History of the steel industry (1970–present)
||It has been suggested that History of the steel industry (1850–1970) be merged into this article. (Discuss) Proposed since March 2012.|
The global steel industry has been going through major changes since 1970. China has emerged as a major producer and consumer, as has India to a lesser extent. Consolidation has been rapid in Europe.
- 1 Material for development
- 2 Growth of the industry
- 3 Growth potential of the industry
- 4 Reduction in workforce
- 5 Causes and effects of the 2008 Recession
- 5.1 Components of the recession relating to the steel industry
- 5.2 Raw material and components of steel
- 5.3 Global influences - China
- 5.4 Case studies - Steel Dynamics (STLD) and US Steel (X)
- 5.5 Recovery
- 5.6 Summary
- 6 See also
- 7 References
- 8 Appendices
- 9 Further reading
Material for development
The volume of steel consumed has been the barometer for measuring development and economic progress. Whether it is construction or industrial goods, steel is the basic raw material. Lighter metals and stronger alloys have been developed. Plastics and synthetics have replaced steel in many areas.
Steel is made from ores still found in abundance around the world. Technological developments have brought down the time for transformation from iron ore to steel to within a day. Even after decades of use, it can be sent back to the furnaces as scrap, melted and remade into new qualities of steel. It is the most recycled material in the world. In developed countries, recycling accounts for almost half of the steel produced.
Another major feature is the continuous improvement of steel grades. Half of today's steel grades were not available ten years ago. Just take the example of the most commonly used steel – rods or bars, used as reinforcement material with cement concrete. It used to be plain bars even in the sixties, then came the ribbed bars, followed by the cold twisted deformed bars and now it is thermo mechanically treated bars. Each development has added to the strength of construction. Older varieties of steel have been improved upon and newer grades introduced. The process continues.
Growth of the industry
Global steel production grew enormously in the 20th century from a mere 28 million tonnes at the beginning of the century to 781 million tonnes at the end. Per-capita steel consumption in the U.S. peaked in 1977, then fell by half before staging a modest recovery to levels well below the peak.
World steel production in the 20th century
Over the course of the 20th century, production of crude steel has risen at an astounding rate, now fast approaching a production level of 800 million tons per year. Today, it is difficult to imagine a world without steel.
During the 20th century, the consumption of steel increased at an average annual rate of 3.3%. In 1900, the United States was producing 37% of the world's steel. With post war industrial development in Asia that region now (at the start of the 21st century) accounts for almost 40%, with Europe (including the former Soviet Union) producing 36% and North America 14.5%.
Steel consumption increases when economies are growing, as governments invest in infrastructure and transport, and as new factories and houses are built. Economic recession meets with a dip in steel production as such investments falter.
After being in the focus in the developed world for more than a century, attention has now shifted to the developing regions. In the West, steel is referred to as a sunset industry. In the developing countries, the sun is still rising, for most it is only a dawn.
Towards the end of the last century, growth of steel production was in the developing countries such as China, Brazil and India, as well as newly developed South Korea. Steel production and consumption grew steadily in China in the initial years but later it picked up momentum and the closing years of the century saw it racing ahead of the rest of the world. China produced 220.1 million tonnes in 2003, 272.2 million tonnes in 2004 and 349.36 million tonnes in 2005. That is much above the production in 2005 of Japan at 112.47 million tonnes, the USA at 93.90 million tonnes and Russia at 66.15 million tonnes. For details of country-wise steel production see Steel production by country.
Growth potential of the industry
Amongst the other newly steel-producing countries, South Korea has stabilised at around 46–48 million tonnes, and Brazil at around 30 plus million tonnes. This brings the focus of the industry to India. Considering a steel consumption of 300 kg per man per year to be a fair level of economic development, India will have to come up to somewhere around 300 million tonnes, if it is to fulfill its ambitions of being a developed country. That, of course, is a long journey from the present production level of around 50 million tonnes but one must consider its past before coming to a conclusion about its potential. India was producing only around a million tonnes of steel at the time of its independence in 1947. By 1991, when the economy was opened up steel production grew to around 14 million tonnes. Thereafter, it doubled in the next 10 years, and then it is doubling again, maybe over a slightly longer span. Steel Production in India is expected to reach 124 million tons by 2012 and 275 million tons by 2020 which could make it the second largest steel maker. 
