Information from the Commission - Forward programme for steel for the first half of 1999 and for 1999 as a whole
C 24/2 EN Official Journal of the European Communities 29. 1. 1999 FORWARD PROGRAMME FOR STEEL FOR THE FIRST HALF OF 1999 AND FOR 1999 AS A WHOLE (1999/C 24/02) (Text with EEA relevance) INTRODUCTION the Union against certain commercial practices which may further worsen the precarious situation of the Community steel market. The effects of the deteriorating international climate on the Community economy, first perceptible in 1998, will probably become more tangible in 1999 as dwindling export prospects depress investment and even internal demand. After gaining strength in 1997 and the first part of 1998, economic growth in the Union therefore seems to be about to slow down appreciably in 1999, setting the pace for industrial activity in particular and, consequently, steel consumption. The significant speeding up of activity in the leading steel using sectors up to spring 1998 laid the foundation for the remarkable upswing in demand which, in turn, triggered a spectacular imports onto the Community’s extremely attractive steel market. increase in However, the steady deterioration in conditions on the market in the course of the year, as a result of the destabilising effect of the glut of outside supplies, provoked a collapse in steel prices. The forecast deceleration in activity in the steel using sectors in 1999, bound up with the general economic slowdown, therefore suggests weaker demand for steel on a Community market which has lost some of its attraction in the mean time. Nevertheless, the market could remain under pressure surplus outside supplies forced to seek an outlet at a time when export prospects are shrinking. from Given the risks of further deterioration of both the Community and the world steel market and with no prospect of any rapid improvement in the situation in the areas hardest hit by the crisis, the Commission calls on all concerned to adopt behaviour commensurate with realities on the steel market today in order to restore long term stability as soon as possible. 1. ECONOMIC SITUATION IN THE EUROPEAN UNION in the The economic recovery which set in the European Union in 1997 was strong enough to withstand the deterioÜ international climate. As a result, the ration Commission’s autumn forecast of GDP growth of 2,9Ø% in the EU in 1998 even marks a slight improvement Ü up 0,1Ø% over the previous (spring 1998) estimate. This growth was sustained more strongly than expected by internal demand which took over from exports and offset the decreasing contribution by external trade as it fell into deficit as a result of the deterioration in the international economy. However, although the Commission’s previous estimate pointed to faster growth in 1999, the autumn forecast now expects a slowdown in activity. GDP growth in the EU is expected to be limited to 2,4Ø% in 1999, half a percentage point down on the previous forecast, due to events on the international scene. solid. Conditions of Nevertheless the foundations on the domestic market are still undoubtedly supply are excellent, the return on investment is improving and interest rates and inflation are unprecedentedly low. And the impending introduction of the euro at the start of 1999 is an added stabilising factor. Despite these sound foundations, the deteriorating interÜ national climate is likely to affect not only the external contribution in 1999 but also internal demand and, in particular, investment in response to lower demand for exports. For its part, the Commission will ensure that the behaviour of all parties concerned keeps within the rules of international trade. It should be pointed out that the EU has commercial policy instruments which may be used in accordance with the multilateral rules, to protect Nevertheless investment is expected to continue to grow strongly, by 4,6Ø%, while private consumption, boosted by high consumer confidence and the improvement on the labour market, is expected to be up by 2,5Ø%. 29. 1. 1999 EN Official Journal of the European Communities C 24/3 Inflation should remain low with some improvement in the trend compared with the previous forecast, taking the rate down to around 1,7Ø% for the Union as a whole in 1999 and 1,6Ø% for the eleven countries in the euro zone. The activity trends expected in the steel using sectors in 1999 will undoubtedly lead to stabilisation of demand for steel. Consequently, given the difficulty of exporting on a severely disrupted world market, steel production in the Community should be down on 1998, despite falling imports. Employment grew faster than expected in 1998, by 1,2Ø% against the earlier estimate of 0,8Ø%. In 1999 this is expected to slow down to 0,9Ø%, a downward revision of 0,2Ø%. The outlook for unemployment has also brightened since the spring, although unemployment has been falling slower than increasing, the growing workforce. Average unemÜ because of ployment in the Union is expected to fall from 10,9Ø% in 1996 to 10Ø% in 1998 and 9,5Ø% in 1999. jobs have been Public debt is expected to continue to fall in the years ahead, albeit slower, following the consolidation by the Member States to meet the Maastricht criteria. The average deficit in the Union should keep falling from 2,3Ø% of GDP in 1997 to 1,8Ø% in 1998 and 1,4Ø% in 1999. 2. STEEL MARKET SITUATION AND OUTLOOK 2. 1. CRUDE STEEL PRODUCTION the substantial (8Ø%) After in 1997, steel production in the Union continued to grow throughout the first six months of 1998 to total 84,5 million tonnes, up 6,5Ø% on steel production in the same half of 1997. increase Since then, however, steel production in the Community has slowed down steadily, stabilising in the third quarter of 1998 at the previous year’s level, despite successive falls of around 2,4Ø% in August and then September. According to the most recent rapid statistics, Community steel production is likely to have fallen again by 4Ø% in October and 5Ø% in November 1998. However, taking account of the substantial increase in imports in early 1998 and today’s considerably higher stock levels on the one hand and the foreseeable fall in demand as a result of the slowdown in the steelÜ consuming sectors on the other, steel production in the Community will probably fall sharply in the months ahead. This scenario suggests that steel production in the Union could end 1998 on 162 million tonnes, as indicated in the Commission’s previous forecastØ(˛) and just 1,6Ø% up on 1997. (˛) OJ C 233, 25. 7. 1998. In the first half of 1999, steel production in the Union could therefore total around 80 million tonnes, 5Ø% down on the same half of 1998. A slight improvement in conditions on the market in the second half of the year should take total production in 1999 to 157 million tonnes, 2,5Ø% less than the previous year. However, this falling production should pose no major problems for steelmakers as capacity utilisation rates expected to remain satisfactory in 1999. Nevertheless the Commission renews its call for caution on the part of all involved, since both the Union and the world market now face a degree of upheaval in trade in steel as a result of the crisis in Asia, at a time when the signs of steel consumption are becoming clearer and clearer in most parts of the world. slowdown economic falling and The table in Annex 1 "crude steel supply and demand’ gives figures and summarises trend in consumption, foreign trade, production and stocks of steel in the European Union and estimates the changes expected in the first half of 1999 and for 1999 as a whole. 