Forward looking indicators signal continued strength in the manufacturing sector in 2011. While exports will continue to be supportive to growth, domestic demand in the EU is expected to improve. The outlook for corporate investment is positive overall; the expected improvement of the business climate and capacity utilization should unleash companies’ pent up demand. Meanwhile, public spending cuts and tighter monetary conditions will act as a drag on construction activity.
Since mid 2010, strengthening real consumption has replaced re stocking as the key impulse for market growth in the EU. This trend will continue during 2011, resulting in real and apparent consumption becoming more aligned; real steel consumption is forecast to increase by approximately 4% and apparent consumption by 5% in 2011. The outlook for the flat products market will continue to be more robust than for long products due to continued weakness in construction demand. Despite improving business conditions, steel buyers will not easily change their cautious purchasing behavior. This implies that 2011 starts with relatively low stocks in the distribution chain and at end users.
The market therefore is on the right track. Nevertheless, the industry faces significant challenges to its medium term competitiveness coming from trade, raw materials issues and climate policy: Worldwide excess steel capacity driven by the huge overcapacity in China and protectionist measures adopted in all major steel regions outside Europe pose a significant risk of diversion of trade flows to the EU market. Timely and effective trade action by the EU will be necessary to avoid irreparable damage to the steel industry and its workforce.
The move from long term contract pricing to quarterly pricing forced through by the big three iron ore suppliers (Vale, BHP Billiton, Rio Tinto) places those companies with exposure to the seaborne iron ore market at a marked cost disadvantage and has significantly increased price volatility of raw materials. Despite the failure of the proposed joint venture of BHP and Rio Tinto in Australia, the level of concentration in the iron ore market remains excessive.
The European energy, climate and environment policies will remain high on EUROFER’s agenda throughout 2011. Europe has still to learn that industry is the basis of European prosperity and sustainable development and not a threat to it. As expected, Cancún did not bring any comprehensive agreement on cuts in global greenhouse gas emissions or any level playing field for globally traded carbon intensive goods such as steel. The threat persists that an agreement on the lowest possible denominator in Durban in December 2011 will seduce European politicians to push the EU to a unilateral move beyond the current 20% target by 2020, while other countries have to reduce little or nothing at all and global emissions continue to rise steadily.
(Source: www.steelguru.com)