Information from the Commission - Forward programme for steel for the second half of 1998 and for 1998 as a whole
C 233/2 EN Official Journal of the European Communities 25. 7. 98 FORWARD PROGRAMME FOR STEEL FOR THE SECOND HALF OF 1998 AND FOR 1998 AS A WHOLE (98/C 233/02) (Text with EEA relevance) INTRODUCTION 1. ECONOMIC SITUATION IN THE EUROPEAN UNION The strength of the economic recovery in the European Union since 1997 has gradually pushed optimism in industry and among consumers to new heights. Economic growth in the Community now seems to be led more by internal factors, which have been gathering momentum and compensating in export activity - a direct or indirect consequence of the crisis in Asia, with its as yet untold adverse effects. the downturn for The spring 1998 forecasts confirm the strength of the recovery, despite a international climate less clement clouded by the crisis in Asia. The prospects for sustaining this recovery remain good, with domestic demand gradually taking over from exports as the driving force for growth. Economic growth in the EU, revised to 2,7Ø% for 1997, proved slightly faster than forecast last autumn (2,6Ø%). Industrial activity picked up appreciably over this period in response to growing demand, particularly inside the Union. From the surveys conducted up until April 1998, most of the confidence indicators point to a degree of continuity in the improvement observed since midÜ1996 and have hardly been dimmed by events in Asia. The quickening pace of the economic recovery in the Union gave a great boost to the steel market, where conditions surely but steadily improved, in terms of both volumes and prices. Up until now the Community steel industry has benefited from the ensuing improvements in demand and prices. However, the attractive prices, combined with the need to find outlets for the surplus supply released onto the world market by events in Asia, have triggered a sizeable increase in steel imports onto the Community market, particularly start of 1998, while export the prospects have shrunk. since The Commission therefore repeats its recommendation to all concerned to exercise caution and adopt industrial and business strategies in tune with reality and the potential on the internal and international market. In particular, the crisis in Asia and its impact on trade, coupled with the dwindling sales prospects in regions short of steel, demand responsible behaviour on the part of operators to safeguard as long as possible the stability of the Community steel market, hard won at the expense of great sacrifices both in financial terms and jobs. Order books have filled up, despite a slight weakenig of export orders, and production prospects remain good. As a result, confidence in industry and among consumers returned to the heights attained before the short lived downturn in January 1998. Against the autumn 1997 forecast, GDP growth in the European Union in 1998 has therefore been revised downwards just slightly, by 0,2Ø%, to 2,8Ø%. The impact of the crisis in south east Asia should be partly offset by lower interest rates and falling prices for materials, both, to some extent, the result of events in that part of the world. foreign Exports from the Community rose by 9,3Ø% in 1997 and the balance of valuable contribution of some 0,4Ø% to growth in the EU. NeverÜ theless this net contribution to growth should fade as export growth is expected to slow to around 7Ø% in 1998, mainly in the wake of events in Asia. trade made a Although the prospects for the second half are not so bright, results in 1998 are still expected to be slightly better than in 1997. Growth in private consumption should rise from 2Ø% for the EU as a whole in 1997 to 2,6Ø% in both 1998 and 1999, boosted by lower savings ratio, modest the increases in real pay and greater job creation. 25. 7. 98 EN Official Journal of the European Communities C 233/3 Private investment has been revised upwards in most Member States, with a few exceptions. Consequently, the investment forecasts for the EU as a whole are virtually unchanged. Equipment investment growth is expected to rise from 4,4Ø in 1997 to 6,4Ø% in 1998 and 7,0Ø% in 1999. The downward revision of the growth forecast makes little difference to prospects on the labour market. Employment in the European Union grew by 0,4Ø% in 1997 with further increases of 0,8Ø% expected in 1998 and 1,1Ø% in 1999, representing around 3,4 million new jobs between 1997 and 1999. largely factors, to demographic Due in employment will not necessarily be matched by an equal fall in unemployment. Average unemployment in the EU fell from a peak of just under 11Ø% in 1996 to 10,7Ø% in 1997 and is expected to fall further to 10,2Ø% in 1998 and 9,8Ø% in 1999. rise the This pushed steel production in the Union in 1997 to a record 159,5 million tonnes, up 8Ø% on 1996 and even slightly above the latest optimistic forecast of 158 million tonnesØ(˛). for figures steel production The monthly the Community showed the pace picking up sharply once again from January to March 1998 giving a growth rate first quarter of almost 10Ø% once again compared with production in the corresponding quarter in 1997. the for in According to a rapid survey, steel production in April and May was only 2,3Ø% and 3,3Ø% higher than in April and May 1997 respectively, curbing the cumulative increase for the first four months of this year compared with the corresponding period in 1997. Consequently, to meet the still fast growing domestic demand and export commitments, steel production in the Union will very probably continue to develop favourably, albeit at a slower rate, to end the first half at around 84 million tonnes. The average inflation rate in the EU, measured by the private comsumption deflator, was down from 2,6Ø% in 1996 to 2,1Ø% in 1997 and should remain around 2Ø% in both 1998 and 1999. Compared with autumn 1997, the forecasts have been revised downwards by 0,3Ø% for 1998 and 0,1Ø% for 1999. However, the very significant increase in imports in the first half of the year and the weakening of demand forcast in the second half of the year should take steel production in the Community back slightly below levels in the second half of 1997 to end 1998 on 162 million tonnes, very close to the last forecastØ(˛) and up 1,6Ø% on production in 1997. The average public debt in the EU in 1997 proved lower than forecast, on 2,4Ø% of GDP, as a result of low interest rates and slightly faster growth whereas the deficit/GDP ration was still 6,1Ø% in 1993 and 4,2Ø% in 1996. The average deficit in the EU should keep falling to 1,9Ø% in 1998 and 1,6Ø% in 1999. 2. STEEL MARKET SITUATION AND OUTLOOK 2. 