2. 2. OUTLOOK FOR THE FIRST HALF OF 1999 AND FOR 1999 AS A WHOLE the final analysis, international In climate in 1998 made little impact on economic trends in the European Union, where excellent growth rates were maintained, driven principally by internal factors. the deteriorating By contrast, the less favourable export prospects clouded by events on the international scene could have a greater impact on economic growth in the Union in 1999 despite the solid foundations and, hence, industrial activity. The first symptoms of infection as the crisis in Asia spread rapidly to other regions were, however, already seen in the Union in 1998, bringing a loss of confidence on the part of industry as it ran into its first problems with exports, despite its very high capacity utilisation rates. Against this, according to the latest economic surveys, consumer confidence does not yet seem to have been affected significantly by these events. C 24/4 EN Official Journal of the European Communities 29. 1. 1999 increase in steel In recent meetings, the Union’s steel producers reported an unprecedented imports onto the Community market which triggered a general collapse in prices in the second half of 1998. Nor did they hide their concern about the prospects for 1999 with import and stock levels still high on the one hand and a slowdown in demand for steel forecast on the other. As regards the imports, producers wish to Commission vis a vis players outside restore a normal flow on the Community market. intervention by the Union firm At recent meetings steel dealers confirmed the adverse effects on prices of the massive import of steel onto the Community market in 1998 and expressed a degree of pessimism about in 1999 as the likely developments heavy oversupply from both internal and international sources will dictate the increase in steel prices. The surge in activity in most steel consuming industries (some of the principal of which are analysed more closely below) until spring 1998 showed clear signs of slowing down, particularly in the second half of the year. After the first half of 1998 performance in the motor industry and in mechanical and electrical engineering weakened somewhat although a slow improvement was seen in the building industry thoughout the year. In the first half of 1999 activity in the steel using industries is likely to be slower than the fast pace in the same half of 1998 but could then pick up to produce results for the whole year comparable to or slightly below the previous year. were supplied by the national representatives of the sectors concerned, but since their opinions do not always agree with the trends identified, these figures should be treated with caution. 2. 2. 1. Primary processing flourished with Up until the first half of 1998 primary processing as a whole in production and sales on both the Community and the international market allowing optimum capacity utiliÜ sation and, consequently, bigger profit margins. improvements tangible From the start of the second half of 1998, however, the bright economic climate clouded rapidly as activity in certain steel using sectors slowed down and imports settled at a very high level while export opportunities contracted international market destabilised by substantial oversupply. sharply on an In some branches of the industry, such as steel tube manufacture, the change of climate was more abrupt than in others. By contrast, in the branches connected primarily with some weakening of demand the situation can still be regarded as good enough, leaving aside the marked downward price trend. industry, despite the motor Continuation of these trends in 1999 with stock levels in the recent boom presages a marked higher than deterioration in the current situation, particularly in steel tube manufacture. Accordingly, demand for steel should suffer a more marked fall in the first half of 1999 and then level off at satisfactory levels in the second half. A. Steel tubes the Community market Despite the steady contraction expected, steel imports onto should, nevertheless, remain high, while exports from the Community industry are expected to stabilise at 1998 levels. Such a scenario need not be considered dramatic if all the developments outlined are accompanied by at least a gradual increase in prices, which is needed to guarantee the viability of the Community steel industry. Tables 2 and 2a in the Annexes show indicators of activity in the main steel consuming industries for the first half of 1999 and for the year as a whole. The data After developing very favourably in 1997 and into the first half of 1998, the steel tube market in the Union deteriorated sharply towards the end of 1998, after a short slowdown. Both sales and prices have been contracting constantly since the summer to the extent that the outstanding results of the first half of 1998 will probably be wiped out by the underperformance towards the end of the year. These far reaching changes on the Community tube market are both the direct and indirect consequence of the crisis in SouthÜEast Asia which has brought in its wake an increase in imports and a parallel very sharp reduction in prices for most products. 29. 1. 1999 EN Official Journal of the European Communities C 24/5 For steel tubes as a whole, however, the 1998 results will be comparable to 1997, which indicates a contraction of around 10Ø% over the second half of the year. In the seamless tubes sector, the turn tide in the second half of 1998 will mean that the best that can be achieved will be to equal the 1997 results. However, the collapse in demand from the oil and nuclear industries combined with the lack of any new pipeline laying schemes have exacerbated pessimism in the trade about the short term prospects and instilled a wait and see attitude amongst dealers. With the exception of the motor industry, which is still on the right track, no hope remains of any improvement in market conditions for these products in 1999, which could see production of seamles tubes fall by around 20Ø% given the extremely high import levels on the one hand and the loss of export markets on the other, stemming from the collapse in the oil industry and the crisis in Asia. In the case of small welded tubes (not more than 406,4Ømm in diameter), the weakening demand over the second half of 1998 will make it impossible to maintain 1997 sales levels, taking account of the modest growth in the first half of the year. With the downturn in demand confirmed for 1999, total deliveries of small welded tubes for