steel imports are forecast to increase and their exports are expected to fall, their surplus supply of steel products still looks likely to be about 10 million tonnes in 1998 in view of the increase in domestic production. 2. 3. 6. Economic situation and prospects in the Central and East European countries and the republics of the CIS Following the reforms introduced in 1994, the economies of the Central and East European countries are continuing to make progress and, despite their fragility, these countries are expected to show an average growth of about 5,2Ø% in 1997 and 5,7Ø% in 1998. Benefiting from a healthier economic situation, industrial production and especially steel production in the Central and East European countries increased sharply in 1997 and, now that the local markets have shrunk, exports account for a very large share of almost 45Ø% of domestic steel production. For 1998, steel production in all these countries is set to increase further, though the expected rise in domestic consumption indicates that steel exports from the Central and East European countries will slow down. It is, however, possible that the forecast fall in steel imports to the US market in 1998 will lead to an even sharper rise in exports from these countries to the European Union, in particular of long products. Since the reforms were introduced, there has been a major improvement in the economic situation in Russia, despite the scale of the domestic difficulties which still have to be overcome. After successive years of negative growth up to 1996, the Russian economy is likely to see a slight increase in GDP in 1997, set to rise further in 1998. In the steel sector, the expected trends for 1998 point to a 5Ø% rise in domestic steel consumption and, despite a slight increase in production, steel exports from Russia, mainly of semi finished products, could fall for the first time. 2. 3. 7. Middle East and Africa The economies of the Middle East and Africa have continued to make good progress since 1990, though the differences from one country to another are sometimes great. The average growth rates for these countries can be estimated at 2,3Ø% for 1997 and 2,5Ø% for 1998. For steel, the introduction of new capacity is likely to increase steel production in the Middle East, possibly to 12 million tonnes in 1998, as compared with domestic steel consumption where a 3,5Ø% increase would take the figure beyond 11 million tonnes. For Africa as a whole, the increase in steel consumption is expected to be about 2Ø% in 1998, bringing the figure up to about 15 million tonnes. The shortfall in the steel industry in this region will therefore remain virtually unchanged. 2. 4. PRICE TRENDS Changes in the exchange rates during the last 12 months, in particular with the appreciation of the dollar against European currencies, except the pound sterling, are felt to have been among the main factors behind the reversal of the situation on the Community steel market. Steel together with all manufactured products of Community origin are therefore now more competitive again interÜ nationally, so much so that the recovery of domestic demand and the stabilization of exports at excellent levels have encouraged prices on the European Union steel market to rise gradually in 1997. With regard to flat products, the downward price trend generally stopped at the end of 1996, and, in some cases, very early on in 1997. The reversal of the trend has therefore been quite fast and substantial, depending on the products and Member States of the European Union concerned. The strong demand for galvanised sheet, hot rolled coil and heavy sheet has caused the basic prices of these products to rise by about 15 to 20Ø% in 1997. The prices of cold rolled sheet, on the other hand, have risen more slowly, but the increases seen at the end of the year were faster for these products. This generally upward trend seems set to continue at least during the first six months of 1998. long products, price levels have been As regards particularly low for several years and this trend was confirmed in 1996. However, now that foreign demand has increased thanks to improved stock levels and supply which is more closely in tune with market requirements, a certain balance has gradually been attained once again on the Community market, which has also helped to boost prices long products in this field. Taking all together, the best quality products, in particular those C 31/12 EN Official Journal of the European Communities 29. 1. 98 which go to the motor industry and the mechanical engineering sector, saw the highest rises of about 25Ø% in basic prices in 1997 and the upward trend is expected to continue during the first half of 1998. Long products for the construction industry, however, saw somewhat lower price rises throughout 1997. The trend in 1998 will nevertheless largely depend on climatic conditions, the level of exports from third countries and export opporÜ tunities. 