Forward programme for steel for 2001

(2001/C 71/03)

(Text with EEA relevance)

INTRODUCTION

Having entered a period of more marked and lasting growth in mid-1999, the Community economy, following the excellent GNP figures in 2000, should keep up this very positive trend in 2001, even though the anticipated rate of growth is likely to be more restrained.

The climate of confidence in business and among consumers, which was at its height in the first half of 2000, remains very strong despite the slight deterioration seen after the summer of 2000 in the wake of the steep rise in oil prices.

The Union's economic prospects for 2001 are therefore highly satisfactory and presage a fresh improvement in industrial activity, building on sound domestic consumption and a promising international context, on condition that the slowdown in the US economy does not fall below a growth rate of about 2 %.

The steel-using sectors posted excellent results in 2000 and are set to maintain a very intense level of activity in 2001, which will keep consumption at the record level of the previous year.

On the Community steel market, the temporary falling-off in demand and prices in autumn 2000 after the period of destocking should give way to a gradual improvement in these two factors, taking into account the anticipated reduction in imports and the continuing positive trend in exports.

The Community steel industry should therefore make the most of the better market conditions and record good economic and financial results. However, it must take care to strengthen its competitive position and competitiveness further, so as to be better placed to weather the impact of any future economic downturns.

1. ECONOMIC SITUATION IN THE EUROPEAN UNION

The economic situation in the European Union is the most favourable for 10 years as a result of both the solidity of the fundamental internal factors and the increase in world demand.

However, the growth in industrial production in the EU, having peaked at 7,3 % in May 2000, should return to annual rates of the order of 4 to 5 %, and consumer confidence, as demonstrated in opinion polls, declined somewhat in September, although this decline did not continue in October. Thus, although confidence in general remains close to its record levels, these indicators give the impression that growth in the Union probably peaked during the second quarter of 2000 and that a slowdown in activity is on the way, particularly in view of the oil bill, which is adversely affecting the economy.

According to the Commission's autumn 2000 forecasts, average growth in GDP in the EU is expected to be 3,4 % in 2000, the highest growth rate since 1989. This expansion is based on robust internal demand, which the stability of long-term interest rates has helped to reinforce, and on world growth, which has made it possible to perform well in exports.

Although average growth in the Union seems set to slow down to a rate of 3,1 % in 2001, the prospects remain very favourable, since private consumption should rise by 2,8 % and the growth in capital investment should decline slightly to 6,3 %, compared with 6,6 % in 2000. Lastly, investment in the construction sector is expected to rise by 3,5 %.

About 2,6 million jobs are likely to have been created in the Union in 2000, representing a job-creation rate of 1,6 %, the best result since 1990. This dynamic trend should continue in 2001, albeit at a slightly lower rate. According to forecasts, the unemployment rate should fall from 8,4 % in 2000 to 7,8 % in 2001.

While the harmonised consumer price index rose by barely 1,1 % in the eurozone in 1999, it is expected to increase by 2,3 % in 2000. The steep rise in the prices of imports as a result of higher oil prices and the depreciation of the euro are the main causes of this rekindling of inflation. Underlying inflation, on the other hand, seems much more moderate. Inflation is forecast to level off at 2,2 % in the eurozone next year.

Budget balances improved considerably in the Union, since they went from a deficit of 0,7 % of GDP in 1999 to a surplus of 1,2 % in 2000, largely as a result of the income from the sale of mobile phone licences (UMTS). Next year the budget surplus is expected to fall to only 0,2 % of GDP in the Union. The good results in 2000 and 2001, apart from the first extraordinary factor mentioned above, are largely due to higher tax revenue than was forecast in the light of the trend in various Member States towards a reduction in taxation.

2. REVIEW OF AND PROSPECTS IN THE STEEL MARKET

2.1. Crude steel production in the European Union

Community steel production will have reached 155 million tonnes for 1999, as a result of some ground gained in the last quarter; consequently, production will be only 2,9 % down on the absolute production record achieved in 1998.

Since the beginning of 2000, monthly statistical surveys, except those in the United Kingdom, reveal a marked improvement in the level of crude steel production, giving an increase for the first six months of around 8 % over the same period in 1999.

