Big drop in output of German crude steel

In the year 2008 the output of crude steel was down by 5.6% as compared to the year 2007. The institute for economic research in North Rhine-Westphalia (RWI) expect that steel output is going to fall by another 30 % this year and that it will increase by 4.2 % in 2010. Capacity utilization in steel plants is predicted to reach between 60% and 65%. The number of employees in the metallurgical industry is said to fall by 7,000 people this year and by another 3,500 next year. Global steel production is forecast to drop by between 15 and 20 % this year and is expected to continue falling slightly next year.

Crude steel output fell by 5.6% to 45.8 million tons last year. This development was in particular due to a drop in the last quarter of last year when crude steel output was down by 20% as compared to the same period in 2007. Exports by German steel plants were down by 30% at the end of 2008. Imports of rolled steel were also down, but to a smaller extent than exports, given that demand by the German construction industry for relatively low-quality imported rolled steel is quite high given that the construction industry has so far only relatively slightly been affected by the recession.

The macroeconomic conditions are very bad for the steel industry this year. A fast recovery is not in sight. Gross domestic product is going to fall by 4.3%, according to the RWI with exports dropping by 12.3 % and investment in machinery and equipment by 17 %. According to the RWI, both these factors are decisive for steel use which is expected to drop by on average 23% this year and continue falling slightly next year.

In view of these conditions, German crude steel output is expected to drop by about 30% this year with capacity utilization reaching about 60 %. Next year the German foreign trade might recuperate and investment increase again. Accordingly, steel production might increase by 4.2% and utilization capacity of German steel plants reach about 65%.

On a global scale the boom in the steel production industry which had started in the late nineties came to a sudden end in summer 2008. In the period between December 2008 and February 2009 monthly output was down by 20% as compared to the respective period the year before falling back to the level of the year 2003.

The only stabilizing effect on the steel industry came from China where output was slightly increasing again. In other industrialized countries steel production suffered big drops, for instance by 50% in the USA. Furthermore, prices for steel and those raw materials needed for its production decreased as well. Thus, prices for iron ore and scrap metal have fallen by about 25% since August 25%, and those for coal even by more than 60 %.

Prospects for this year and next year remain very unpromising. In 2009 global steel production is predicted to drop by between 15 and 20 %. Next year the situation might improve, but on a yearly average output is nevertheless expected to be slightly falling. Experience shows that steel production starts increasing only when the global economy grows by at least 2.5%.

The above forecast is based on the “steel report” contained in the latest economic report by the RWI which is available for free-of-charge download. GERMAN