the year as a whole will be down by between 5Ø% and 10Ø% due to low the demand and exports but also, above all, considerable increase in imports, particularly of gas pipes and hollow sections. to The market in large welded tubes (over 406,4Ømm in diameter) also felt the repercussions of the deterioration in international trade in the second half of 1998, leaving sales for the year as a whole slightly above the figures recorded by the Community industry in 1997, buoyed by the healthy performance in the first half. By contrast, the fall in sales forecast in 1999 is likely to be extremely abrupt as the lack of new projects seriously depletes new orders in the Union. B. The wire drawing industry satisfactory In the first half of 1998 activity in the wire drawing industry was extremely the European Union, except in the United Kingdom, with sales up by 5Ø% to 6Ø% compared with the first six months of 1997. Despite the big increase in imports, prices for drawn wire held steady throughout this period, sustained by the motor and mechanical engineering industries. firm demand throughout from In the second half of 1998, the slowdown in internal demand and, above all, the marked contraction of exports dictated activity in the Community wire drawing industry, taking production and sales for the year as a whole to 2Ø% or 3Ø% higher than the previous year. The downward trend in volumes and prices observed in the second half of 1998 could gain strength slightly in the early months of 1999, compared with the high levels in the same period of 1998. On the whole, however, 1999 should bring a degree of stabilisation at around the previous year’s volumes, allowing steady improvement expected, particularly towards the end of the year. the for Closely associated with activity in the motor industry, the wire drawing industry recorded very healthy results in the first six months of 1998. Consequently, even the slight slowdown in demand in the second half of the year, reflecting different trends in the motor industry in the individual EU Member States, should spell no significant reduction in the results for the year as a whole, which the trade considers sufficiently good and, in any event, better than the previous year. However, the wire drawing industry in the Community will directly suffer the consequences of the weakening of carmakers’ activity in various countries in 1999, with the risk of a steady deterioration in the market conditions for its products and, consequently, sales 2Ø% to 4Ø% down on 1998. C. Cold rolling and forming Activity levels in the cold rolling industry were extremely good in 1998, although there were signs of a return to normal towards the end of the year. Overall, deliveries of cold rolled strip in 1998 were an estimated 10Ø% up on the previous year’s sales volumes. This trend was all the more remarkable in that it marked a significant improvement over the 1997 results, which themselves were excellent. Against all expectations, in 1998 even exports of coldÜ rose strip rolled significantly, despite international climate. an unpropitious nonÜCommunity countries to Imports into the European Union, particularly from Russia, also rose substantially to increase their share of the Community market. C 24/6 EN Official Journal of the European Communities 29. 1. 1999 After summer 1998 orders began to return to normal but this is not expected to have any consequences, since capacity utilisation rates industry remain excellent. in the cold rolling the expectations Generally, for 1999 are not very promising. Nevertheless the industry is hoping for total sales volumes slightly lower than in 1998. the downward price The one cause for concern in the industry at the moment is trend brought about by competition from imports and products obtained by slitting cold rolled sheet from the ECSC steel industry. This industry has been concentrating principally on structural improvements to allow greater diversification towards supplying the motor and mechanical engineering industries more in the future, rather than the building industry. In 1999 production and sales volumes in this industry are not expected to differ significantly from the previous year’s levels, despite some stockbuilding at the end of 1998. Price prospects, however, seem dimmer, primarily because of the downward trend for slit cold rolled strip. Because the Community’s wide cold formed products industry depends heavily on the building industry in general, it was unable to keep pace with the increases in sales the primary steelÜ processing industry in 1998. the other branches of in Instead, its results for the first half of 1998 were only slightly better in volume terms than those for the same period in 1997, primarily because the pattern of demand was more favourable for corrugated sheet than for sandwich panels. The very weak improvement in demand in the building industry brought no increase in consumption of wide sections in the second half of 1998, while the oversupply led to fiercer competition and, inevitably, lower prices inter alia due to the availability of alternative products. industry’s expectations for 1999 are not very The encouraging since on the one hand it seems difficult to curb the downward price trend as long as overcapacity persists while on the other hand the weak demand from the building industry holds out no hope of bigger orders for wide sections. Consequently, in 1999 sales by this industry will remain at the same volumes as in the two previous years. Activity in the long formed products industry remained relatively strong in 1998, with deliveries up by an estimated 5Ø% or 6Ø% compared with 1997. Although generally more vulnerable, this sector suffered no significant increase in imports in 1998 with the result that prices for its products held steady all year long. 2. 2. 2. Situation in the building industry Gradually the benefits of the strengthening economic recovery in the Union in 1997 and 1998 worked their way through to even the building industry, where they generated a modest increase in overall activity in 1998 after five consecutive years of deep recession. For the first time in years, virtually every country in the European Union, including Germany, could witness an upswing in overall activity in the building industry in 1999, with only Denmark still in difficulty in this sector. Nevertheless, the signs of recovery in the building industry are expected to remain within far narrower margins than in all the other branches of the Community economy, with estimated average growth of 1Ø% in 1998 and 0,9Ø% in 1999. reveals this changing context However, the subsectors depending on public funding will have to wait longer before they can record more substantial growth rates. For reason wider use of partnership arrangements between the public and private sectors is envisaged, even for funding small scale infrastructure projects. that this In the case of house building, recent trends have varied considerably from one Member State to another in the Union, depending on the improvements in employment conditions and the lowering of mortgage rates in each country. For example, 1998 will have brought a distinct increase in new housing starts in response to greater demand from the private sector in Sweden, Spain, Irland and Portugal, yet private sector demand will have generated growth of under 2Ø% in this subsector in the United Kingdom. In France, the improvement in the number of building permits has not been followed by a similar upturn in new starts. In Italy, the tax relief for renoÜ vation and maintenance schemes will have proved a disincentive to building new housing. And in Germany this activity as a whole will have remained in recession. Against this, the overcapacity in the sector is another risk factor which, in the long term, could undermine the stability of prices on the EU market which have been safe up until now. In 1999 the recession expected in this sector in the United Kingdom will decide the average result in the Union which could nevertheless show an increase in 29. 