1. CRUDE STEEL PRODUCTION IN THE COMMUNITY steady, relatively long lived steel This production has brought with it more efficient and, in some cases, optimum use of capacity and thus made an increasing contribution the operating improving to results of steelmakers in the Community. increase in them the Commission urges undertakings However, to exercise caution when drawing up their production programmes and encourages their investment, research and innovation more to improving product quality, protecting jobs and the environment and keeping production costs under control, considering not only the risks inherent in steel trade trends on the Community and world markets, as a result of the crisis in south east Asia, but also the slowdown forecast in steel consumption in the second half of 1998. to gear The table 1, "Crude steel supply and demand’, gives figures and summarises recent trends in consumption, foreign trade, production and stocks of steel in the European Union and estimates the changes expected in the second half of 1998 and for 1998 as a whole. Crude steel production in the Community kept up high growth rates throughout 1997, speeding up at the end of the year to take production in December to 13Ø% up on the December 1996 figure, which itself had been high. (˛) OJ C 31, 29. 1. 1998. C 233/4 EN Official Journal of the European Communities 25. 7. 98 2. 2. OUTLOOK FOR THE SECOND HALF OF 1998 AND FOR 1998 AS A WHOLE However, in terms of volumes this combination of trends will not damage the 1998 results for the Community steel industry which will undoubtedly be better than the 1997 figures. The appreciably brighter general economic climate in the European Union, initiated by an excellent international situation and the stable dollar, has gradually restored confidence among the Community, while the greater momentum built up by international factors now seems set to counterbalance the curbing of exports. industry and consumers in In this changing climate, the renewed optimism instilled in the industry by the increased orders and continuing improvements in capacity utilisation looks likely to stay is settling and the climate of consumer confidence around the high reached at the end of 1997 according to the latest economic surveys. In recent meetings, although the Union’s steel producers considered conditions on the Community steel market extremely favourable, they nevertheless stressed that the growing supply from certain third countries could upset the balance and have adverse repercussions on price stability, all the more so because since early 1998 these imports have been concentrated on specific markets within the Union. At the latest meetings, steel dealers expressed greater reservations about market trends in the months ahead since demand outstrips supply in some branches, while in others abundant supplies, particularly from certain third countries, are putting heavy pressure on prices. Nevertheless the notable surge in activity in the steelÜ consuming industries (some of the principal ones are analysed more closely below) throughout 1997 and into the start of 1998 is further evidence of the strength of the economic recovery in the European Union. More specifically, there have been constant improvements in performance in the motor industry, growth rates have long been high in mechanical and electrical engineering and, somewhat more recently, the building industry in turn seems to be back on the right track. Tables 2 and 2(a) show indicators of activity in the main steel consuming industries for the second half of 1998 and for the year as a whole. The data 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 In 1997 all branches of primary processing will have benefited more steady improvement in the economic climate in the European Union, including the sectors where activity is tied closely to trends in the building industry. expected from than the Demand, and in many cases prices, on the Community market rose gradually throughout 1997 in all branches of this industry, which was also able to seize the ample opportunities for direct exports on the world market. In early 1998 the markets for the various primary processing products continued to exceed even the most optimistic is, however, perceptible in various branches of this industry, where constantly rising imports combined with stockbuilding presage general stabilisation at best in the months ahead. expectations. A slowdown In any event, considering the 1997 performances, the stabilisation forecast in various branches in the second half of 1998 would still represent a very good level of activity, sure to maintain current capacity utilisation rates which are far higher than they were in 1996. In the second half of 1998, however, the stage seems to be set for some slowdown of activity in individual sectors after the strong growth in 1997 and early 1998. This could bring a slight contraction of demand for steel. This weaker domestic demand could result in steel imports levelling off at levels, with further reductions in exports from the Community. the high 1997 The marked improvement in steel tube manufacture in 1997 produced a net increase in production of around 10Ø% for all types of tube combined, although the figure was slightly higher for seamless tubes (11,6Ø%) and slightly lower for small welded tubes (8,9Ø%). A. Steel tubes 25. 7. 98 EN Official Journal of the European Communities C 233/5 looks very strong, even though in 1996, the 1997 Coming after fairly poor results performance imports onto the Community market grew to 11,2Ø% above 1996 levels in the case of seamless tubes and 15,8Ø% for small welded tubes. Combined consumption of tubes of all types the European Union rose by only 2,1Ø% however. This was due to the collapse in consumption of large welded tubes, intended mainly for the export market (down by 48Ø%), since consumption of seamless tubes and of small welded tubes rose by 6,9Ø% and 9,5Ø% respectively. in Exports of tubes from the Community, particularly of large welded tubes which are traditionally high, rose again in 1997 by almost 34Ø% in volume terms, on top of the excellent results achieved in 1996. In 1998 a further pick up in activity is forecast in the seamless tubes sector in the first half of the year, led principally by export sales to the oil and gas industries. B. The wire drawing industry In 1997 activity in the wire drawing industry gradually caught up after a rather poor 1996, with acrossÜ the board increases both in demand, particularly from third countries, and in production. Sales of drawn products even exceeded the latest forecasts by 8Ø% in 1997, as export sales proved far higher than expected. From the orders already taken, production can be