In the developed countries, the trend is on consolidation of industry. Cross-border mergers have been taking place for several years. The focus is on technological improvements and new products.
Globally, the steel industry became a billion tonne industry in 2004. How much more it will grow will depend primarily on how much more steel is consumed in the developing countries.
The world steel industry peaked in 2007. That year, ThyssenKrupp spent $12 billion to build the two most modern mills in the world, in Alabama and Brazil. The worldwide great recession starting in 2008, however, with its heavy cutbacks in construction, sharply lowered demand and prices fell 40%. ThyssenKrupp lost $11 billion on its two new plants, which sold steel below the cost of production. Finally in 2013, ThyssenKrupp offered the plants for sale at under $4 billion.
Reduction in workforce
Steel is no more the labour-intensive industry it used to be. Earlier, it was often associated with the image of huge work force living in a captive township. All that has changed dramatically. A modern steel plant employs very few people. In South Korea, Posco employs 10,000 people to produce 28 million tonnes. As a rule of thumb, one can put the direct employment potential at 1,000 per million tonnes. It could be less. However, steel being a basic industry, it generates substantial growth of both upstream and downstream facilities. According to some estimates one person-year of employment in the steel industry generates 3.5 person-years of employment elsewhere. Considering all these, total employment generation will be substantial.
The third quarter of the 20th century witnessed massive growth of the global steel industry. Annual production rose more than three times in 15 years from 1960. In the last quarter of the century, production reached a plateau, rising only by around 100 million tonnes. Increase in production gave way to increases in productivity. See also steel crisis.
During the period 1974 to 1999, the steel industry had drastically reduced employment all around the world. In USA, it was down from 521,000 to 153,000. In Japan, it was down from 459,000 to 208,000. In Germany, it was down from 232,000 to 78,000. In UK, it was down from 197,000 to 31,000. In Brazil, it was down from 118,000 to 59,000. In South Africa, it was down from 100,000 to 54,000. South Korea already had a low figure. It was only 58,000 in 1999. The steel industry had reduced its employment around the world by more than 1,500,000 in 25 years.
Employment in the steel industry 1974, 1990 and 1996–2000
Thousand at end of year
|FR Germany (1)||232||125||86||82||80||78||77|
|Republic of Korea||n/a||67||66||64||59||58||57|
|World Production||644 (3)||770||750||799||777||789||848|
(1) Includes former German Democratic Republic 1996–2000 (2) Serbia and Montenegro 1996–2000 (3) 1975 total
Totals are rounded. United States figures are average for 12 months. Various other differences in coverage and definition exist, so that inter-country comparisons are of dubious value. E indicates estimate.
Causes and effects of the 2008 Recession
Components of the recession relating to the steel industry
The behavior of the steel marketplace during the 2008 recession is punctuated by contradicting indicators and confusing aspects. Examining the markets and factors which contributed to the overall effects as observed by the United States steel industry yields factors that seem to fly in the face of established supply and demand economics.
Typically, decreasing consumption would indicate declining demand, which in turn would lead to decreased pricing and production. Decreased production would eventually lead to shortage of supply, which would then trigger an increase in prices.
Just prior to the onset of the 2008 recession, the steel industry could be described as having the following overall characteristics…
- An established trend of decreasing consumption
- An established trend of decreasing production
- A sudden and major increase in steel prices
The single largest, seemingly unexplainable behavior during this period was the presence of increased market pricing for steel during a period which was experiencing long term declines in both production and consumption.
In this document we will explore the overall availability and pricing of the raw materials needed to produce steel, which help explain, at least in part, the reasons for this anomalous behavior experienced during the first half of the recession.
Raw material and components of steel
Steel is composed primarily of two main ingredients, these being pure iron and pure carbon.
Pure iron is derived from raw iron ore which has undergone several processes aimed at reducing impurities. Iron ore is mined in many countries around the world, with the United States being approximately the 8th largest producer of iron ore in the world. 98% of iron ore is used in the manufacture of steel.