1. 1999 EN Official Journal of the European Communities C 24/7 volumes by an estimated 1Ø%, given the continuing very strong upturn in this subsector in Sweden and Portugal and the recovery in prospect in other countries. Boosted by the favourable economic climate in the Union, non residential construction will have benefited more from activity in the private sector than in the public sector in 1998, except in Italy, where there were big the good increases performances on the score Netherlands, Belgium and Ireland will have been offset by the negative results in Germany, while activity in France will have remained weak, despite gradually gaining pace in the course of the year. investment. However, in Italy, Spain, in public this improvement The prospects for 1999 remain generally promising, with in Germany and in sight even some companies’ revive expected non residential construction in France to make up for the sluggish investment by local autorities. requirements to help Accordingly, vehicle registrations in Spain grew by over 15Ø% in the first ten months of 1998, under the impact of the incentive schemes still in force, whereas in Italy registrations fell by 0,5Ø% over the same period, with sharp reductions over the last few months after similar schemes ended in July 1998. At the same time increases of between 12Ø% and 19Ø% were reported in other Member States, such as France, the Netherlands, Ireland and Finland, yet under 5Ø% in Germany and the United Kingdom. The Community car market should keep heading in the right direction in the very short term, probably setting an all time volume record in 1998, with total registrations up by around 4Ø% compared with 1997. To harness this highly favourable demand trend in the Union and taking account of the good export levels, automobile production in the Community should also set a new record in 1998 at well over 15 million vehicles. Even in the civil engineering subsector, trends varied widely from one Union country to another in 1998. the United Results remained negative Kingdom and Denmark, due to weak public investment, but growth in Italy, Spain and France, in particular, helped to hold these activities steady in the Community as a whole. in Germany, In 1999, depsite an estimated 4Ø% reduction in new vehicle registrations on the Community market due, primarily, to the ground expected to be lost on the Italian market, volumes should still attain the third highest score of all time behind 1998 and 1992. However, many more uncertainties persist about export trends for vehicles from the Community on a world market shaken by the crisis in Asia and by relocation. In 1999 civil engineering projects are expected to stabilise at 1998 levels in view of the lack of major infraÜ structure projects and the Member States’ difficulties with revitalising public spending in this area. 2. 3. OUTLOOK FOR IMPORTS AND EXPORTS OF STEEL PRODUCTS 2. 2. 3. The motor vehicle market Demand for motor vehicles in the Union has been picking up strongly since 1994 and continued its upward trend until 1997 with remarkable results pushing regisÜ trations of new vehicles up by an estimated average of 4,5Ø% per year over the entire period. Since the start of 1998 even bigger increases in vehicle registrations in the Union have been recorded every month, with the combined results for the first ten months of the year up by 6,5Ø%. 2. 3. 1. European Union external trade statistics for steel Some Member States are still somewhat late in forÜ warding their external trade statistics for steel, which means it is very difficult to estimate quantities or forecast trends. This is particularly unfortunate at the present time since there is a certain amount of disruption to international trade in steel but no way of ascertaining the full scale in time to take action. At the time of writing, the figures available for the European Union as a whole cover the first eight months of 1998 and show major changes in Community steel imports from and exports to third countries. However, the Community market is a mosaic of 15 countries, all obeying comparable economic rules but each with their own unique characteristics and with registration trends sometimes varying widely from one country to another. The figures show that the Community’s steel imports have risen substantially with an increase during the first half of 1998 of about 66Ø% compared with the first half of 1997. In terms of volume, that imports are equivalent C 24/8 EN Official Journal of the European Communities 29. 1. 1999 to about 95Ø% of the Community’s total steel imports in 1996. A more detailed analysis of the figures for this half of 1998 also shows a considerable increase in Community steel imports from Asia and, for some Member State markets such as Italy, the UK, Benelux, etc. , these were the major external source of supply. This leaves no doubt whatsoever as to the changes and the direct impact they are having on the Community market as a whole, where a sharp fall in prices has been quick to follow. During the period under review, Community steel exports, on the other hand, have fallen by about 17Ø% compared with the first half of 1997, confirming that the downward trend is gathering pace. The combined effects of a big rise in steel imports and a sharp fall in exports have seriously upset the Community steel market, which has always been in surplus in the past and, for the first time ever, showed a deficit for the first half of 1998. The progressive fall in demand over the year and the stockbuilding at all levels of the economic chain should nevertheless lead to a gradual decline in the rise in imports in the short term, especially since Community prices have now reached a critical level. Despite their foreseeable slowdown during the second half of 1998, imports are nevertheless expected to rise by about 50Ø% for the year as a whole and the continuing downward trend in exports should leave them down about 20Ø% over the year as a whole as compared with 1997. The first half of 1999 should see Community steel levels, though slightly imports stabilise at fairly