However, the trend for the third and part of the fourth quarter was far slower, with the growth in total Community steel production for the first eleven months of 2000 down 5,4 % on the same period in 1999.

Furthermore, in the main Member States, these statistics show steel production up sharply during the same period in Germany (+ 12 %), healthy increases in Italy (+ 7,5 %), France (+ 5,5 %) and Spain (+ 7,5 %), but a fall of 8,5 % in the United Kingdom.

Failing any clear signs that this trend is being reversed in the main steel-consuming industries, except for some possible levelling-off in the construction sector and a slight fall in activity in the car industry, demand for steel should normally remain steady during the months ahead, thus guaranteeing that production stays at satisfactory levels.

However, it is not impossible that the need for adjustment to the currently high stock levels throughout the economic chain might lead to a slowdown in orders and, thus, to a gradual weakening in steel production, although this ought to stabilise at a very satisfactory level, at least in the short term.

It is therefore expected that the Union's total steel production for the whole of 2000 will exceed the 159 million tonnes announced in the previous forecast(1) and could even reach the record level of 163 million tonnes, which would be an increase of 5,2 % over the level achieved in 1999.

The sustained bullish mood in the business sector within the Union, fuelled by the good economic prospects and a continuing favourable international environment, suggest that that there will be no significant developments in steel consumption in 2001.

Hence, in anticipation of a certain shrinkage in imports, and given an actual temporary weakening of demand partly as a result of destocking, Community steel production in 2001 should be of the order of 162 million tonnes. This volume, which is a mere 0,6 % down on the estimated record production for 2000, would ensure that very high capacity utilisation rates are maintained for that year.

This outlook should not, however, lead us to ignore the danger of an unforeseeable reversal in recent trends, which may even be exacerbated by other particularly disruptive parallel phenomena, as witnessed not so long ago, since there are still certain misgivings regarding the extent of the economic slowdown in the United States and the likelihood of changes in international trade flows as a result of US protectionist measures.

Consequently, despite its excellent level of competitiveness, the Community steel industry must remain vigilant, so as to be able to react quickly to the slightest movements which are felt directly or indirectly in the Community steel market and thus to deal as effectively as possible with the adverse consequences.

Table 1 in the Annex "Supply and demand for crude steel" summarises the volumes of and trends in consumption, foreign trade, stocks and Community production of steel in recent years and estimates the changes expected for 2001.

2.2. Outlook for 2001

The improvement in the international environment, which gave a new impetus to the Community economy from the second half of 1999 onwards, led to an appreciable increase in GDP growth in the European Union during the first half of 2000.

Consumer optimism combined with renewed confidence in industry - except on the part of the UK because of its reduced competitiveness due to the strong pound - will certainly have been at the root of both this performance and the general economic upturn in the Union.

However, a number of internal and external factors did affect the excellent state of the Community economy after the summer of 2000, bringing a slight falling-off in activity in the manufacturing industry and temporarily halting investment growth, thus causing a general slowdown in the economy at the end of the year.

It is plain to see, however, that the Union's economic prospects for 2001 are, as is suggested by the most recent short-term economic surveys, altogether satisfactory both for business and for consumers, whose level of confidence remains generally high.

At recent meetings, even representatives of steel users showed a degree of optimism, although this was mitigated by uncertainty about the trend in energy prices in particular. To explain this, they pointed to a capacity utilisation which was reaching its limits and serious difficulties in recruiting skilled labour.

Representatives of the steel trade also voiced optimism about the outlook for the Community economy in 2001 at these meetings, even though in their eyes the surplus supply and the increase in stocks might have a temporary bearing on the trends in steel prices.

So, given relatively favourable economic conditions and a better international climate, the main user sectors (some of which are described in more detail below) should continue to be very active in 2001, ensuring a high level of demand for steel products.

Consequently, the year in question is likely to see continued significant growth in the industries most geared to exports, such as mechanical and electrical engineering and electronics, where results in 2000 were, to say the very least, remarkable. By contrast, the building sector should show signs of slowing down or even levelling out, while activity in the car industry should dip slightly.

From these sectoral trends we can therefore assume that the apparent consumption of steel in 2001 should remain steady at the previous year's record level. This scenario still holds good if the slowdown in the US economy does not cause growth to fall below about 2 %.