expected to rise by a further 3 to 4Ø% in the first half of 1998, one reason being strong exports. In the second half of 1998 activity in the Community wire drawing industry should weaken as a result of the forecast downturn in external demand which will probably not be fully offset by the revival expected in the building industry or by the sound general investment performance. Against this, the small increase in domestic consumption, due primarily to investment in the mechanical enginÜ imports, eering some of which have been rising very strongly since the start of 1998. industry, should be largely offset by the second half of to buoyant The general economic conditions point domestic demand the year. in However, exports are expected to fall, particularly on the OCTG market, even without cutbacks in the oil companies’ programmes. Despite the risks of knock on effects from the crisis in Asia, weldless tube production could settle at 1997 levels, which, all in all, were highly satisfactory. Imports, however, will continue to take around a quarter of the Community market in this field. The small welded tubes market should see a little growth in consumption during the first half of 1998 due to firmer demand from the motor and building industries. In the second half of the year, however, it cannot be ruled out that the marked upward trend in imports could hit production of small welded tubes, particularly if export sales level off. However, the slowdown expected in this branch in the second half of 1998 should not damage the results for the year, which should show a net levelling off or slight increase in consumption of drawn wire, compared with 1997 levels, sustained by the steady recovery in demand from strong demand from the motor industry, which is still heading in right direction. Even keeping up a pace comparable to 1997 in wire drawing can be considered highly satisfactory, to say the least. industry and continuing the building the After fairly poor results in 1996, activity in the general drawing industry gained pace in 1997, spurred by a very the sharp Community. from carmakers in demand increase in tangible Consequently, 1997 will have brought a recovery in this sector, with sales volumes unexpectedly up by at least 10Ø% to take them back to the very high 1995 figures. The first half of 1998 should push consumption of drawn products up further to an estimated 6Ø% above the figures for the corresponding half of 1997, as demand from the motor industry holds firm. large welded tubes The situation for is particularly healthy. Prospects are excellent, even in the medium term, given the orders taken already, most of them for the export market. The 1998 results for large welded tubes will therefore be better than the 1997 figures, in terms of both production and exports. However, a slight downturn in demand could follow in the course of the second half of 1998. Taking the year as a whole, in volume terms sales of drawn products will probably rise by a further 3Ø% or so compared with 1997, which itself was an excellent year. C 233/6 EN Official Journal of the European Communities 25. 7. 98 C. Cold rolling and forming In 1997 the cold rolling industry returned its best results for decades. Growth in this sector in 1997 unexpectedly far exceeded the 5Ø% forecast to end at around 15Ø% above the poor 1996 performance. The greatest progress was made in Germany, Italy and France, but highly positive trends were recorded in the United Kingdom and Spain too. principally to more sustained demand for formed sheet for roofing for industrial buildings, despite the stronger competition from alternative aluminium products more widely used to renovate asbestos cement structures. Given the excellent results in 1997, keeping activity in this branch in 1998 as a whole at a level comparable to the previous year must, however, be considered satisÜ factory, at least. In any event, the faster pace expected in the building in the Union could stimulate further demand for wide sections in the future. industry Demand for cold rolled strip was even firmer in the first few months of this year, to the extent that 80Ø% of production for the entire year is already accounted for by the orders taken in the first quarter. In the long products forming sector too, trends in 1997 were far better then forecast. Sales volumes picked up strongly in 1997 and largely made up for the 10Ø% drop suffered in 1996. industry and The growing demand from the motor makers of electrical and non electrical machinery combined with the heavy demand for exports have breathed fresh optimism into the cold rolling sector despite the competition from slit strips, particularly from imports onto the Community market. In the first part of 1998 demand continued to improve, although it has levelled off since the end of the first quarter. The forming industry depends heavily on trends in the building industry, in both renovation and new starts, and has been trying to diversify into other sectors heading in the right direction to find opportunities for lasting growth. Stocks of cold rolled strip held by producers and users in low. By contrast, a substantial the Community are build up of raw material reserves has been reported in the cold rolling industry to meet the need to cater for the highly promising demand trends. Nevertheless manufacturers of cold formed products seem fairly optimistic about prospects for the second half of 1998 and consider the levelling off of demand at the very high levels achieved in the second half of 1997 highly positive, given long formed that products are still negligible on the Community market. imports of Consequently, the situation in the cold rolling sector will remain excellent throughout the second half and for 1998 as a whole, with sales up by around 10Ø%, even compared with the remarkably good volumes in 1997. The wide products forming industry reaped the benefits of the brighter economic climate in 1997, despite the continuing weakness of activity in the building industry, which is still by far the leading user of such products. Last year consumption of wide sections, particularly of sandwich panels, grew strongly and, taken as a whole, even surpassed the 5Ø% estimate made at the end of 1997. In the first half of 1998 consumption of these products can still be expected to be 2 to 3Ø% up over the first half of 1997. However, the drying up of new orders for delivery more than three months ahead, particularly for in sales sandwich panels, suggests a small downturn volumes in the second half. As a result, for 1998 as a whole a in levelling off or, at best, small comsumption of wide sections can be expected, due increase The trade regards equalling the 1997 results, in volume and price terms, in 1998 as thoroughly acceptable, particularly in anticipation of a steady improvement in the building long sections. leading consumer of industry, the 2. 