high lower than in 1998, since the crisis that has blown up in various parts of the world is spilling over onto the Community economy, affecting the general economic climate in particular. Community exports are, however, expected to stabilise at the volumes seen during the first half of 1998. The year 1999 as a whole is likely to see steel imports onto the Community market shrink by about 20Ø%, while exports are set to stabilise. This scenario shows how critical the situation may become as a result of the disruption to the international steel trade, which started with the crisis in SouthÜEast Asia that has now spread to other countries. In this changing situation, the Commission can therefore only once again urge all operators on the Community steel market to act in a responsible manner given that there are fewer opportunities than in the past. This is to avoid any worsening of the present situation and to restore long term stability as soon as possible. the maximum of help to provide that its part, the Commision will ensure For the behaviour of all parties concerned keeps within the rules of international trade. It should be pointed out that the EU has commercial policy instruments which may be used, in accordance with the multilateral rules, to protect the Union against certain commercial practices which may further worsen the precarious situation of the Community steel market. 2. 3. 2. The world economy in 1999 The worsening crises in Asia and Russia and the risk of their speading to the whole of Latin America have to some extent affected the international economic climate and economic trends have been revised downwards across the board as a result. This situation is so serious that, according to the most recent estimates, world growth is set to increase by only 2,5Ø% in 1999 as against an estimate of some 4Ø% the year before. The deteriorating prospects for world economic growth in 1999 are the result of the obivous problems in stabiÜ lising the economies of Asia and Russia. These problems have been compounded by the upswing in Europe after several years of stagnation and by developments in the US economy, which slipping compared with the remarkable growth recorded during the last five years. signs of showing is Against this international economic backdrop, Europe is expected to be the major centre of growth, in particular the eleven countries of the euro zone, and should take over top position from the USA, whose economy is still expanding but is set to slow down. The Latin Amercian countries are faced with a growing trade deficit and should see business slow down, the Asian economies are likely the Russian economy looks like it will find it difficult to achieve stability. to pick up only gradually and In the world steel market, this economic outlook points to a very slight rise in 1999, with production probably stabilising at 1998 levels given the different rates of development in Europe and Asia, in particular now that new capacity has been brought into service in certain regions short of steel. in consumption 29. 1. 1999 EN Official Journal of the European Communities C 24/9 The international steel trade is nonetheless likely to be upset by the high levels of surplus supply looking for a market which, if protectionist measures are taken, could be directed towards other, more open markets. 2. 3. 2. 1. The United States The slowdown in the US economy, which was still limited in 1998, is likely to increase and to keep growth down to about 2Ø% in 1999, but with investment still remaining buoyant. The the US industry’s competitiveness is expected to boost exports and may in future help to reduce the country’s trade balance deficit, which rose to a record figure in 1998. improvement in The climate of confidence both in the industry and among consumers has gradually waned because of problems in the emerging countries and the expected slowing down in the economy. US steel consumption is therefore forecast to fall slightly in 1999 after six years of remarkable rises. US steel production, on the other hand, looks set to increase now that new capacity has been brought into service and this should help to reduce the country’s shortage of steel products. Steel imports onto the US market are expected to continue exerting strong pressure in 1999 despite the raft of trade protection measures introduced and/or planned with regard to some foreign supply. 2. 3. 2. 2. Economic situation in Japan The Japanese economy is expected to see a slight upturn in 1999 with growth of 0,5Ø% following the deep recession of 1998. The plan announced by the Japanese Government to relaunch the economy, which in particular based on recapitalising the banking sector and major tax reductions, should therefore help to reverse the country’s economic trends and to restore a healthy climate of confidence in the business world. In addition, Japanese exports to some Asian markets are likely to increase, while exports to the USA may see a sharp fall. is In the steel sector, domestic production could rise by 3Ø% to 5Ø%, following the sharp fall in 1998, to meet the needs of a parallel increase in domestic consumption and a slight rise in demand from the countries in its area of influence. Less Japanese steel is therefore expected to be seen on the US and Community markets. 2. 3. 2. 3. The economies of China and SouthÜEast Asia The economic recoveries in the crisis ridden countries of Asia will be gradual. The domestic industry, which has returned to excellent levels of competitiveness following wholesale devaluations, therefore looks posed to play a major part in the general economic upturn as a result of strong growth in exports. In the steel sector, some investment in new capacity had already been postponed and this capacity is now not expected to be brought into service before the end of 1999. Domestic steel production should therefore see a rise of only 1,5Ø% is expected to increase by around 2Ø%. The countries in this area will therefore continue to be short of steel, except South Korea, which has a sizeable steel industry and is in surplus. in 1999, while consumption is relatively well protected by China, which its size against any spillover from the crisis, appears to be withÜ standing the economic recession in Asia. The Chinese economy is still reaping the rewards of the government’s control and modernisation measures and the country’s economy is still developing soundly, with a growth rate of about 6Ø% in 1998, though this is expected to slow down in 1999. In 1999, investment is expected to increase in infraÜ structure and mechanical engineering in particular, but exports are likely to continue suffering in the face of further strong competition from the countries in the devalued currency zone. The trend seen with regard to investment should lead to a rise in demand for steel, but this is likely to be met by an equivalent increase in domestic production, leaving the country’s debit balance unchanged. 2. 3. 2. 