2. 5. TRENDS BY PRODUCT Flat products - HotÜrolled coil The performance of the hot rolled coil consuming sectors is satisfactory as demand from tube manuÜ facturers, the motor industry and steel service centres continues to expand healthily. The level of stocks held by dealers and users is normal and there is no sign of overstocking at the moment. Deliveries to the European market are increasing at levels well above those seen during the last two years, the rate of utilÜ ization of capacity is high and delivery periods are lengthening. Given the Community market, export sales falling despite the profitable level of world market prices. The upward trend for these products seems set to continue during the first half of 1998, rising demand on the - ColdÜrolled sheet The growing demand for cold rolled sheet from the main consumers has enabled installations to operate at high levels of utilization, even though delivery times for these products have lengthened. Stocks have built up over the last few months, but the level is considered to be well balanced, given the current level of business. Demand from export markets is good and prices are profitable in view of the current parity of the dollar with European currencies. As regards imports, deliveries have increased to some extent, in particular from Slovakia, Argentina and Turkey. As with hot rolled coil, prices of cold rolled sheet have also been rising since the beginning of 1997 and this trend is likely to be conformed during the first half of 1998, thening and there are even signs of a slight shortage of these products at the moment. Prices are therefore rising rapidly and there is nothing at the moment to suggest that this trend will change. For electrogalvanized sheet, there is considerable demand from the motor industry, though some of this has been transferred to galvanized products. The high level of the dollar and the vigorous demand from the world market are also increasing exports by European producers. The balance between supply and demand is therefore pushing up prices on the internal market, this trend looking set to continue during the first half of 1998, - Quarto plate These products are benefiting from a number of positive factors which have appeared during 1997 and which will continue to influence the market for quarto plate in 1998. These include in particular the high value of the dollar, the strong demand on the world market and above all the upturn in the market for large tubes for which order books are already very full. As with other flat products, delivery times have lengthened and the prices of these products continue to rise. Dealers’ stocks are normal and dealers are doing a fine job in offering best prices for short term orders which producers cannot meet. However, the rise in demand and prices within the European Union imports from certain Central and in particular East European countries. is again attracting Long products - Heavy sections and beams With a particularly healthy export market and the recovery of demand on the internal market, these products have picked up well in 1997. Merchant stocks have returned to normal and order books are considered to be satisfactory. This situation has therefore allowed prices on the Community market to rise. Whether this healthy trend will continue, however, will depend on changes in exports and the level of imports from third countries, - Coated sheet - Wire rod The demand for galvanized sheet from both the motor industry and the construction industry is very sustained. Order books are full, installations are operating at full capacity, delivery times are lengÜ Demand from the construction industry is still poor in a number of Member States of the European Union. However, there in demand at the moment for wire for drawing and for industries. the mechanical engineering and motor is a marked increase 29. 1. 98 EN Official Journal of the European Communities C 31/13 The production stoppages in the summer and export sales in 1997 have enabled stocks to be reduced and supply to be brought more into line with demand on the internal market. The prospects for the beginning of 1998 are still good as regards both exports and the Community market. Prices have risen considerably during the year and it is very likely that there will be further rises again at the beginning of 1998, business further still to take advantage of the opporÜ tunities provided by the export demand as well. This in particular provide an additional boost to should internal steel consumption, after the performance in 1997, and in 1998 should again help support the gradual improvement of the Community steel market, despite the expectations of higher imports and