UNITECR 2015: Steel sector must adjust to “new normal” without subsidies

By Laura Syrett
Published: Wednesday, 30 September 2015

Lower demand conditions to stay as permanent overcapacity warning issued; more policy coherence needed in Europe.

Speaking in Vienna, Austria, at the 14th Unified International Technical Conference on Refractories (UNITECR) in September, Hans-Jurgen Kerkhoff, president of the German Steel Federation, said that the global steel market had entered a "new normal" of slower growth.Steel market adjustments under new lower growth conditions should be driven without subsidies or else run the risk of temporary overcapacity becoming permanent, a leading German steel industry figure has warned.

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The struggling steel industry was acknowledged at this year’s UNITECR meeting in Vienna, but industry leaders said that opportunities still exist for refractories.

It will take time for excess steel production capacity, which Kerkhoff said was only a temporary problem in Europe but a serious structural problem in China, the world’s largest steel producer, to be absorbed. He also warned that the industry could not rely on emerging economies to consume steel not required by mature markets.

"We can no longer speak about the BRICs as we did in the past," he said, pointing to decelerating economic growth in China and to concerning levels of weakness in Russia and Brazil.

"[We have learned that] high potential does not directly lead to high growth," Kerkhoff noted, citing problems such as a lack of government investment, poor infrastructure, corruption and geopolitical tensions as some of the factors that have undermined economic expansion in countries touted as the next growth leaders.

He added that even regions which were growing strongly, such as the Southeast Asian economies, do not hold much promise for propping up steel demand. In Southeast Asia particularly, Kerkhoff said the steel market was facing a backlash this year because of the steel inventory cycle, while the steel markets in South Korea and Japan will continue to grow at less than 1% per year.

The US market, which posted strong growth in 2014 largely as a result of demand from its energy sector in the wake of the fracking boom, had fallen back this year as a result of the low oil price and is "unlikely to recover soon", Kerkhoff said.

"Global steel demand and growth in world GDP has decoupled in recent years," Kerkhoff said. He explained that future developments and policy measures, such as China’s transition to a market economy and reforms in European Union (EU) steel markets, could help the global steel industry to recuperate. He stressed, however, that these adaptations must be allowed to take place in step with market forces, rather than by prolonging the process through subsidies.

Kerkhoff also called for greater coherence between EU and national policies in areas such as steel recycling and said that innovation and technical developments were indispensable for ensuring the future sustainability of the steel industry in Europe.