The Carbon used in the manufacture of steel is derived from coking coal. Coking coal is created by heating coal in the absence of air.
The term steel refers to an entire family of materials consisting of various grades and alloys. Steel grades are based primarily on overall carbon content while alloys are the result of mixing additional materials to infuse the resulting steel with various desired properties. An example of this is the addition of nickel which produces stainless steel.
Price of iron ore
(The Economist, 2012) In 2003, China slipped past Japan to become the world's biggest importer of iron ore. By 2008 China imported three times as much (it now accounts for 60% of total world imports). Prices rose rapidly as a mining industry starved of investment after years in the doldrums could not keep up with demand. For the period 2004 through 2008, iron ore prices rose by nearly 300%.
Price of coking coal
(EEF, 2008) The recently concluded (2008) settlement for coking coal resulted in a staggering 200% price increase. This has arisen primarily because of flooding in Australia earlier in the year creating supply shortages.
Price of energy
(Smith, 2009) The steep ascent in the price of oil between 2004 and 2008 coincided with the first significant decrease in non-OPEC supply since 1973 and an unprecedented surge in global demand. Although OPEC members responded by increasing their production, they lacked sufficient capacity after years of restrained field investments to bridge the growing gap between global demand and non-OPEC supply.
Steel scrap prices
(EEF, 2008) Scrap prices in recent years have tended to be volatile, but the price surge experienced since the beginning of the year (2008) is unprecedented. Scrap prices, which are influenced by export markets and thus driven by the strong demand for scrap from third country steel-producing markets, have risen by 75% since March. Prices rose by 80% over the same period.
Global influences - China
(Tang, 2010) With the central government's encouragement and approval, China's major iron and steel manufacturers have been actively seeking to secure supplies of raw materials. This wave of "going global" from China is not restricted to iron ore. The world has seen an increase in these activities since the global recession took place, which has weakened demand and kept the investment prices more reasonable. Another important factor is that many mining companies and resources-rich regions are looking for financial investments in a tightened credit market.
An examination of the steel market during the period in question reveals quite clearly that the observed price surge owes much to the availability of and increasing prices for the raw materials used in the production of steel. This is not to say, however, that these were the only forces that influenced the steel market at that time.
Case studies - Steel Dynamics (STLD) and US Steel (X)
Immediately leading up to the start of the recession in December 2007, all United States steel producers were experiencing a tremendous spike in the market price for steel. (Development, 2009). One of the factors influencing the market price was the steady increase in demand for steel that had been occurring since at least 2006. (O'Hara, 2014)
Prior to the recession in 2008, the top two United States steel producing corporations were Steel Dynamics (STLD) and US Steel (X). At the same time, Nucor was floundering in a distant third, along with ArcelorMittal.
Just one year later, the fortunes of all of these companies have undergone major changes.
Coming out of the recession, we find Nucor at the top in terms of market performance. Nucor continues to lead well into 2013, benefiting from prior investments in infrastructure which allowed them to operate with lower fixed costs throughout the recession days.
Among the reasons for the dramatic change in performance for at least two of these corporations, namely US Steel (X) and ArcelorMittal (MT), is a reliance on older technology, primarily that of their aging blast furnaces.
These blast furnaces operate at a high fixed cost as compared to more modern equipment. Due to the decrease in consumption, these companies also curtailed production.
Here-in lies the problem. Operating these furnaces in order to produce a lower than capacity amount of finished product required the high fixed costs involved in their operation to be spread over less finished product – resulting in a higher per unit cost to manufacture. In the midst of this increase in the cost of units produced, the price for steel in the global marketplace was crashing.
The end of the recession did not necessarily mean the end of hard times for some of these companies. For example, prior to the recession, US Steel's pension plan was overfunded by $223 million. By the end of the recession, as it entered 2009, the pension plan was underfunded by $1.7 billion. (O'Hara, 2014)
(Editors, 2011) The year 2010 saw a strong recovery for iron ore production in the United States after a particularly strong downturn in 2009. The market size presented today is the value of all iron and steel production in the country in 2010. The state of Indiana accounted for 24% of the total raw steel production, followed by Ohio with 10%, and Michigan and Pennsylvania each accounting for 7%. The graphic shows iron and steel production and apparent consumption figures for a period of 30 years, from 1980—2010. Apparent consumption is a calculated figure based on production, plus imports, less exports plus or minus change in stock.
