Analysts Predict Record World Steel Output

After breaking through the 1-billion-metric-ton barrier in 2004, production is projected to rise by about 5percent in 2005 and 3.5 percent in 2006, according to the Organization for Economic Cooperation and Development.

Output last year came to 1.05 billion metric tons, up 8.7 percent from 2003. China was responsible for more than a quarter -- 26 percent -- of the 2004 total.

While steel prices are expected to edge still higher in the first half of 2005, "they will then stabilize and in some cases undergo a readjustment," said Franco Mannato, a steel economist at the OECD.

"We can't have an infinite increase in prices," he told AFP. "Steel after all is one of the most important base materials in the world and price increases have repercussions everywhere. We have to realize that at a certain moment steel producers ... will have to limit the increases."

Steel industry consumers will become increasingly reluctant to accept continued price hikes, he warned.

World Steel Dynamics (WSD), a US steel research group, has even spoken of a possible "strike" on the part of buyers, notably in Europe where they are suffering from the effects of a weaker dollar as well as higher steel prices.

"The steel industry has to be careful," added Mannato. "At a certain price level, substitute materials will be increasingly considered. We've seen it in the automobile sector where certain marques now use aluminum."

But Mannato added that talk of a buyers' strike was exaggerated. "Everyone needs steel," he said.

In addition Chinese imports, which have driven the price surge, declined 24 percent last year to around 30 million tonnes.

Mannato said the cut-back in Chinese steel imports should be maintained in 2005 and 2006 while exports, which may have doubled last year, will likely continue to grow.

Economists are meanwhile predicting that the currently fragmented global steel industry should see further consolidation in the years to come similar to movements that produced such giants as Arcelor in 2002 and Mittal in 2004.

At an OECD conference in Paris in early January, World Steel Dynamics produced a list of 45 potential takeover targets in the sector as well as 11 possible buyers. The list represents 60 percent of world steel output.

The 11 potential buyers are world leader Mittal Steel, the European-based Arcelor, Nippon Steel and JFE of Japan, POSCO of South Korea, BaoSteel of China, Nucor, US Steel and Commercial Metals of the United States, Severstal of Russia and the Brazilian-US-Canadian firm Gerdau.

Among the 45 targets are heavyweights such as Corus of Britain, ThyssenKrupp of Germany, Riva of Italy and Sumitomo Metals of Japan.

"This forecast of possible combinations, of course, is highly theoretical and speculative," the study said.

"Nevertheless, to some extent it probably portrays the merger machinations going through the minds of top steel company executives and the investment bankers, the world over."

WSD has predicted that Mittal will retain its first place position this year, turning out 105 million tonnes after absorbing Wuhan of China, Sail of India, Usinimas of Brazil, Evraz of Russia, Ukrainian Mill of Ukraine and California Steel of the United States.

Mittal, formed by the recent merger of Dutch steel groups Ispat International and LNM Holdings, said Friday it had signed a deal to take a 37 percent stake in one of China's leading steelmakers, Hunan Valin Steel Tube and Wire Company.

Arecelor should follow Mittal in the output table with production of 104 million tonnes after having taken control of CST of Brazil, Corus of Britain, Anshan and Benxi of China, Dofsaco of Canada and Erdemir of Turkey.

In addition, according to WSD, Arcelor could also acquire Ukrainian Mill from Mittal. - AFP