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Mar 09

World steel chief calls Chinese glut ‘serious and critical’

world-steel-chief-calls-chinese-glut-serious-and-criticalThe global steel industry is reeling amid a plunge in steel prices, a flood of low-priced imports from China and other countries, and a collapse in investment in pipes for oil drilling as a result of tumbling crude prices. USA TODAY economics reporter Paul Davidson spoke about these challenges with Wolfgang Eder, chairman of the World Steel Association and CEO of Austrian steel giant Voestalpine. The company has 46,000 employees worldwide and 2,500 workers and nearly two dozen factories in the USA.
Q: U.S. steelmakers are awaiting decisions on trade cases against China for illegally dumping steel below cost in this country. Is this a global problem?
A: The current Chinese overcapacity problem affects all parts of the world. Chinese plants (are selling) not only to the U.S. but also to Europe. It’s an intensive discussion of what should be the reaction and an ongoing discussion to what extent Europe should follow the U.S. (in filing trade cases). The problem at the moment is enormous. I do hope we will find some balance again in the next months, but at the moment, the situation is a very serious and critical one.
Q: What’s the long-term solution?
A: In the long run, a solution to the problem can only come from the reduction of capacities. According to OECD (countries in the Organization for Economic Cooperation and Development ), there are 600 to 700 million tons of overcapacity (worldwide), the largest part in China. That means permanent pressure on margins and prices.
Q: Is the plunge in steel prices affecting your company, Voestalpine?
A: We are not (selling) any material via the spot market. We do have only high-quality steel, and this steel is only sold based on contracts. We are, of course, the (supplier) for the German auto producers — BMW, Mercedes, Audi, Porsche. So we are one of the largest suppliers for these car producers. They are only buying really high-tech, high-quality material where we can differentiate. Two-thirds (of production) is downstream — we make complete automotive components, exteriors of cars, we produce complete rail tracks.
Q: Still, you do make some raw steel, and the drop in prices has affected you, hasn’t it?
A: We have started additional cost-cutting measures. We try to avoid layoffs because we do not want to lose highly qualified people. So for the time being, we have (cut staff) in only a very few locations — some in Germany, some in Brazil. And, of course, we try to extend our product range. We intend to sell more automotive parts.
Q: Have you been affected by the downturn in oil and gas drilling?
A: We have not yet been affected by the weakness in the oil and gas market, but we do expect, looking forward … the second half (of the fiscal year) will be a really more difficult period. Inventories are extremely high now, of oil and gas, but also inventories for all the production equipment are at very high levels. We cannot expect oil and gas levels will come down quickly over the winter as they have reached levels we have never seen before. So it’s unlikely we’ll see recovery of this segment before the summer of next year.
Q: Are other segments hurting as well?
A: You have several industrial segments that are also not in good shape. For example, in Europe, it’s building construction where we have not seen any major recovery in the last year. You have the global situation in oil and gas. You have a very volatile situation in machine building. So this is a very shaky environment. Automotive is doing well. We have no indication that automotive demand will show weakness.
Q: When do you expect steel prices to recover?
A: That’s very hard to predict where the prices are going. Nobody expected a few months ago that they could go down that far. I do not want to give any indication where the prices of steel could go. As long as overcapacity is constantly putting pressure on the market, it’s unlikely we’ll see a broader price recovery.
Q: You’re building an $800 million steel plant in Corpus Christi, Texas, and half of the production is raw steel that you’ll ship back to your factories in Austria. Why did you build that plant in the USA when many manufacturers continue offshore U.S. production?
A: We checked 18 possible locations for that plant worldwide. From the European point of view, the U.S. does have much more advantages. The U.S. has enough land available. The U.S. has extremely cheap energy. The cost of gas, for example, is only one-third of the cost in Europe. Electric energy is cheaper as well. You have a very positive political environment for industrial operations. It’s a very clean procedure if you apply for building. In Europe, it gets much more complicated. The regulatory environment is more complicated in Europe. Compared to other parts of the world, cheap labor is still available. All of that means the U.S. offers a very solid base for industrial operations.
Q: What’s the main drawback of locating in the USA?
The main disadvantage in my opinion is taxes in the U.S., especially corporate taxes. There are a number of regions in the world that are more attractive. And access to qualified labor, qualified people. Those are the two main disadvantages. Unemployment (in the USA) is low, and it has become difficult to find qualified people.

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