The Community steel industry would thus be in a position to take greater advantage in future both of this excellent level of consumption and of the opportunities offered by the international market. This is because imports, after their marked increase in 2000, should decrease slightly in 2001 - discouraged in particular by less attractive market conditions - and exports of Community steel products should continue to grow.

Tables 2 and 2(a) in the Annex show indicators of activity in the main steel-consuming industries for 2001. However, these data, which have been supplied by the national representatives of the sectors concerned, should be analysed with caution, since opinions sometimes differ as to their validity.

2.2.1. Primary processing

The almost universal upturn at the end of 1999 in the various branches of the primary processing industry was followed by a rapid acceleration in activity during the first half of 2000.

The marked improvement in this sector over that period in all the countries of the Union except the United Kingdom was the result of the very strong growth in demand from the automobile industry and the construction and mechanical engineering sectors, which were able to take advantage of the general economic upturn both within and outside the Union.

However, various signs of a slowdown seem to have become more apparent since the summer of 2000, owing to a weakening of demand and the tendency for users to adjust stocks. It is probable, therefore, that this trend will give way to a temporary levelling-out until the end of 2000, even though the results will still be well above those of 1999.

The announcement of sustained economic growth into 2001 ought to guarantee a slight increase in demand for the products resulting from these activities. Most users should maintain high levels of production, and even the foreseeable slight reduction in car manufacture and the slowdown announced in the building sector are likely to be offset by better prospects for exports in other sectors.

A. Seamless and welded steel tubes

After a very poor first half of 1999, owing to the literal collapse of demand and strong pressure from imports, total steel tube production in the Union gradually recovered, registering a fall of some 9 % at the end of the year.

Indeed, the upward trend observed at the end of 1999 continued apace during the first months of 2000 thanks to increased activity in the oil sector and more dynamic exports, buoyed by the appreciation of the dollar against the euro. As a result, Community steel tube production was up by 4,3 % at the end of the first half of 2000, even though imports continued to grow at the same time.

Since the short-term outlook remains favourable, owing to the same factors which were behind the improvement observed since the end of 1999, there is likely to be some levelling-out in tube production over the coming months, and this should give an increase of 5 % for 2000 as a whole.

For 2001, barring any unforeseeable developments, there is likely to be a very slight increase of, at most, 1,5 % in total tube production, which would thus pass the 13 million tonne mark, as oil prospecting is likely to continue to support the current high level of demand.

For seamless tubes the spectacular 25 % drop in production in 1999 should be made up in the course of 2000, as the data for the first half of this year already show a significant increase of 25,2 %. Oil prospecting, which did a great deal to boost demand for OCTG during this period, is likely to continue to have a favourable impact on future development.

This factor, combined with the favourable trend in exports, seems likely to result in an increase of around 21 % in Community tube production in 2000.

The continuing favourable development in the factors behind the recent increase in activity in the seamless tubes sector points to a new increase in production in 2001, which may be of the order of 7 % up on 2000.

For small welded tubes (< 406,4 mm) the 5 % increase in production registered in 1999 was followed by a further increase of 3,5 % during the first half of 2000.

However, during this half year, imports increased by a massive 44 %, paving the way for speculative stock-building, as consumption rose by only 7 %. This phenomenon is therefore likely to have an adverse effect on trends in the second half-year and could result in a 3 % drop in production in 2000.

In 2001, in any event, there should be a fall in demand from the car industry and the construction sector, which may result in a drop in production of these tubes, estimated at 3 %, if the Community market can be protected from a new wave of imports.

The lack of any new major investment projects determined the level of activity in the manufacture of wide welded tubes ( > 406,4 mm) in 1999, which was at the root of the 18 % drop in Community production. A new fall in production was recorded in the first half of 2000, although this could lead to a levelling-out or even a slight upturn in production, provided certain protectionist measures can be headed off. In any event, even the low levels of oil investment already announced do not promise a positive trend in demand for and production of these tubes in 2001. Production should therefore remain steady at the level of 2 million tonnes estimated for 2000.

