In Germany, 5.6% less raw steel was produced last year than in the previous year. RWI expects steel production to drop further in 2009 by 30% or more and then to increase by 4.2% in 2010. Steelworks are expected to work at extremely low capacity: 60% in 2090 and 65% in 2010. The number of workers employed by the iron and steel industry is forecast to decrease by 7,000 during the current year and by another 3,500 in 2010. Global steel production is likely to decline by 15% to 20% in 2090 and decrease slightly in 2010 as well.

Raw steel production in Germany fell by 5.6% to 45.8 million tons last year. This is mainly attributable to the fourth quarter of 2008, when about 20% less raw steel was produced than during the same period of the previous year. There was only a 10% decrease in production among steel users during the same period. This demonstrates the extent to which the demand for steel products depends on economic growth. Steelworks exported 30% less by the end of 2008 than in the previous year. Rolled steel imports likewise decreased, yet to a lesser extent, as demand was heavy for the generally lower grades used in the building industry. Up to now this sector has suffered relatively little from the recession.

This year will also be extremely unfavorable for the steel industry, with overall economic conditions hardly indicating a fast recovery. The gross domestic product (GDP) will decrease by 4.3% according to our estimates, including a 12.3% drop in exports and 17% less investments in equipment. Both factors are determinants for steel use, which is expected to fall by 23% over 2008 and to continue decreasing slightly in 2010.

Forecast: German raw steel production to decrease by more than 30% in 2009

Under these overall conditions, raw steel production in Germany is likely to decline by at least 30% this year, with the utilization of production capacities decreasing to about 60%, an extremely low level when compared in the long term. Yet production should become stable at a low level as the year progresses, as existing inventory is finally used up and demand is stimulated somewhat, not least by the stimulus programs. Foreign trade should gradually return to a normal level next year, with investment activity increasing once again. Steel production is similarly expected to rise by 4.2%, while production capacities remain utilized still to only a very small extent, at about 65%.

The heavy decline in production is likely to result in a significant reduction in employee numbers, even though no fears of massive job cuts exist as yet. In previous years companies heavily rationalized their workforces, so that employee numbers should be reduced less than in past steel crises. A total of about 7,000 jobs (7.6%) are expected to be cut this year and another 3,500 (4.4%) in the coming year.

Significant drop in steel and raw material prices

The steel industry boom, which began in the late 1990s, came to a rather abrupt halt globally in the summer of 2008. In a month-by-month comparison with the previous year, production dropped from December 2008 to February 2009 by more than 20% to a level comparable to 2003. Only the trend in China had a stabilizing influence, where production continued to increase slightly. Among industrialized countries there was an above-average decrease in steel production, for instance by 50% in the US. Prices for steel as well as for raw materials required in steel production also fell considerably. Prices listed for iron ore and scrap have declined by about 25% since August 2008, while coal fell by more than 60%. A continued decline in prices is expected due to overcapacities among producers of raw materials as well as the apparently large inventory volumes still held by steel manufacturers. Price levels for steel products have also fallen significantly: based on the export price of European steel, hot-rolled wide strip recently cost less than half as much as last summer.

The prospects for both the current and the coming year remain unfavorable, and a serious prolonged production slump must be expected. Global raw steel production is likely to decline by 15% to 20% in 2009. While production will probably increase again in the course of next year, a slight average decrease is nonetheless expected for 2010. Past experience indicates that steel production does not begin to recover before the global economy grows by more than 2.5%.

For further information, please contact::
Dr. Roland Döhrn, Phone:+49 201 8149-262, e-mail
Joachim Schmidt (Press Office), Phone:+49 201 8149-292, e-mail

This press release is based on the "Steel Report", part of the current "RWI Konjunkturberichte" (available only in German).