4. The economies of the countries of Latin America The countries of Latin America should see overall growth of slightly below 3Ø% in 1998, but this is set to slow down in 1999. The Brazilian Government’s crisis measures to limit public spending and raise taxes are expected to boost growth in what is the most important economy in this area. Steel consumption is forecast to rise slightly in 1999, while the supply surplus in this region should be about 8 million tonnes since production is falling slightly. C 24/10 EN Official Journal of the European Communities 29. 1. 1999 2. 3. 2. 5. Situation and prospects in the central and eastern European countries and the Republics of the CIS Most of the central and eastern European countries (CEEC) are still on the upward slope of economic recovery which started in 1994. Growth rates differ from one country to another, but in overall terms the progress is most certainly positive. The local steel markets are all still enjoying favourable trends with regard to demand, often accompanied by parallel rises in domestic production, so there is virtually no change in the surplus of steel products for which a market must be found. The increase in steel consumption in this area is also pushing up Community exports of higher value steel products. The Community market is nevertheless still the main outlet for these countries’ surplus supply, which represents about 40Ø% of their production. During the last six months, for example, the prices of hot rolled sheet on the Community market have fallen by nearly 25Ø%. Only coated sheet has been able to limit the general downward trend in prices since there has in from been particular. strong demand the motor industry For long products, the price fall seen during the last six months is about 15Ø% for light long products (concrete reinforcing bars, wire rod and merchant bars) and 10Ø% for beams. Steel prices in the European Union have not yet reached the all time low seen at the beginning of 1993, but have very quickly dropped close to it, and the economic situation on the world market gives little hope of this trend being reversed in the months ahead. The only way of restoring a sustainable balance to the Community steel market would be to adjust supply to the new, lower demand on the world market. The incipient economic revival in Russia has suddenly come to a standstill following the stock exchange crisis, which led to a sharp depreciation of the rouble in 1998. in Russia, to which no quick The economic crisis solution is likely to be found, has further increased the steel surplus, which will strengthen the country’s position as the world’s major exporter. 2. 5. TRENDS BY PRODUCTS Flat products - HotÜrolled coil In 1999, even if production looks set to decline, there will be a further fall in steel consumption and so foreign markets will provide the only chance of survival for the steel industry, which is already in difficulties. 2. 4. PRICE TRENDS The fall in demand for steel, first of all in SouthÜEast Asia but then in other regions, has very quickly produced a glut on the world market and seriously disrupted interÜ national trade. On the world market, prices began falling during the first half of 1998. In less than a year, flat products have therefore long products between 15Ø% and 30Ø%. The prices of hot rolled coil and cold rolled sheet are currently the lowest for 10 years. lost about 25Ø% of their value and in the high imports and The market for hot rolled coil has deteriorated considerably in the wake of events in Asia. The massive rise level of Community production have produced a surplus on the Community market, causing prices to collapse and a gradual build up in particular of tubes. In addition, a wait and see attitude on the part of buyers has led during the second half of 1998 to quite a sharp fall in the number of orders placed with the Community industry. in merchant stocks, On the international coil market, given the serious disruption to the world market the current weakness of the dollar is helping to redirect a larger proportion of the surplus to the Community market, slowing down Community exports of coil. - ColdÜrolled sheet Thanks to their buoyant economies and their domestic price levels, North America and Europe have quickly the main destinations become the out of the ordinary, low cost exports. Given this situation and despite the satisfactory level of consumption, the balance between supply and demand on the Community steel market has been seriously upset over the last few months and this is having a disastrous impact on prices. for Although demand is holding up, there is also strong pressure on the prices of cold rolled sheet. The disruptive imports from certain third countries are still on the increase and the market situation for these products is therefore becoming increasingly difficult, especially since merchants and the steel service centres are awaiting developments and final users are holding back their orders. 29. 1. 1999 EN Official Journal of the European Communities C 24/11 - Coated sheet these products, the market is not expected to pick up for several months. in SouthÜEast Asia has reduced The crisis local consumption of all coated products. This has led to substantial flows from Asia to the North American and European markets. In the coated sheet sector, hot rolled galvanised sheet has been hardest hit since imports are rising at the very time when new production capacity is being brought into service. for sheet ElectroÜgalvanised industry, however, has been particularly vigorous for a long time and imports. Demand it therefore still high and prices are stable in this sector at the moment. less affected by the is much car the - Quarto plate For higher grade steels, the situation is less worrying since there is strong demand from users such as the engineering industry and the motor industry. Orders have nevertheless been falling for several weeks because of the stocks and slowdown in business on the part of some users. the high levels of - Concrete reinforcing bars In general terms, there has not been any significant fall in demand in the Community during 1998, but the drop in exports and the pressure of imports have nevertheless upset the European market in concret reinforcing bars. Although the rates for scrap and production costs have fallen a great deal, these products have become for Community producers. less profitable far Demand on the Community market is relatively satisÜ factory. The large welded tubes sector, building and engineering are still creating a high level of demand, despite serious doubts about future demand for these products. The situation is different for merchants, who have very big stocks in view of the massive imports from third countries. The pressure on the market from the glut is obviously pushing down prices and causing final users to hold back their orders in the hope of even lower prices. - Merchant bars following stable demand, rising consumption and Despite the little above normal stocks only production stoppage during the summer, the prices of merchant bars have come down towards the end of the year in line with the trend seen for other steel products. Even