B. The wire-drawing industry

The results of the wire-drawing industry for 1999 were in line with expectations, showing an improvement in consumption of products of the order of 5 %, which was mainly due to the strong demand for welded wire mesh.

The first half of 2000 saw activity pick up in this sector, where consumption increased again by 6 %. However, this increase was shared equally between welded wire mesh and drawn wires, owing to the strong demand from the construction, automobile and engineering sectors.

However, a certain levelling-off in demand has been evident since the summer and looks set to continue; this could lead to a more modest increase in consumption of drawn products for 2000, estimated at around 3 %.

For 2001, with lower levels of activity forecast in the automobile and building industries, which will be offset by a more dynamic, export-oriented engineering industry, consumption should remain steady or even fall slightly by 1 % at most.

The general drawing industry, whose activity is essentially linked to car manufacture, did not achieve the results hoped for in 1999; consumption increased only very slightly, by less than 1 %.

From the beginning of 2000, the demand for drawn products showed a marked upturn which led to an increase of roughly 7 % in apparent consumption during the first half-year. Given the slowdown and even the slight decrease in activity in the car industry expected for the second half-year, apparent consumption of drawn bars should show a marked slowdown, growing by only 3 to 4 % at best for the whole of 2000.

In view of the less favourable outlook for the car industry in 2001, there is almost bound to be a shrinkage in the consumption of drawn products of the order of 3 to 4 %; consumption would then match the 1999 level, which was regarded as altogether satisfactory.

C. Rolling and forming

Contrary to the expectations of the experts in this sector and in the trade as a whole, the non-ECSC cold-rolling industry looks likely to improve production in 2000 by around 10 % over the 1999 level and, in doing so, even exceed the former production record achieved in 1998.

The demand for cold-rolled strip in the Community increased very rapidly from the beginning of 2000, creating a knock-on effect which caused sporadic difficulties of supply both for raw materials and, indirectly, even for processed products.

In view of the current order book situation, which will enable this industry to fully utilise its capacity up to June 2001, the overall level of production for 2001 is likely to be at least on a by with the level reached in 2000.

Hence, despite the inherent risks of a foreseeable increase in stocks held by users, which may exacerbate any future negative trends, the volume figures expected in 2001 should be more than satisfactory.

However, because it is an intermediate sector, this industry is continuing to see its profit margins cut by the rise in raw materials prices, which cannot be passed on in full to its customers.

The wide-formed products industry has been enjoying an extremely favourable economic situation since the middle of 1999, fuelled by the demand for sandwich panels, and as a result has seen its total production grow by around 6 %.

The picking up of activity in this sector during 2000 should lead on to an increase of around 8 % in production, despite the slower growth in demand for corrugated sheet.

For 2001 there is no evidence at present to suggest any fall in the consumption of wide-formed products, as activity in the construction industry - which is the main user of these products - is likely to remain sustained, although slowing down slightly.

Despite the continuing tendency to replace wide-formed steel products by other materials, in general other uses are being found for products from this sector and they are being used more widely in the construction sector, so future prospects for this activity remain good and ensure increased consumption of galvanised sheet.

The activity of the long-formed products industry continued unabated during the first half of 2000, influenced by a steady upward trend in demand since the second half of 1999.

Current order levels look certain to guarantee an increase in overall production of long-formed products of 5 % in 2000 compared to 1999, despite intermittent problems with the supply of raw materials and galvanised sheet in particular.

For 2001, the trade is looking forward to an eventual improvement in demand and hence a fresh increase of around 3 % in the output of formed products.

Even if activity in the construction sector were to slow down in winter, manufacturers of formed products could easily direct their production towards other outlets, such as the motor and engineering industries.

2.2.2. Trends in the construction industry

After the slightly positive results of 1997 and 1998, overall activity in the building industry shadowed, albeit with a certain time-lag, the general economic trend and there was a much more pronounced variation in production volume in 1999, which was put at over 2,5 %.

This more positive trend strengthened during the first half of 2000; as a result, even if the initial signs of a levelling-off which appeared after the summer are confirmed, there should be a fresh increase in construction volumes of nearly 3 % in 2000.