2. 2. Situation in the building industry in 1998 inflation remaining under control, the economic recovery has been gaining Although strength in every European Union country since 1997, with interest rates keeping low and employment prospects improving, the combined effect has not yet made any clear impact on any activity in the building industry in the European Union as a whole. in the building In 1997 the variation industry in the Community as a whole was scarcely higher than in 1996 in volume terms despite far more marked growth in this sector in various Member States. in production 25. 7. 98 EN Official Journal of the European Communities C 233/7 behind improvement Since the end of 1997 and the start of 1998, however, the benefits of the economic recovery in the Community are becoming more apparent in the building industry in the vast majority of Member States, albeit with wide lagging variations from one country to another and somewhat economic the conditions. For example, development prospects in the building industry in 1998 remain relatively bright in the the Netherlands, United Kingdom, Spain, Portugal, Sweden and Belgium in particular. In France the industry is gradually making up the ground lost in previous years but is no sign of improvement yet and activity in this sector remains very sluggish, despite public investment, particularly in the railways. in Germany there Italy, in Nevertheless activity in this sector will intensify once Member States have finished the clean up of their finances which has limited public investment and curbed the recovery in the building industry in particular so far. In the case of house building, the situation seems quite bright in the United Kingdom, fuelled by investments in private housing. In Spain and Italy, the trend is also on the up, thanks to renovation programmes, while in France there are also signs of recovery in the multiÜ storey housing sector. In Germany, by contrast, the tightening up of taxation, inter alia, by inheritance tax burden, coming after a marked contraction in new housing starts in the west of the country, will militate against the recovery expected in 1998. increasing the the for non residential construction, As investments planned will sustain the upward trend in this sector in the United Kingdom and Spain in 1998. In Italy, by contrast, there will be a slight recession in this activity, following the 10Ø% growth achieved in 1997 with the help of tax relief, whereas in France the increase in building permits granted will not be enough to avert a slight downturn in construction. And there will be an even greater recession in this industry in Germany, due to falling investment in the new L…nder and the large unoccupied stock. In the case of civil engineering projects, after five consecutive years of contraction, the tide has turned in Italy, primarily due to public investment in the south of the country. The situation is similar in Spain, after two consecutive years of declining activity. 2. 2. 3. The motor industry For years demand for motor vehicles in the European the Union has been picking up, as substantial in registrations of new vehicles which rose by a combined total of around 20Ø% between 1994 and 1997, compared with the 1993 figures. illustrated by increases incentives and other Buoyed by the economic recovery, greater consumer confidence, a less wait and see attitude on the part of households, internal factors, the motor vehicle market has made great strides, with regisÜ trations up 6,4Ø% in 1996 and again by 4,8Ø% in 1997, albeit with wide variations in some Member States as support schemes have been launched or have come to an end. these excellent results, Following the motor vehicle market in the Community has remained on the up since the start of 1998. However, the trend has been far more marked than in the past, with new registrations up by an average of 12,3Ø% in the first quarter, with spectacular increases the United Kingdom and Spain in particular. In April and May, the pace of new registrations slowed down slightly, giving a CommunityÜwide the first five months of 1998. increase of 8Ø% for Italy, France, in Germany, This performance is attributable to the combined effect of the internal factors mentioned, plus the launch of several new models on the market. However, the motor vehicle market in the Union should slow down tangibly in the months ahead, with registrations for the year as a whole likely to be around 2Ø% higher than in 1997. Throughout this period the Community motor vehicle industry has benefited greatly from the strong domestic demand and the excellent export opportunities. These have enabled it to step up production rates but not, however, to shorten delivery times for certain new models. This indicates intense activity throughout 1998 in this major steel using industry. 2. 3. OUTLOOK FOR IMPORTS AND EXPORTS OF STEEL PRODUCTS 2. 3. 1. European Union external trade statistics for steel The situation in this sector is gradually settling down in France, still showing signs of slight recession in Germany and could deteriorate further in the United Kingdom if the decision to construct the Channel Tunnel Rail Link is delayed any longer. in forwarding The delays by some Member States statistics on trade in steel between the European Union and third countries have been partly reduced, but much still needs to be done in this respect. C 233/8 EN Official Journal of the European Communities 25. 7. 98 At the time of writing, the data available for the European Union as a whole only fully covers 1997 and the first quarter of 1998. Estimates have most of therefore been made for a large proportion of the outstanding data for the first six months of 1998 and this may affect the accuracy of the forecast given that it is very unclear in particular whether certain trade flows will be affected by the Asian crisis. following the shift in some trade flows will adversely affect Community industry exports. Moreover, since the beginning of 1998, there has been a concentration, on the Italian market in particular, of substantial quantities of third countries, producing instability capable of spreading to other Community markets. from various steel figures for 1997 as a whole show The the Community’s steel imports increased overall by 17Ø%, though more substantial rises were seen imports of long products (up 21Ø%) and semi finished products (up 19Ø%). that in As for origins, the main increases were from the Central and Eastern European countries, the