a further reduction in Community exports of steel products. - Concrete reinforcing bars than consumption in 1996. However, fell by about 5Ø% The consumption of concrete reinforcing bars in the Community in 1997 is expected to be about 2Ø% higher this hides big disparities between the various markets of the Union. in Although Germany, increases which could be as much as 10Ø% have been recorded in some other countries of the Union. Competition from producers in Central and Eastern Europe and the former USSR is putting strong pressure on the export market, which is not seen to be very keen on price rises. On the internal market, however, supply and demand are more or less in balance and prices, which picked up again in 1997, now seem to be stabilizing. This situation is nevertheless fragile and dealers and producers will have to act with caution so as not to jeopardize the present balance, especially during the winter period, On the basis of these trends, real and apparent steel consumption during the first half of 1998 (as indicated in Annex 1) are expected to increase by 4,8Ø%, compared with the respective levels for the same period in 1997, to 79 million tonnes, with no movements in consumer and dealer stocks. Steel increase by about imports could 14Ø% during this period to 8 million tonnes, while exports look set to fall by about 8Ø%, giving an estimate for equilibrium production for the six months of about 82 million tonnes, an increase of 3,3Ø% on the figure for the second half of 1997. real and apparent For 1998 as a whole, steel consumption should be 154 million tonnes, up 4,8Ø% on the respective figures for the previous year, in view of stocks the expected throughout the period. stability of dealer and user - Merchant bars The combined effects of an increase in demand and the production stoppages during the summer are expected to have improved the balance between supply and demand on the Community market. Furthermore, the economic outlook forecast for 1998 points to a further increase in demand over the next few months. If this balance, which is still fragile, can be maintained, prices could pick up and stay up throughout next year. 2. 6. CRUDE STEEL BALANCE FOR THE FIRST HALF OF 1998 AND ESTIMATES FOR THE YEAR The expansion of the Community economy, which looks set to increase throughout 1998 thanks to higher growth in investment and, to a lesser extent, consumption, offers excellent prospects further development of the industrial performance in general. for Benefiting from the improved economic conditions in the Union, the main steel users are expected to increase their Continuing their upward trend, steel imports should rise to 14 million tonnes, about 8Ø% higher than in 1997, and Community exports of steel products are likely to fall again by 8Ø% to 23 million tonnes. Community steel production is therefore estimated at 163 million tonnes, an increase of 3,2Ø% on 1997. 3. RAW MATERIALS 3. 1. SCRAP Electrical steel works contributed more than integrated steel works to the sharp rise in crude steel production in the European Union in 1997 and demand for scrap has therefore been constantly rising throughout the year. The increase in consumption, however, has not yet had any major impact on scrap prices, which have stabilized at the high level previously reached. It has been possible for the high level of demand from plants across the Union to be met by the supply available without putting any particular strain on the market, especially following the reduction in Community exports of scrap to Turkey, which is increasing its domestic collections and has also obtained massive supplies from the CIS, more especially Ukraine. Exports of scrap from C 31/14 EN Official Journal of the European Communities 29. 1. 98 the Union to SouthÜEast Asia have also fallen due to the financial crisis in the Korean steel industry and the fact that Japan recently became a net exporter of scrap. The continued growth of Community steel production in 1998 could be followed by a rise in scrap prices, in particular given demands with regard to quality. This trend could continue further if exports to Asia pick up again once the financial crisis affecting certain countries in the region comes to an end. 3. 2. IRON ORE As indicated in the previous forecast, world production of iron ore in 1997 is likely to reach the record figure seen in 1995. This is quite obviously the result of a substantial increase in consumption due to the market increase in world production of pig iron and, to a lesser extent, of pellets. The changes in the demand for iron ore have caused supply difficulties over the last few months due to traffic saturation in some ports of loading. Nevertheless, world exports of iron ore in 1997 will be more than in 1995. During the first few months of 1998, world demand is set to continue the upward trend seen in 1997 and therefore to remain particularly sustained. The changes in capacity and improvements in the routing of mining products now being made, in particular in Brazil and Australia, should help to ease any future tension on the market. With regard to the production of pellets, which are in particular used to make pre reduced materials, the strong demand already recorded in 1996 and 1997 is set to remain at the same levels in 1998. 