There is no doubt whatsoever that the general economic prospects for the Union in 2001 are favourable. However, in view of the current uncertainty about what action public authorities will take in this area and of the gradual rise in interest rates in a bid to stem inflation, there is likely to be a marked slowdown in growth in this sector, which is put at 1,5 %. Non-residential construction and renovation works look set to continue driving this growth in 2001.

As regards residential construction, the overall positive trend looks to be mainly due to modernisation and maintenance work, encouraged by certain incentives introduced by governments in various countries. Nonetheless, the trend towards a redistribution of tax surpluses could - depending on how this is done - boost activity in this sector, with new residential construction picking up in Germany and Italy in particular.

As regards non-residential construction in 2001, private investment should continue its positive course of previous years, although this might be attenuated by the general slowdown in the economy.

This sub-sector could nevertheless improve on the results expected for 2001 if there were to be more intervention by governments.

Looking at the individual Member States, Germany should make a stronger contribution to growth in this area in 2001, followed by France, Italy and Spain.

It is rather more difficult to predict the trend in civil engineering projects, which are highly dependent on investment by national and local authorities, although there has been some increase in such projects since 1999.

For 2001, the results from this sub-sector will depend on the start-up of the major government projects which have been announced and the general policy of governments on infrastructure investments.

Nevertheless, this activity should remain positive on balance, given the completion of ongoing projects and the firming up of a number of new infrastructure projects in the pipeline.

2.2.3. Trends in the motor industry

The motor industry once again posted very positive results in 1999, with registrations of new vehicles up by 4,9 % on 1998's record level.

During the first months of 2000, vehicle registrations in the EU continued their remarkable upward trend in response to the very sustained levels of demand.

However, for a number of months now, the trend in registrations of cars and light vehicles has been fluctuating erratically, although the general trend is always downwards. In fact, the net decrease in registrations of around 16 % observed in July was followed by a levelling-off in August and then further falls of 5 % in September, 4 % in October, 1 % in November and 8,2 % in December. As a result, for 2000 the overall drop in registrations was 2,2 %, despite the positive results recorded in the first part of the year (+ 3,2 %).

However, it must be stressed that the disruption resulting from protests against the steep rise in oil prices and the large stocks of good-quality used cars have doubtless had an influence on orders and deliveries and, hence, a major impact on these figures.

This result should nevertheless be regarded as perfectly satisfactory, since it is, after all, the second best performance ever achieved by this sector.

The gradual deterioration in the very favourable economic environment at the beginning of 2000 is now having a negative knock-on effect on consumer confidence, already affected by rising petrol prices and interest rates and, additionally, by the more limited supply of new models on the market. However, the negative impact of these factors is likely to be only temporary and should be offset by the very positive general economic prospects for the Union in the medium term.

For 2001, therefore, motor vehicle sales in the Union can be expected to remain relatively stable and may show a slight downward trend of 1 to 2 %. In any event, such a development is unlikely to lead to a return of pessimism in this sector, given its performance in terms of production and its optimum utilisation of capacity. Moreover, the positive trend set in 1999 and 2000 for motor vehicle exports looks likely to continue with an increase of 9 % in 2001, which will boost Community production of new vehicles.

2.3. Outlook for imports and exports of steel products

2.3.1. European Union external trade statistics for steel

The European Union's external trade statistics for steel which were available when this forecast was produced cover the first ten months of 2000. It is possible to compare them with the Union's international trade in steel during the same period in 1999; they also make it easier to estimate Community imports and exports of steel in terms of volume and trends for the whole of 2000.

Generally speaking, these statistics reveal a marked increase in steel imports of the order of 27 % and a parallel increase in Community exports, although this is limited to 16 %.

While these data confirm the trend in exports outlined in the previous forecast, they show a significant increase in imports instead of the slight fall which had been expected.

Even though these are partial data, their analysis also shows that the Union's steel deficit is spreading, both in finished flat and long products and in semi-finished products; this tends to confirm a potential situation of overall structural deficit going back to 1998.

As regards imports, the areas of Community trade which have developed in particular during the period under review are imports from China, Japan, certain Latin American countries and Brazil in particular, and Russia.

As for Community steel exports, on the other hand, the general increase of 16 % observed over the same period is essentially due to a favourable trend in trade with the United States, Canada, the CEECs and certain south-east Asian countries.