the higher grade steels are affected, in particular because of the weakness of the dollar and the fall in the rates for scrap. Long products - Heavy sections and beams Demand for beams on the European market picked up in 1998 and its expected to continue on this trend in the early part of 1999. Stocks started to fall in the first quarter of 1998 and the current situation is satisÜ factory. Despite this relatively healthy state of affairs, however, the gradual fall in exports and the rise in imports have reversed the price trend seen since the middle of the year. The possibility of the US market being closed as a result of anti dumping measures may aggravate the situation at the beginning of 1999. - Wire rod Demand for wire rod for welded mesh is stagnant due to the slack trade in the building industry. The production stoppages during the summer did not reduce stocks to the level hoped for. Indeed, the situation on the world market deteriorated during this period, leading to a drop in exports and a rise in imports. With the winter approaching, a period which generally does little to boost consumption of 2. 6. CRUDE STEEL BALANCE FOR THE FIRST HALF OF 1999 AND 1999 AS A WHOLE The Community economy has been seeing a strong upturn throughout 1997 and for a good part of 1998, holding its own in the face of the crises in Asia and Russia. However, the negative effects of the worsening interÜ national climate are expected to have a further impact on economic growth in the Community in 1999 and to cause industrial activity to gradually slow down given the poorer outlook for exports to most foreign markets. The negative impact of international events was already starting to make itself felt on the Community steel market at the beginning of 1998 in the form of a in increase tremendous exports and the collapse of prices. imports, a sizeable drop in Demand for steel was very strong up to the autumn of 1998, but has since been showing signs of slippage, this being expected to increase, in particular during the first half of 1999, as business in the steel using industries is set to slow down. C 24/12 EN Official Journal of the European Communities 29. 1. 1999 The Community steel market, which has become less attractive now that prices have collapsed, should come under less pressure from imports in 1999. However, the lower levels of exports compared with the past and the steel need production develops, with demand expected to stabilise during the year following a gradual quickening in the pace of business among the user industries. stocks will determine how to balance Given these trends as indicated in Table 1 (Crude steel supply and demand), real steel consumption during the first half of 1999 is expected to be 81 milion tonnes, 4Ø% down on the excellent figure for the corresponding period of 1998. With stocks forecast to fall to the level of demand, apparent consumption should be 79 million tonnes, a bigger fall compared with real consumption. Also, given that steel imports are expected to fall in a Community market which is much quieter than during the first half of 1998 and that a small rise is forecast for Community exports, equilibrium production should be around 80 million tonnes, a fall of 5,3Ø% compared with the record figure achieved during the first half of 1998. The gradual improvement that might take shape during the year suggests that, for 1999 as a whole, real steel consumption should stabilise at 159 million tonnes, the level seen a year earlier. However, in view of the need to rebalance stocks, in particular during the first half of 1999, apparent consumption is forecast to be 157 million tonnes, a decrease of 3,1Ø% on the excellent level of the previous year. Furthermore, the gradual fall in imports and the stabilisation expected for exports mean that is estimated at 157 million equilibrium production tonnes, down by 3,1Ø% compared with the record production seen in 1998. 3. RAW MATERIALS 3. 1. THE SCRAP MARKET The worsening of the precarious situation on the interÜ national steel market in 1998 is likely to have constantly therefore gradually for scrap and reduced demand brought down the price of this raw material for the steel industry. Even on the Community and US markets, the price of scrap has been falling unabated, in particular because the Community industries need to limit steel production to check the fall in the price of steel products. Furthermore, since steel stocks are fairly high at the moment and demand looks set to slow down in 1999, the demand for scrap should continue to fall at least during the first half of the year. There is therefore nothing to rule out a further slight fall in scrap prices, even though supply should quickly adapt to the market conditions, which may moderate any further fall and even guarantee stability during the year. 3. 2. IRON ORE The crisis in Asia is likely to have reversed the trends throughout 1998, even on the main steel markets, and demand for scarp could suffer as a result in the next few months. Negotiations for supplies of this raw material in 1999 will therefore be more complicated in view of the lower demand even from the Community and the US steel industries, which will need to adapt their production now that there international market. large glut on the is a The low demand from the Asian countries in general, the sufficiently satisfactory stocks in Japan and the diffiÜ culties affecting is expecting steel consumption to fall, suggest that demand for iron ore will fall in 1999 as compared with 1998 and hence that trade in this raw material will return to normal, with prices possibly falling slightly. the Community industry, which 3. 3. FERROÜALLOYS Despite the sustained demand for ferro alloys in the European Union this year, the sharper rise in supply over demand is upsetting the market. The prices of several products were already under pressure during the first half of 1998 and have fallen further towards the end of the year. For the first half of 1999, the trend in the ferro alloys market is for demand to be relatively weak compared with supply. However, a certain balance may be achieved if price movements help supply to adjust to the market changes. 3. 4. TIN, ZINC AND NICKEL During the first seven months of 1998, tin production icreased by about 10Ø% compared with the same period of 1997. Apparent consumption of this metal, however, rose only very slightly during this time. The forecasts are for demand to remain firm in Europe and North America, but this will not stop prices from falling slightly in view of the expected increase in exports from China. 29. 1. 