republics of the former USSR, and the former Yugoslavia, amounting in 1997 to a total of 9,6 million tonnes, about 67Ø% of the Community’s total steel imports, as against 7,3 million tonnes, or 60Ø% of imports, in 1996. Community steel exports, however, fell by 15Ø% in 1997 compared with the excellent levels seen in 1996 due to internal demand during the year, despite increasing attractive world prices. A more detailed analysis of the data for 1997 as a whole, however, shows that, taken together, Community steel exports to the Central and Eastern European countries, the CIS and the former Yugoslavia rose by 26Ø%, while exports to Asia fell by a good 31Ø%. Nevertheless, although the increase in Community steel exports to the countries of the first region is only about 400Ø000 tonnes, the drop in exports to the latter region is expected to have exceeded 2 million tonnes. The crisis in south east Asia should therefore in 1997 only have produced a fall in Community steel exports to this region since the Asian imports of steel countries fell by 21Ø%. from The impact on the Community market of the shift in the world steel trade should therefore have been quite modest in 1997. The trends outlined on the basis of the statistics available even for the first three months of 1998 point to a 62Ø% the Community market into rise compared with the same three months in 1997 and a further fall in Community exports. imports steel in The upward trend in demand and the steady rise in the level of Community prices attracted excess supply from certain third countries, pushing up imports, while the need to meet sustained internal demand and the changes in the rise of steel in principle see a The second half of 1998 should imports onto the slowing down Community market given is forecast to fall and that prices are expected to level off or even consolidate slightly. For 1998 as a whole, steel imports into the Community are likely to be significantly higher than in 1997. that domestic demand Steel exports from the Community, on the other hand, will continue to fall during the second half of 1998 because of the need to meet domestic demand and the keener world market competition. For 1998 as a whole, these exports will therefore decline in net terms, though remaining at very satisfactory levels. the European Union, inside and outside following Considering the expected growth in the international steel trade and the forecast decrease in opportunities both in into service of new the entry particular capacity in regions short of steel, the Commission would again urge all parties concerned to be cautious, especially in terms of industrial and commercial strategies, to ensure that the healthy state of the Community market, which has been achieved gradually and, let it be said, at the cost of great sacrifices in financial terms and jobs, can be maintained over time. for to use its part, is prepared, where The Commission, necessary, the existing commercial policy instruments in order to ensure that the fairly healthy state of the Community steel market is not adversely affected by the actions of certain exporters to the EU contrary to the rules of international trade. 2. 3. 2. The world economy in 1998 After peaking between the latter part of 1997 and the early part of 1998, the word economy looks set to slow down gradually in the wake of the Asian crisis and the slower growth in the USA, though the general upturn in Europe partly makes up for this. The Community will therefore provide the main thrust international behind world growth, even the if 25. 7. 98 EN Official Journal of the European Communities C 233/9 environment is not as conducive as in 1996/97. The USA, however, under growing direct and indirect pressure from the Asian crisis, should see its economic cycle slow down further, even if the crisis to some extent helps curb inflation. Given the changes needed in various Asian countries which are in recession, Asia is likely to see a considerable fall in its economic activity, despite the stability factor provided by the Chinese economy and very slight growth in Japan. In the world steel market, both demand and production are expected to be slightly lower than in 1997. Much bigger changes are, however, expected in trade between one geographical region and another due to the shift in some trade flows following the Asian crisis and the bringing into operation of new capacity, in particular in regions short of steel. 2. 3. 2. 1. The United States of America The US economy should see a gradual fall in growth and, for 1998, its growth rate is expected to be 2,5Ø% as against 3,8Ø% in 1997. However, investment, vehicle production and building in general will remain strong and continue to play an important part in the growth expected this year. Steel comsumption therefore looks set to rise, though the forecast increase in production, in particular now that new capacity has been brought into service, should reduce the need for imports of steel products. There is also some likelihood that the strength of the dollar, which is having a considerable impact on surplus international supply seeking new outlets following the events in Asia, will put further pressure on the USA’s trade deficit with some countries at the expense of Community steel exports to that market. 2. 3. 2. 2. Economic situation in Japan The Japanese economy is expected to see relatively low growth of between 0,5 and 1Ø% again in 1998, which is likely to further increase its trade surplus. There is a clear loss of confidence over the country’s in broadly export driven economic prospects, except industries, since there are still no signs of an upturn in investment and domestic consumption. In the steel sector, the weakness of domestic demand and the reduced sales opportunities in the Asian region could, despite the fall in steel production, undoubtedly increase the Japanese steel on the world market. 2. 3. 2. 3. The economies of China and south east Asia Growth rates in south east Asia should be considerably lower in 1998, with more or less marked variations from one country to another. Painful but necessary changes are being made to cope with the crisis. In the steel sector, there should be a considerable fall in consumption in this year and a very production. On the trade front, however, imports are likely to fall considerably. slight rise to control and modernisation by Responding the government, the Chinese economy is still going through a buoyant phase, even though the stability of the yuan is uncertain. Its growth of about 9Ø% in 1997 looks likely to fall slightly in 1998 to 8Ø%, the mainstays still being investment capital goods. Steel consumption in China is expected to rise again this year, along with production, so the country’s steel shortage will change very little. in building and 2. 