There is no doubt that trade in steel at Community and world level has been helped by the improvement in the climate following the previous crisis. However, the very strong demand within the Union for steel imports and, above all, the level of domestic prices have acted as a powerful magnet; on the export side, the positive trend is mainly due to the appreciation of the euro against the dollar.

In the final months of 2000, with the relative stabilisation of prices and domestic demand, Community imports of steel should have slowed down to reach around 24,5 million tonnes by the end of the year, which would mean an increase of around 18 % on the 1999 level.

Community exports, on the other hand, should have increased further to around 22 million tonnes at the end of 2000, aided by the continuing favourable external environment and the improvement in the international competitiveness of Community industry due to the low exchange rate of the euro.

For 2001, failing any marked deterioration in the international climate resulting from an ill-considered increase in oil prices - which is possible, but unlikely - Community trade in steel should improve, showing a levelling-off or even a slight drop in imports on the one hand, and a continuing positive trend in exports on the other.

This basically favourable outlook should not tempt us to ignore the negative impact of any recurrence of destabilising events, which the Community market has already experienced and which have seriously affected company results and, indirectly, employment in the steel industry.

It should be emphasised that the threat of greater protectionism and the likelihood of a far more serious slowdown than forecast in the US economy are negative factors which adversely affect the equilibrium of the steel market and steel prices.

2.3.2. The world economy in 2001

The world economy experienced a period of strong growth during the first six months of 2000, followed by a gradual slowdown as a result of the rise in oil prices, the increase in short-term interest rates, and the less favourable stock-market environment.

This situation is reflected in the confidence indicators, which started declining in July in the USA, then in Japan and lastly in certain European Union countries.

Nevertheless, the economy of the industrialised world is expected to show a fairly significant growth of 4,3 % in 2000, followed by a more modest increase, estimated at 3,3 %, in 2001.

The growth prospects for this economy will, however, continue to be affected by the risks inherent in the rise in energy costs, the persistent weakness of the euro and the weakening of the US economy.

In any case, the basis of the industrialised countries' economies is still sufficiently sound, so that it is fair to assume that the current slowdown will not last long.

In the steel sector, apparent world consumption should exceed 750 million tonnes in 2000, which would be an increase of 5 to 6 % in relation to the previous year.

For 2001, with the influence of the general economic slowdown, apparent world steel consumption is set to rise by no more than about 2 %, since in the United States and the European Union steel consumption is expected to level out somewhat, while more significant increases are expected in South America and Asia.

As for trade in steel products, 2001 should see a slight change in flows and in particular a marked reduction in imports to the American market and a smaller decline in imports to the Community market.

However, the surplus supply from the exporting countries which are desperately seeking external sales outlets would pose a threat to the stability of markets and steel prices throughout the world.

2.3.2.1. The United States of America

The American economy is gradually cooling but remains buoyant, since the oil bill is not having too great an impact on prices and gains in productivity are offsetting higher labour costs. The soft landing which began in the second half of 2000 now seems to be increasingly apparent, even if on the employment front we have seen, among other things, a reduction in unemployment, which has fallen below the 4 % mark. In any event, United States GDP is expected to grow by about 2,5 % in 2001, considerably less than the 5 % forecast for 2000. Only a massive loss of confidence could affect these results.

In 2001, steel consumption in the United States should decline by approximately 5 % in the wake of lower capital investment and less intense activity in the construction and automobile sectors. Thus, in view of the increase in domestic steel production as a result of the commissioning of new capacities, imports to the USA should decrease slightly.

2.3.2.2. Japan

The encouraging results in the first three quarters of 2000 seem to indicate that the Japanese economy has well and truly emerged from recession. The country's GDP should thus be about 2 % in 2000, mainly as a result of increased public investment.

The prospects for 2001 remain positive, buoyed up by the need to restructure companies which encourage private investment and by the government's new support plan intended to boost the country's economic activity, which is expected to grow by about 2,5 %.

Steel consumption in Japan, boosted by the economic upturn and by increased activity in consumer sectors such as construction, automobiles and capital goods, should increase by approximately 2 % in 2001.

Domestic steel production should also increase in 2001, but any surpluses are likely to be exported more to the south-east Asian markets.

