Peak European Steel Output Never Again; Demand Subdued -Voestalpine CEO
Resource from: Wall Street Journal Likes:119
Jun 07,2013
European steel production will never again hit the pre-financial crisis peak level of 2007 due to shrinking European steel demand, particularly in the construction and automotive sectors, said the CEO of Austrian specialty steelmaker Voestalpine.
"In my opinion, never again," Wolfgang Eder told journalists in a briefing Wednesday. It's "impossible to go back to" the 2007 domestic production level of 210 million tons, he said. EU crude steel production hit a record high that year.
Output subsequently fell to nearly 170 million tons in 2012 following the onset of the financial crisis of 2008-09, which took its toll on the regional economy and steel demand.
Dr Eder, who is also the president of the European steel federation or Eurofer, said that the European building and construction activity will never return to its pre-crisis levels because the European Union's member-states are unable to ramp up spending on infrastructure projects. Many EU member-states are still struggling to cutback spending and reduce their debt amid anemic economic growth prospects.
"Public infrastructure spending over the next 10 years won't go back to pre-crisis levels," Dr. Eder noted. Construction is Europe's largest steel consuming sector, accounting for 35% of total EU steel consumption.
Dr. Eder also said that he expects European car production to drop by a third to 11 million to 12 million cars in three to four years, compared with 17 million cars produced in 2011.
"European car production will never go back to the levels [seen before]," because car producers are moving their operations to emerging markets where car demand is more robust than Europe, Dr. Eder said. The auto industry is the EU's second-largest steel consuming sector, accounting for 18% of total EU steel consumption in 2012.
Dr. Eder estimates that about 40 million tons to 50 million tons of EU steel production capacity needs to be permanently removed in order to restore the industry to healthy and sustainable profit margins. The industry is currently operating at 75% capacity utilization, he added.
If the steel industry is able to reduce its crude steel production capacity to 160 million tons to 170 million tons "I think that would be a positive step," he said.
Dr Eder, however, noted that the EU still faces stiff competition from steel imports. Countries such as Russia, which recently joined the World Trade Organization, is able to produce steel at a lower cost due to more abundant raw materials closer to home and less stringent environmental rules.
Technological advances in the production of high strength steel also means that less steel is used for certain applications, Dr. Eder noted.
Voestalpine derived two thirds of its revenues last fiscal year from high technology, specialty steel products and about a third from steel production.
Eurofer expects EU real steel demand to shrink 3.1% this year before rising 1.2% in 2014.
(Wall Street Journal)
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