3. 2. 4. The economies of the countries of Latin America the economies of Latin America are still All of developing soundly, even though the Asian crisis should cause exports to fall in one country or another. The average growth of the countries in this region in 1998 will nevertheless be in the order of 3 to 4Ø%. Steel consumption in these countries should rise by 3Ø% in 1993 to about 28 million tonnes. The events in Asia should lead to a decrease in steel exports from the Latin American countries, while imports should increase sharply, reducing the trade surplus of all the countries in this region this year to about 8 million tonnes, 5Ø% down on 1997. C 233/10 EN Official Journal of the European Communities 25. 7. 98 2. 3. 2. 5. Situation and prospects in the Central and Eastern European countries and the republics of the CIS the Central and Eastern The economic climate of European countries is clearly improving considerably and the upturn which began in 1994 has, in terms of growth, constantly boosted GNP since 1996. market, even though it has been possible to repeat the first quarter’s prices and in some cases even increase them for deliveries during the second quarter. The announced arrival of a more abundant supply at low prices as a direct and/or indirect result of the events in Asia could well reverse the trend in the prices of flat products in the months ahead. For steel, the shrinkage in the local markets, given the broad surplus in steel production, has made it necessary to look for markets abroad. In the second half of 1998, even the forecast increase in domestic consumption will not be enough to absorb the growth in production, and the loss of one or other foreign market may therefore lead to a larger proportion of the surplus steel supply of the Central and Eastern European countries being diverted to the Community. The economic situation in Russia has been slowly improving since the introduction of the reforms and the country’s growth is set to increase further in 1998, even if the rate is not likely to exceed 1Ø%. The consumption of long products is increasing in the European Union together with the rise in investment. This encouraging domestic situation does not, however, make up for the losses caused by the fall in export opportunities. As with flat products, there is still some pressure on prices, especially since scrap rates are already falling. The slowdown in exports and the rising trend of imports and stocks are therefore not factors which will help prices to stabilise firmly in this sector. Furthermore, some price decreases have already been seen for concrete reinforcing bars and wire rod for wire mesh, while the prices of other products are merely stabilising at the moment. 2. 5. TRENDS BY PRODUCT is industry, steel production For the steel expected to rise in 1998, after falling in 1997, and domestic consumption should grow by about 2Ø%. in Russia Flat products - hot rolled coil For trade in steel, Russian exports seem likely to fall slightly in 1998 since the large quantities of semi finished products exported in 1997, in particular to the Asian countries, will be more difficult to place with other buyers. The economic situation in Ukraine still shows no signs of improving and, in 1997, GDP fell by 3Ø%. For steel, given the very low level of domestic demand and the poorer outlook for exports, production is forcast to fall in 1998. 2. 4. PRICE TRENDS last few Following the gradual rises seen since the months of 1996, the prices of flat products are now under a certain amount of pressure in most European Union countries. Although domestic demand has held up well, the signs are increasingly clear that any changes in the prices of these products will be rather sluggish during the second half of 1998. Although in imports from Asia can be discerned at the moment, except for the concentration referred to in the Italian market, the Community industry is still benefiting less from export opportunities than in the past. Furthermore, the imports will some undoubtedly have an adverse effect on the flat products significant rise little change low cost in Demand from the main consuming sectors is still satisÜ factory, stocks are at a normal level and deliveries are stabilising on an upward trend. However, orders seem to be falling slightly compared with the end of 1997 and the early part of 1998 due to significantly higher imports from third countries. This situation is probably the result of a shift in some trade flows to European markets, but it could put domestic price stability at risk if it worsens during the next few months. - cold rolled sheet Business in the main consuming sectors such as the motor industry and tube manufacture is very sustained and demand for steel remains at a very good level. Stocks are perceptibly rising, though without giving the slightest cause for concern at the moment. However, the sharp rise in imports, in particular to the Italian and Spanish markets, and the announcement of greater volumes on the entire Community market could push prices down during the second half of 1998. - coated sheet The situation for galvanised sheet has been exceptional for a number of months due to high demand from the 25. 7. 98 EN Official Journal of the European Communities C 233/11 motor industry and increasingly from the building sector. Despite new capacity recently having been put into operation and the very high levels of use of production tools, the market supply of these products is still inadÜ equate. and limited opportunities for export sales. The prices of concrete reinforcing bars are therefore falling again, even though the rates for scrap are also falling at the same time. Electrogalvanised sheet is in much the same situation as galvanised sheet, but the drop in exports to south east Asia and the forecast increase in imports could upset the prices of these products during the second half of 1998. - quarto plate These products are currently profiting from a very healthy situation on both the European market and the world market. Strong demand, especially from the large welded tubes sector, and the current stability of the dollar continue to allow for a measure of optimism as regards future changes in this field, at least until the end of the year. This sound situation could nevertheless to some extent be endangered by an increase in certain imports from third countries. Long products - heavy sections and beams Thanks to the good weather throughout the winter, demand for these products was very high until the first few months of the year. Nevertheless, merchant stocks are