3. 3. FERRO ALLOYS The increase in demand for ferro alloys seen in the European Union at the beginning of 1997 was confirmed during the second half of the year. However, this trend benefited imports rather than domestic production. Only certain products saw price increases, with the abundance of supply largely going to meet the rise in consumption. The trend on the ferro alloys market should remain unchanged during the first of 1998, with demand and supply enjoying parallel growth, giving a satisfactory balance on the market. There could, however, be erratic price movements sizeable proportion of the supply available is able to adapt rapidly to the changes in the market. some products if a for 3. 4. TIN, ZINC AND NICKEL The most recent figures show tin production rising slightly during the first half of 1997 as compared with the first six months of 1996. The level of apparent consumption of this raw material, on the other hand, has not given any signs of improving over this period. NeverÜ theless, apparent consumption of tin could increase to a slight extent, given the firmer demand during the second half of 1997, but this will not be able to prevent a surplus of about 7Ø000 tonnes building up by the end of 1997. The prices of this raw material for the steel industry stabilized up to the end of 1997, after falling by about 10Ø% since the beginning of the year. For 1998, although demand for tin is expected to continue to rise, the trend will not have any effect on prices since production will increase in parrallel. World consumption of zinc, which is estimated to rise by 2,5Ø% to 7,75 million tonnes in 1997, could see a further rise of 2,4Ø% to 7,95 million tonnes in 1998. the Community market, On zinc consumption should, however, be lower, rising by only 1,4Ø% in 1998. changes in World supply of this raw material, in balance with demand in 1997, could slightly exceed the 1998 level. Zinc prices were volatile during the second half of 1997 and, after rising to 1Ø760 dollars a tonne in August on the LME, fell to 1Ø255 dollars a tonne at the end of October. In 1998, zinc prices will be affected by stock movements and the rise in market supply following the opening of new mines and are not expected to see such substantial fluctuations as during the second half of 1997. For 1997, the International Nickel Group estimates the world balance between supply and demand of nickel at + 11 400 tonnes. This estimate is based on an increase in production of 4,5Ø% and a rise in consumption of 7,1Ø%. Nickel consumption the European Union during the year has risen by 8,1Ø%. in The balance between supply and demand for this raw material could narrow during the course of 1998 provided Russian exports remain constant. The high stocks could the production and consumption of nickel and, even if prices rise, the increase is therefore likely to be rather small. fill any gap between therefore 29. 1. 98 EN Official Journal of the European Communities C 31/15 4. EMPLOYMENT The current situation prospects for 1998 are very good. in the steel industry and the During this period of growth, the jobs situation in the sector is therefore definitely improving compared with previous years, even if more losses are expected due to further restructuring, rationalization and modernization. Furthermore, the need for the Community steel industry to achieve greater international competitiveness means that it must constantly strive to produce technological innovation and streamline its businesses, with negative consequences for employment in the sector. In the past, most of the workers affected by restructuring have been able to take early retirement, the most widely used scheme in most of the Member States. has therefore been sought for some workers, while arrangements less costly than early retirement have been introduced for others (e. g. gradual early retirement). Given the favourable market situation, the trend towards the large scale shedding of jobs in the steel industry should diminish in 1998, except in Germany, due to concentration and rationalization, and Spain where the last restructuring plan is nearing completion. The Commission will continue to implement a social policy for the sector based on aid for retraining pursuant to Article 56 (2) (b) of the ECSC Treaty until the Treaty expires in 2002. The net job losses in the Community steel