Europe’s steel industry has had a rollercoaster ride over the past two years, with the economic crisis hitting two major users of steel: the construction and automotive industries.
Since then, the steel industries across Europe have taken different paths, depending in large part on how their home markets have fared and how prepared the steel industry in each country has been to create and capitalize on export opportunities.
For instance, after its poor performance in 2009 – with production shrinking by 26% – the Austrian steel industry made a remarkable recovery in 2010 with production rising 22% year-on-year by taking advantage of rising German demand.
Slovakia’s steel sector has also pulled itself out of the dire straits of the economic downturn, and is now profiting from increased foreign demand, especially from the European automotive sector, as well as from its own domestic motor industry. Unlikely as it may sound, per capita, Slovakia is the world’s leading car maker, with major production plants for VW, Kia, and Peugeot – Citroën. After a somewhat rocky ride over recent years, the outlook is positive for car production in Slovakia: in January this year, VW, Kia, and Peugeot – Citroën’s Slovakian car plants recorded a combined 50.9% year-on-year increase in production.
In contrast, the growth of Spain’s steel exports, so vital to compensate for poor domestic demand, still needs time to become firmly established. In the meantime, many of those steel companies, over-reliant on Spain’s declining construction industry, are falling by the wayside. As the elements necessary to revive domestic demand – not least, consumer confidence and an easing of credit – are still not visible on the medium term horizon, Spain’s steel industry will become increasingly export dependent.
But, as Italy is discovering, even focusing on export markets for steel is not a guarantee of success, as its export opportunities are limited since existing demand is already being met by suppliers from other markets. As in Spain, construction activity in Italy is stagnant (according to the Italian National Institute of Statistics (ISTAT), construction output decreased 3.4% quarter-on-quarter between November 2010 and January 2011) and further government stimulus to encourage more activity is unlikely this year. In fact, the government has recently announced cuts in its funding of solar energy development: a further blow to steel producers.
Slovakia’s steel sector has also pulled itself out of the dire straits of the economic downturn, and is now profiting from increased foreign demand, especially from the European automotive sector, as well as from its own domestic motor industry
Overcapacity in the international market for steel has repercussions well beyond EU boundaries, too. For example, as the Chinese government takes steps to cool down its economy, overcapacity and huge stockpiles of steel are likely to become a real problem there.
Limited demand and overcapacity aren’t the only challenges facing the steel industry. The price of commodities vital to the industry, such as iron ore and coal, is rising. While those steel producers who have maintained healthy demand for their products, like those in Austria, can pass the additional cost on to their customers, that may prove more of a problem for their counterparts in Spain and Italy.