tending to build up and this, together with the constant rise in imports, could push down the prices of beams during the second half of the year. - wire rod in trade The traditional worldwide flows of low quality steel, such as wire for welded mesh, are changing in some ways, in particular as regards products from the Central and Eastern European countries and Turkey. These changes the Community industry and supply on the European market is currently in surplus, which is already depressing prices to some extent. For higher grade steel, the situation is far better thanks to sustained demand from the motor industry and the mechanical engineering industry and the demand for exports. indirectly affect - Concrete reinforcing bars The recently seen improvement in the balance on the European market between supply and demand for concrete reinforcing bars is currently impaired by the combination of a slowdown in demand, a rise in imports - Merchant bars Thanks to a lower level of supply at the beginning of the year, these products are in a stable, balanced situation as regards both stocks and prices. In general terms, the increase in investment in the European Union is still a in demand for positive factor for the expected rise merchant bars and prices during the second half of the year. 2. 6. CRUDE STEEL BALANCE FOR THE SECOND HALF OF 1998 AND 1998 AS A WHOLE Exports, still very sustained again in 1997 despite the events in Asia, have made a major contribution to the growth of the Community economy, which is set to benefit further still from better changes in various domestic factors. The strength of the economic upturn in the European Union, which has boosted business in the main steelÜ consuming Community consumption during the first half of 1998 again quite significantly and this has largely made up for the slump in export orders. industries, pushed up improvement The gradual in the conditions on the Community steel market since the end of 1996 has, however, increased imports very significantly, especially since the beginning of 1998, and this has to some extent led to stockpiling by some users in particular. Sectoral activities are forecast to stabilise to some extent during the second half of 1998, leading to a slight fall in steel consumption as compared with the excellent levels seen in the second half of 1997, so the performance for the year as a whole should be slightly down on the first half of 1998. period The trends outlined therefore suggest that, for the second half of 1998 (as indicated in tables), real steel consumption will be 73 million tonnes, 2Ø% down on the corresponding apparent in consumption should fall by about 0,6Ø% to 75 million tonnes. With increase significantly and steel exports to fall by about 11,8Ø%, equilibrium steel production is forecast to be 78 million tonnes, a fall of 2,5Ø% on the figure for the second half of 1997. imports also 1997, while expected to C 233/12 EN Official Journal of the European Communities 25. 7. 98 the second, real those expected during Given the changes seen during the first half of the year and steel consumption for 1998 as a whole is forecast to be 155 million tonnes and apparent consumption 158 million tonnes, increases of 3,5Ø% and 4,8Ø% respectively on the 1997 levels. Community imports should rise again by fall again by 12,1Ø%. Steel 25,9Ø% and exports production therefore estimated at 162 million tonnes, an increase of 1,6Ø% on 1997. the Union in is 3. RAW MATERIALS 3. 1. THE SCRAP MARKET by increasing the quality of pellets and the production capacity and improving the routing of mining products. 3. 3. FERROÜALLOYS The sustained demand for ferro alloys seen during the second half of 1997 in the European Union stabilised throughout the first half of 1998. However, a more pronounced increase in supply over demand is putting some pressure on prices, as has already been seen for ferro silicon and ferro silico manganese. For the second half of 1998, the market trend in ferroÜ alloys points to a relative balance between supply and demand and prices are therefore not expected to vary widely. The demand for scrap in Europe and the United States is still relatively firm, particularly because of the increase in electrical steel production. 3. 4. TIN, ZINC AND NICKEL Some unusual flows in the international trade in scrap, some with considerable quantities concentrated markets, have nevertheless gradually produced a temporary supply surplus, even in places where demand was very sustained. This is a direct or indirect result of the fall in demand for scrap from the Asian countries and has caused the price of scrap to fall in nearly all parts of the world. in During the next few months, the international scrap market is not expected to see any particular changes since the supply of this raw material adapts quickly to changes in demand. The trend in scrap prices is therefore not forecast to change in the very short term. 3. 2. IRON ORE The substantial rise in the world steel production and the greater trend towards the use of pellets underlie the record level of iron ore production in 1997. Compared with 1996, the volumes of commercial trade in this raw material have therefore risen substantially. The extent of this has been such that, for some time, the need to bring supply into line with demand has led to delivery delays, due especially to routing difficulties. During the first half of 1998, demand for iron ore was firm and prices rose slightly, even if a small fall is expected for the year as a whole due to the forecast fall in consumption in some Asian countries. In 1997, tin production rose slightly compared with 1996, while apparent consumption of this metal remained virtually unchanged during this period. The forecasts are for demand to remain strong for the rest of the year, despite the Asian crisis, but thanks to a healthy economic in Europe and North America. situation Since January, the price of this raw material for the steel industry has risen by about 12Ø% and, this year, tin will be one of the few metals which sees its price increase. For 1998, world consumption of zinc, which will be similar to the level in 1997, is forecast to rise very slightly by 0,6Ø% to around 7,8 million tonnes, while its performance on the Community market should be slightly better. World production of zinc could see a rise of 3,3Ø% in 1998. Nevertheless, following the record levels achieved in 1997, a big fall in exports from the Eastern countries, in particular China, should help to reduce the surplus supply on the Western market. Zinc prices, which have been somewhat volatile after peaking in August 1997, are note expected to vary to any great extent during the second half of 1998, and even a slight fall is not unlikely seeing that the supply on the market is forecast to rise due to the trend towards stock reduction. Nevertheless, given for market supplies, producers are continuing to try to adjust supply the growing needs The latest revised figures of the International Nickel Group point, for 1997, to an increase of 5,7Ø% in nickel in production and 7,2Ø% in consumption. The rise 25. 