ANDRITZ annual report 2012 - ANDRITZ Vertical volute pumps

50
as tough
Business
as steel
Christoph Lindner is Managing Director of
Consultic. The company is a member
of PSYMA Group AG, a holding
company comprising 16 international
firms researching various
industries. He is an expert on
the global steel market and
has also prepared studies for
ANDRITZ. In his analysis,
Christoph Lindner explains the
underlying reasons for the
current turbulence
on the steel market
and ventures a
glance into the
future.
Driven by the extremely high demand
for steel in China, global steel production
increased by more than
50% between 2000 and 2008. It
then fell by 8% in 2009 compared
to 2008 as a result of the economic
and financial crises. Nevertheless,
China recorded a sharp rise in steel production (+14%)
even in this economically difficult year.
The steel industry has not really recovered since then.
In 2012, global steel production did rise again, but
the price for most steel grades remained low. Consequently,
most international steel producers
again faced a major financial struggle, and
many recorded losses.
There is a variety of reasons why the strong increases
of the previous years came to an end and why current
forecasts are pessimistic. For example, falling demand
for steel in the European Union in the first half of 2012
(down by 9% on the same period in the previous year)
can partly be explained by the debt crisis. Important
customers, such as car manufacturers or
those from the construction sector, are struggling
in the face of the uncertain state of the
economy and are therefore holding back on
placing orders. The demand for long steel products,
which are mainly used in construction, as well as the
demand for flat steel, which is important in car and
machine construction, were still under pressure until
the end of 2012. Alongside the accompanying low level
of capacity utilization, steelmakers are still struggling
with fluctuating prices for raw materials and in some
cases harsh environmental and emissions standards.
The times when the steel industry was able
to rely on high growth powered by the driving
force that was China are now over. In 2012, it
became apparent just how dependent the steel industry
is on China. Economic growth in China has now
fallen to its lowest level since the global financial crisis
of 2008/2009, and this is being felt worldwide. However,
despite weakening global and local demand,
China, as the world’s most important steel producer, is
not cutting back on production. This has resulted in a
surplus production of 200 million tons of steel a year.
This overcapacity is leading to very low profit margins
for Chinese steelworks, as well as a fierce price competition.
The possibility of reducing overcapacities by
closing plants is not being considered, or at least only
to a marginal extent, out of fear of unrest among workers
and the wider population. Instead, the building of
new steelworks is being planned. Resolving the problem
is therefore being postponed to the near future.
China is seeking to export its surplus steel at low prices,
mostly to its neighbors.
This picture of the steel market is also, to some extent,
applicable to the high-grade steel market, which only
accounts for around 2% of the overall market. Extremely
high growth rates are a thing of the past. Consider-