2.3.2.3. Economic trends in China and south-east Asia

The average growth rate of the countries of south-east Asia, estimated at approximately 7 % in 2000, should fall slightly in 2001 to around 6 %. In this context, there has been a striking recovery in the Korean economy, which is expected to grow by very nearly 8,5 % in 2000 and to be followed by a further rise of 6,5 % in 2001.

Steel consumption in this region is set to rise by 3,5 % in 2000 to approximately 122 million tonnes, and steel production is also expected to increase by about 2,5 % following the commissioning of new capacities. However, in view of the expected developments in 2001, with consumption still increasing at a rate of 3,5 %, the steel deficit in this region is likely to exceed 20 million tonnes, despite a foreseeable further increase of 1 to 2 % in domestic production.

The economic climate in China is currently very favourable, since the remarkable growth recorded in 1999 is expected to be exceeded in 2000 and even 2001, with rates of the order of 8,3 % and 8,5 % respectively. During the first three quarters of 2000, the Chinese economy grew at a rate of 8,2 %, well in excess of the target set by the local authorities (+ 7 %), under the influence of increased investment activity, consumption, the influx of capital and the overall economic improvement in the Asian region.

In this favourable economic context, steel consumption should increase by 5 % in 2000 and about 7 % in 2001. In view of the steady increase in domestic production, China's steel imports could, however, fall slightly in 2001, after increasing considerably in the past two years.

2.3.2.4. The countries of Latin America

In the wake of a remarkable recovery in Brazil, the economies of the countries of Latin America are expected to grow by an average of about 4,3 % in 2000 and by the slightly higher rate of 4,5 % in 2001. As a result of these favourable internal economic trends, steel consumption is set to increase by approximately 11 % in 2000 and by a further 6 % in 2001. This will be solely due to the marked rise in steel consumption in Brazil, since there is a downward trend in steel consumption in Argentina. As regards international trade in steel, even with the prospect of a slight increase in imports and a more marked fall in exports, the steel surplus of this region is expected to be approximately 8 million tonnes.

2.3.2.5. The economic climate in the CEECs and the republics of the CIS

After something of a slowdown in 1998/1999, the economic upturn which began to emerge in these countries in 1994 has become more marked, since it is expected that average growth in the CEECs will be 4,9 % in 2000, probably followed by a further improvement, estimated at 4,1 %, in 2001. As for the steel sector, about 25 % of domestic production, which is set to increase by 4 % in 2000 and by a further 2 % in 2001, should continue to be exported to the Community market, since only a relatively slow increase in domestic consumption is expected.

In Russia, the economy has improved significantly since the devaluation of the rouble and is set to grow at a rate of about 7 % in 2000, although this is expected to slow down considerably to 4 % in 2001. Steel production increased by 13 % in 1999, and 2000 saw a continuation of this trend. However, a slight decrease in Russia's steel production in 2001 cannot be ruled out in view of a possible reduction in the export market, which is in any case expected to take more than half of domestic production.

2.4. Price trends

During the first six months of 2000, world production of crude steel increased by over 11 % compared with the same period the previous year. Despite the favourable economic context, it is inconceivable that actual steel consumption could have risen at the same rate. It must therefore be assumed that larger stocks of steel were accumulated during this period at all levels of the economic chain. This would explain why the international market saw a decline, in particular, in the prices of hot-rolled coils from Asia and then in the United States and elsewhere.

There was a similar development on the Community market, so that the increase in stocks, together with the arrival of massive steel imports, led to a certain amount of price tension, although the prices of some individual products did fall back somewhat after summer 2000.

Compared with the highest level they reached on the Community market in May-June 2000, prices of hot-rolled coils subsequently fell by about EUR 15 to 20 per tonne, or 8 to 10 %, and towards the end of the year they fell even further without any sign of levelling off.

The need to adjust stocks is, furthermore, likely to remain a risk factor for price stability in the future, especially if such a trend were to become widespread just when there is a temporary weakness in demand and an increase in imports, although there seems to be no chance of this happening, at least on the Community market, in the short term.