1999 EN Official Journal of the European Communities C 24/13 After a slight rise put at 0,1Ø% to 7,76 million tonnes for 1998, world consumption of zinc could see a rise of 3Ø% in 1999, taking it to 7,99 million tonnes. On the Community market, zinc consumption is not expected to increase by more than about 2Ø% next year. World production of zinc, which looks set to rise by 2,8Ø% to 7,93 million tonnes in 1998, could see a rise of 2,1Ø% in 1999 to 8,09 million tonnes. Exports from the Far East in 1999 look likely to stabilise at a level similar to that seen in 1998. Zinc prices in 1998 have been on a downward trend. However, prices are likely to pick up in 1999 if, as expected, there is an increase in demand from certain third countries. For 1998 as a whole, the International Nickel Group is counting on a surplus on the nickel market which may exceed 11Ø000 tonnes. Production will remain stable, while consumption will fall at world level, except in the USA and the Community, where there will be sizeable increases. Despite intentions, supply is still in surplus, so nickel prices are very weak at the moment. The rates could nevertheless improve during the first half of 1999 if the market leaders actually reduce their production levels to achieve a better balance between the supply and demand for this raw material. 4. EMPLOYMENT For a number of years now, employment the Community steel industry has become more specialised. Technical changes along with reorganisation have therefore regularly led to the shedding of numerous jobs in the Community industry. in These trends are part of the plan to increase the overall competitiveness of this industry and mean that the workforce is continually faced with new demands and the need for continuous training. Again during the last few years, a number of public companies have been restructured, usually followed by privatisation to boost their competitiveness. Similarly, business groupings between certain private European producers have made it possible to exploit the benefits of the single market more fully, but have often led to internal restructuring in the end. The benefits of this process, which are making the steel sector buoyant once again, are beyond discussion. However, the Community steel industry must continue with international competiÜ tiveness, with the negative impact this will have on jobs. its efforts to increase its In the past, jobs have been shed by means of age related schemes, which have enabled restructuring to be handled more smoothly. However, the use of these schemes has had strange effects on the companies’ age pyramid, resulting in a loss of skills among the workforce. introduced special Some companies have schemes labour, providing part time working arrangements to retain the knowledge and skills of the older workers. therefore the surplus to mop up figure may reflect Net job losses in 1999 are estimated at around 11Ø000. This the difficulties which are expected in the market for flat products, though it shows improved compared with the that the situation has serious crisis years. The Commission will continue to apply its social policy to workers in the industry who are affected by restrucÜ turing or closure. Except selfÜ employment schemes, which may be cofinanced by the ESF, all other measures provided in bilateral agreements in aid for retraining under Article 56(2)(b) of the ECSC Treaty will be maintained until the Treaty expires on 23 July 2002. training and for The 11Ø000 job losses expected in 1999 do not, however, represent the number of workers who will be eligible for ECSC aid. There are various reasons for in particular the fact that some Member States have not signed up to these restructuring policy. this, For 1999, the funds in the ECSC’s budget for traditional aid for retraining in the coal and steel industries amount to EUR 75 million. C 24/14 EN Official Journal of the European Communities 29. 1. 1999 ANNEX TABLE 1 Crude steel supply and demand - EURÜ15Ø(˛) Outturn 1995 1996 1997 First half of 1998 (R1) Estimate Second half of 1998 (R2) (million tonnes) Forecast 1998 (R2) First half of 1999 1999 Apparent user consumptionØ(a) Change in merchant stocksØ(b) Apparent consumption Imports EURÜ15 Exports EURÜ15 Changes in producer stocks Production 142,6 139,5 149,8 84,5 74,5 159,0 81,0 159,0 + 3,0 145,6 16,5 21,6 + 5,0 155,7 å 4,0 135,5 12,2 27,9 å 4,0 147,2 + 1,0 150,8 14,3 23,9 å 1,0 159,4 + 1,0 + 2,0 85,5 11,5 10,5 0,0 84,5 76,5 10,5 8,5 + 3,0 77,5 + 3,0 162,0 22,0 19,0 +3,0 162,0 å 2,0 79,0 8,0 11,0 å 2,0 80,0 å 2,0 157,0 18,0 19,0 å 1,0 157,0 (˛) ÚConversion factor of finished products to crude steel: 1. 11. (R1) Figures revised on the basis of outturn. (R2) Partially revised. (a) This aggregate is close to actual consumption. It includes changes in consumer stocks and merchant stocks in all countries except Germany, France, the United Kingdom and Benelux. (b) Change in merchant stock in Germany, France, the UK and Benelux. TABLE 2 Indicators of activity - EURÜ12Ø(˛) (Not seasonally adjusted) Sector First half of 1999 (first half of 1998Ø= 100) First half of 1998 (first half of 1997Ø= 100) 1999 (1998Ø= 100) 1998 (1997Ø= 100) Manufacture of metal articles Mechanical engineering Electrical engineering Motor vehicles Other means of transport Building/civil engineering 103,9 103,5 104,9 104,0 104,7 103,1 108,7 108,5 108,3 112,4 106,9 101,8 103,6 103,3 104,9 102,2 105,1 103,0 106,1 106,6 105,6 108,2 107,2 101,8 (˛) 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. Source: Commission data. 29. 1. 1999 EN Official Journal of the European Communities C 24/15 TABLE 2a Trends in the steel consuming sectors in the main producer countriesØ(˛) (Activity indicatorsØ(ˇ)) Member State Germany France Italy United Kindom Spain Sector/Indicator I/1999 1999 I/1999 1999 I/1999 1999 I/1999 1999 I/1999 1999 Manufacture of metal articles 103,4 103,0 103,6 103,0 Mechanical engineering 103,1 102,0 102,8 102,0 Electrical engineering 103,7 103,0 105,5 104,5 Motor vehicles 103,5 102,0 101,8 102,0 Other means of transport 104,2 104,0 102,7 108,0 Building/civil engineering 101,4 101,0 101,0 101,0 - - - - - - - - - - - - - - - - - - - - - - - - 108,5 110,0 110,3 112,0 111,4 113,0 111,8 110,0 106,2 110,0 106,7 107,0 (˛) Source: National steel users’ associations. (ˇ) For each country: first column, activity indicator first half of 1999 (first half of 1998Ø= 100) second column, activity indicator 1999 (1998Ø= 100) TABLE 3 Changes in the numbers employed in the steel industry (including apprentices) Member State Number of employees (in ’000) (Reference month) (Most recent month)Ø(˛) Austria Belgium Denmark Germany Greece Spain France Finland Ireland Italy Luxembourg Netherlands Portugal Sweden United Kingdom EURÜ15Ø(ˇ) Source: Eurostat. 12,3 (July 1997) 20,7 (April 1997) 1,2 (July 1997) 12,2 (July 1998) 21,0 (April 1998) 1,2 (July 1998) 82,3 (August 1997) 80,1 (August 1998) 2,1 (July 1997) 23,2 (July 1997) 38,3 (June 1997) 7,2 (December 1996) 0,4 (December 1996) 36,6 (April 1997) 4,8 (June 1997) 12,1 (July 1997) 2,1 (June 1997) 14,4 (July 1997) 36,0 (May 1997) 2,0 (July 1998) 23,1 (July 1998) 38,4 (June 1998) 7,1 (December 1997) 0,4 (December 1997) 38,5 (April 1998) 4,2 (June 1998) 11,9 (July 1998) 1,9 (June 1998) 14,4 (July 1998) 33,9 (May 1998) 291,1 (1997) 290,3 (1998) (˛) Most recent figures available. (ˇ) As the reference period is not the same for all countries, this average is only indicative. Change (%) å 0,8 å 1,4 0,0 å 2,7 å 4,8 å 0,4 + 0,3 å 1,4 0,0 + 5,2 å 12,5 å 1,7 å 9,5 0,0 å 5,8 å 0,27