In this document we have explored the impact of both the availability and pricing of the raw materials involved in steel production as well as the impact of more familiar market drivers such as overall management and infrastructure investment. We have shown that the markets for these raw materials had a definitive impact on the steel industry and were a major factor for the overall increase in steel pricing observed during the 2008 recession. In our case study, we have highlighted the impact of management decisions and the result of the failure of at least two major steel producers to modernize their infrastructure – this result being the decline of their performance in the industry, and their failure to attain pre-recession performance levels in the steel marketplace.
- Steel production by country
- American Iron and Steel Institute
- British Steel
- Dominion Steel and Coal Corporation, in Canada
- Development, O. f.-o. (2009, 7 9). OECD Steel Committee - Presentation for the Council Working Party on ShipBuilding. Retrieved from www.oecd.org/stiu/ind/43312347.pdf
- Editors, T. (2011, 5 31). Iron & Steel. Retrieved from Market Size Blog: www.marketsize.com/blog/index.php/2011/05/31/iron-steel
- EEF. (2008, June 6). Analysis of steel price developments - summer 2008. Retrieved from www2.eef.org.uk: www2.eef.org.uk
- O'Hara, M. (2014, 11 28). U.S. Steel takes steps in transformation. Retrieved from Market Realist: http://marketrealist.com/2014/11/insight-u-s-steels-transformation/
- Smith, J. L. (2009, November 6). The 2008 Oil Price Shock: Markets or Mayhem? Retrieved from Resources for the Future: http://www.rff.org/Publications/WPC/Pages/The-2008-Oil-Price-Shock-Markets-or-Mayhem.aspx
- Tang, R. (2010, September 21). China's Steel Industry and Its Impact on the United States:Issues for Congress. Retrieved from Congressional Research Service: http://fpc.state.gov/documents/organization/150173.pdf
- The Economist. (2012, October 13). Iron Ore - The lore of ore. Retrieved from The Economist: http://www.economist.com/node/21564559
- Boundless. "Politics and the Great Recession of 2008." Boundless Political Science. Boundless, 03 Jul. 2014. Retrieved 13 Dec. 2014 from https://www.boundless.com/political-science/textbooks/boundless-political-science-textbook/economic-policy-16/politics-and-economic-policy-104/politics-and-the-great-recession-of-2008-556-5848/
Both appendices are from IISI material, earlier on the web but now replaced by more recent data.
- Appendix 1
- Smil, Vaclav (2006). Transforming the Twentieth Century: Technical Innovations and Their Consequences. Oxford, New York: Oxford University Press.
- John W. Miller and Ike Henning, "Thiessen gets offers for mills: Final bids for steel complexes in Alabama, Brazil will likely fall short of the company's hopes," Wall Street Journal 1 March 2013
- Bagchi, Jayanta. Development of Steel Industry in India (2005)
- Ball, Jeffrey A. U.S. Manufacturing Dogfights: China's Steel and Foreign Aircraft Competition (2011)
- D'Costa, Anthony P. The Global Restructuring of the Steel Industry: Innovations, Institutions, and Industrial Change London: Routledge, 1999 online version
- Etienne, Gilbert. Asian Crucible: The Steel Industry in China and India (1992) *Hasegawa, Harukiyu. The Steel Industry in Japan: A Comparison with Britain 1996 online version
- Hoerr, John P. And the Wolf Finally Came: The Decline of the American Steel Industry (1988) excerpt and text search
- Hogan, Thomas. The Steel Industry of China: Its Present Status and Future Potential (1999)
- Hogan, William T. Minimills and Integrated Mills: A Comparison of Steelmaking in the United States (1987)
- Meny, Yves. Politics of Steel: Western Europe and the Steel Industry in the Crisis Years (1974–1984) (1986)
- Scheuerman, William. The Steel Crisis: The Economics and Politics of a Declining Industry (1986) online