7. 98 EN Official Journal of the European Communities C 233/13 consumption is due mainly to the sharp increase in the production of stainless steel. The fall in consumption in Asia should be made up for by higher consumption in the USA and Europe and, up to the end of 1998, the forecast is therefore for supply and demand to be relatively balanced. Nickel prices will continue to fall slightly until the end of the year, even though exports from Russia are forecast to decrease. 4. EMPLOYMENT The steel industry is going through a sound period, thanks to the healthy economy, and the effects of this can also be seen on employment, where there have been fewer job cuts than in the past. A recent forecast puts net job losses at around 8Ø000 in 1998. This figure reflects the relative stability seen in 1997 and shows how much the market situation has improved compared with the crisis years of 1992 to 1996, when on average up to 26Ø000 workers a year lost their jobs throughout the Union. These cuts could nevertheless be higher still in Germany due to mergers and rationalisation, in Spain where the most recent restructuring plan is coming to an end and in the United Kingdom for a number of reasons. Company mergers and new technological applications could therefore lead to further adjustments to the steel industry workforce in the future, which will require new support schemes. In the past, workforce adjustments have been made by giving early retirement, which has enabled companies to make deep, swift cuts in staff. However, less use is now being made of such schemes. Over the years, early retirement, a relatively easy way of taking workers out of the labour market, has proved very costly. In addition, the companies’ age pyramid now no longer allows the workforce to be quickly reduced by retiring the oldest workers and so some Member States will be resorting more frequently to alternative schemes. Following France’s experience, some governments are therefore introducing new schemes such as "phased early retirement’ to enable companies to reduce the total number of working hours. This means the knowledge and skills of the older workers can be retained without having to dismiss younger workers who might not necessarily be able to find another job quickly at a time of high unemployment. that The Commission will continue to apply its social policy to workers in the industry who continue to be affected by restructuring or closures. Except for training and selfÜ employment schemes, which may be cofinanced by the in bilateral ESF, all other measures provided agreements on aid for retraining under Article 56(2)(b) of the ECSC Treaty will therefore be maintained until the Treaty expires in 2002. for For 1998, the funds in the ECSC’s budget for traditional aid for retraining in the coal and steel industries amount to ECU 70 million. C 233/14 EN Official Journal of the European Communities 25. 7. 98 Table 1 Crude steel supply and demandØ(˛) EURÜ15 Apparent user consumption (a) Change in merchant stocks (b) Apparent consumption Imports EURÜ15 Exports EURÜ15 Change in producer stocks + 5,0 Production 155,7 1995 1996 142,0 139,4 + 3,0 145,0 17,0 22,7 å 4,0 135,4 12,2 28,0 å 4,0 147,2 Outturn First half 1997 Second half 1997 (R1) 1997 (R1) Estimate First half 1998 (R2) (million tonnes) Forecast Second half 1998 1998 75,3 0,0 75,3 6,9 12,0 å 1,0 79,4 74,5 149,8 82,0 73,0 155,0 + 1,0 75,5 7,4 11,9 0,0 80,0 + 1,0 150,8 14,3 23,9 å 1,0 159,4 + 1,0 + 2,0 83,0 10,0 10,5 75,0 8,0 10,5 + 3,0 158,0 18,0 21,0 + 0,5 + 0,5 + 1,0 84,0 78,0 162,0 (˛) 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 stocks in Germany, France, the UK and Benelux. Table 2 Indicators of activity - EURÜ12Ø(˛) (not seasonally adjusted) Period Sector Manufacture of metal articles Mechanical engineering Electrical engineering Motor vehicles Other means of transport Building/civil engineering Second half 1998 (second half 1997Ø= 100) Second half 1997 (second half 1996Ø= 100) 1998 (1997Ø= 100) 1997 (1996Ø= 100) 104,8 104,1 103,8 104,0 107,7 101,2 105,7 106,6 107,1 108,4 111,7 99,6 103,8 105,9 104,7 105,1 106,3 100,8 104,6 105,1 105,7 106,8 111,9 100,1 (˛) 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. 25. 7. 98 EN Official Journal of the European Communities C 233/15 Table 2(a) Trends in the steel consuming sectors in the main producer countriesØ(˛) (Activity indicatorsØ(ˇ)) Member State Germany France Italy United Kingdom Spain Sector/indicator II/1998 1998 II/1998 1998 II/1998 1998 II/1998 1998 II/1998 1998 Manufacture of metal articles 103,0 104,0 102,8 104,3 Mechanical engineering 105,0 106,0 101,9 104,8 Electrical engineering 104,3 105,0 101,9 102,8 Motor vehicles 104,9 105,0 102,8 104,7 Other means of transport 101,0 101,0 109,1 109,1 Building/civil engineering 100,0 99,5 101,0 101,0 - - - - - - (˛) Source: National steel users’ associations. (ˇ) For each country: first column, activity indicator second half 1998 (second half 1997Ø= 100), second column, activity indicator 1998 (1997Ø= 100). - - - - - - - - - - - - - - - - - - - - - - - - 101,0 111,5 110,2 105,0 112,4 103,1 Table 3 Changes in the numbers employed in the steel industry (including apprentices) Number of employees (in ’000) (Reference month) (Most recent month)Ø(˛) 12,7 (December 1996) 22,6 (December 1996) 1,2 (December 1996) 82,8 (February 1997) 2,0 (December 1996) 23,0 (December 1996) 38,1 (January 1997) 7,3 (December 1996) 0,4 (December 1996) 12,5 (December 1997) 20,4 (December 1997) 1,2 (December 1997) 80,6 (February 1998) 2,1 (December 1997) 22,8 (December 1997) 38,5 (January 1998) 7,1 (December 1997) 0,4 (December 1997) 37,5 (December 1996) 37,8 (December 1997) 4,9 (January 1997) 12,2 (December 1996) 2,2 (December 1996) 13,6 (December 1996) 36,5 (December 1996) 4,3 (January 1998) 12,1 (December 1997) 2,0 (December 1997) 13,6 (December 1997) 35,2 (December 1997) 299,6 (December 1996) 291,1 (December 1997) Change (%) å 1,6 å 9,7 0,0 å 2,7 + 5,0 å 0,9 1,0 å 2,7 0,0 + 0,8 å 12,2 å 0,8 å 9,1 0,0 å 3,6 å 2,8 Member State Austria Belgium Denmark Germany Greece Spain France Finland Ireland Italy Luxembourg Netherlands Portugal Sweden United Kingdom EURÜ15Ø(ˇ) Source: Eurostat. (˛) Most recent figures available. (ˇ) As the reference period is not the same for all countries, this average is only indicative