industry in 1998 are estimated at 12Ø000 workers, concentrated mainly in Germany, the United Kingdom and Spain. However, the number of workers eligible for aid will be lower than this since some Member States will not be participating in the ECSC redeployment policy. Over the years, however, national social schemes have changed to meet employment policy requirements more closely and because of the large drop in the number of workers in the upper age groups. External redeployment For 1998, the funds in the ECSC’s draft budget for traditional aid for retraining in the coal and steel industries amount to ECU 65 million. However, most of these funds will probably be used to pay for the social effects of restructuring in the steel sector. C 31/16 EN Official Journal of the European Communities 29. 1. 98 ANNEX TABLE 1 Crude steel supply and demand - EURÜ15Ø(˛) OutÜturn 1994 1995 1996 First half 1997 (R1) Estimate Second half 1997 (R2) (in million tonnes) Forecast 1997 (R2) First half 1998 1998 Apparent user consumptionØ(a) Change in merchant stocksØ(b) Apparent consumption Imports EURÜ15 Exports EURÜ15 134,9 142,0 139,5 + 0,5 135,4 11,1 28,4 + 3,0 145,0 17,0 22,7 75,4 0,0 75,4 7,0 12,0 å 1,0 79,4 71,6 147,0 79,0 154,0 0,0 71,6 6,0 13,0 0,0 78,6 0,0 147,0 13,0 25,0 å 1,0 158,0 0,0 79,0 8,0 11,0 0,0 82,0 0,0 154,0 14,0 23,0 0,0 163,0 å 4,0 135,5 12,2 27,9 å 4,0 147,2 Change in producer stocks + 0,9 + 5,0 Production 151,8 155,7 (˛) ÚConversion factor of finished products to crude steel: 1. 11. (R1) Figures revised on the basis of out turn. (R2) Partially revised. (a) This aggregate is close to actual consumption. It concludes changes in consumer stocks and merchant stocks in all countries except Germany, France, the United Kingdom and Benelux. (b) Change in merchant stocks in Germany, France, the United Kingdom and Benelux. TABLE 2 Indicators of activity - EURÜ12Ø(˛) (Not seasonally adjusted) Sector First half 1998Ø(ˇ) First half 1997Ø(ˇ) 1998Ø(—) 1997Ø(—) Manufacture of metal articles Mechanical engineering Electrical engineering Motor vehicles Other means of transport Building/civil engineering 106,2 109,2 109,3 109,9 108,6 100,1 101,7 102,1 104,7 104,6 104,6 98,5 105,5 109,0 108,8 108,8 109,8 99,7 102,7 103,8 104,0 104,1 104,2 99,5 (˛) In the absence of basic steel consumption data by sector for Austria, Finland and Sweden, these indicators refer only to expected development in the Community of 12. Indexed forecasts of the level of activity of the various steel consuming sectors derived by weighting national data provided by the trade associations of those industries. Some figures are partial estimates as the data for certain countries are not available. (ˇ) First half 1996Ø= 100. (—) 1996Ø= 100. Source: Commission data. 29. 1. 98 EN Official Journal of the European Communities C 31/17 TABLE 2a Trends in the steel consuming sectors in the main producer countriesØ(˛) (Activity indicatorsØ(ˇ)) Member State Germany France Italy United Kingdom Spain Sector/indicator I/1998 1998 I/1998 1998 I/1998 1998 I/1998 1998 I/1998 1998 Manufacture of metal articles 108,0 107,0 108,0 109,0 Mechanical engineering 108,0 108,0 107,0 108,5 Electrical engineering 109,0 109,0 108,0 108,0 Motor vehicles 112,0 112,0 108,0 106,0 Other means of transport Building/civil engineering 95,0 98,0 95,0 98,0 120,0 122,0 98,0 98,0 (˛) Source: National steel users’ associations. (ˇ) For each country: first column, activity indicator first half 1998 (first half 1996Ø= 100) second column, activity indicator 1998 (1996Ø= 100). - - - - - - 103,5 107,0 107,5 104,5 105,0 - - - - - - - - - - - - - 95,0 96,0 124,0 129,0 119,0 120,9 106,0 106,0 104,0 122,4 102,5 103,5 TABLE 3 Changes in the numbers employed in the steel industry (Including apprentices) Member State Number of employees (in thousands) (Reference month) (Most recent month)Ø(˛) Austria Belgium Denmark Germany Greece Spain France Finland Ireland Italy Luxembourg The Netherlands Portugal SwedenØ(—) United Kingdom EURÜ15 12,8 (June 1996) 23,2 (June 1996) 1,1 (March 1996) 85,6 (July 1996) 2,3 (July 1996) 23,6 (July 1996) 38,9 (August 1996) 7,4 (August 1996) 0,4 (March 1996) 39,1 (July 1996) 5,3 (August 1996) 12,4 (April 1996) 2,5 (April 1996) 14,8 (June 1996) 37,0 (June 1996) 12,4 (June 1997) 20,6 (June 1997) 1,2 (March 1997) 82,3 (July 1997) 2,1 (July 1997) 23,2 (July 1997) 38,8 (August 1997) 6,8 (August 1997) 0,4 (March 1997) 37,1 (July 1997) 4,8 (August 1997) 12,1 (April 1997) 2,1 (April 1997) 14,7 (June 1997) 35,9 (June 1997) 307,9 (March 1996) 293,1 (March 1997) (˛) Most recent figures available. (ˇ) As the reference period is not the same for all countries, this average is only indicative. (—) Estimate. Source: Eurostat. Change (%) å 3,1ÚØ å 11,2ÚØ + 9,1ÚØ å 3,9ÚØ å 8,7ÚØ å 1,7ÚØ å 0,3ÚØ å 8,1ÚØ 0,0ÚØ å 5,1ÚØ å 9,4ÚØ å 2,4ÚØ å 16,0ÚØ å 0,7ÚØ å 3,0ÚØ å 4,8Ø(ˇ)