2.5. Trends by product

Flat products

- Hot-rolled coil:

Demand for hot-rolled coil remains very high on the Community market, despite a plentiful supply situation. After the summer, however, the growth in imports and the accumulation of larger stocks, which are at the root of the imbalance between supply and demand, brought about a reversal of the price trend, which was initially downward but then levelled off. There seems to be no likelihood of price tension during the first months of 2001, unless imports continue to rise and there is overabundant supply.

- Cold-rolled sheet:

While there were certain supply difficulties for these products during the first half of 2000, a better balance between supply and demand seems to have been restored since autumn 2000, mainly as a result of increased imports attracted by high prices. The trend in the prices of cold-rolled sheet on the Community market nevertheless remains stable or is even tending to move upwards.

- Coated sheet:

Demand for coated products from the two main consumer sectors - the automobile and construction industries - is still very high as we reach the end of 2000. There is still an upward trend in prices, particularly for electro-galvanised sheet and organically coated sheet. The level of imports and the commissioning of new production capacities, especially for galvanised sheet, could in any case influence the prices of coated sheet in the short term if supply continues to grow steeply.

- Quarto plate:

The marked rise in the consumption of quarto plate during 2000 is due to an increase in orders from shipyards, from the mechanical engineering sector, which is taking full advantage of the scope for export, and from the construction sector. The quarto plate market did not experience a drop in demand after summer 2000, and internal prices have continued to move upwards, partly because imports to the Community market have stabilised and export prospects have improved slightly. During 2001 no significant changes are expected in these trends, since capital investment in the gas and oil pipeline sector and the activity of shipyards will in any case keep internal demand buoyant.

Long products

- Heavy sections and beams:

There has been a favourable trend in the consumption of beams during 2000, and market prices have maintained their positive trend until the end of the year. The stocks of beams have increased but are in balance with the conditions of the Community market, where demand, especially for large beams, shows no signs of flagging. The increase in the volume of imports has not yet had too great an influence on internal prices, and exports to American markets have remained attractive as a result of the weak euro. These favourable conditions on the market in beams look likely to continue in 2001.

- Wire rod:

While the American market is experiencing certain difficulties, due in particular to the high level of imports, the European market continues to prosper as regards both rod intended for the construction industry and other rod intended, in particular, for the mechanical engineering and automobile sectors. As a result of this situation, internal prices have constantly moved upwards since spring 1999, and this trend has, moreover, been consolidated this year. The possible worsening of the protectionist climate could, however, disrupt export flows in the near future and consequently influence the prices of this product, even on the Community market.

- Concrete reinforcing bars:

Demand for concrete reinforcing bars has increased significantly in most EU countries during 2000 despite a certain adjustment of stocks after the summer, resulting in only a very short-lived slowdown in demand. Prices of reinforcing bars, which were previously moving upwards, have been subjected to pressure from imports, especially in the second part of 2000. This pressure might increase in future if the protectionist measures in the USA lead to an increase in export flows to the Community market, where consumption is expected to remain high.

- Merchant bars:

Like the other long products, merchant bars enjoyed throughout 2000 the competitive advantage due to the weakness of the euro against the dollar. In contrast to other world markets, there has been an upward trend in internal prices for more than 18 months.

2.6. The crude steel balance for 2001

With the prospect of more marked and lasting growth in the Community economy, the first signs of which appeared during 1999, the climate of confidence has considerably improved in the Union, particularly in view of favourable trends in the external environment.

For 2001, the forecasts for internal economic growth thus remain wholly positive, so that it is fair to assume that, among other things, there will be an increase in industrial production spurred on by the urgent need to invest and to reconstitute stocks and by the continued buoyancy of domestic and international demand.

The main steel-consuming sectors are thus expected to remain very active, and this should guarantee that steel consumption in the Union remains fairly high.

These expectations should therefore open the way to restoring sound conditions on the Community steel market, further factors being an expected decrease in imports, which have risen considerably in 2000, and the continuing upward trend in exports, since the worsening situation on the steel market in autumn 2000 should be short-lived.

Given these foreseeable positive developments, steel consumption in the Union in 2001 is expected to be 163 million tonnes, which is 0,6 % up on the 2000 figure, while apparent steel consumption, with 162,5 million tonnes, should be very much the same as in 2000. Thus, with the prospect of a slightly negative balance in external trade - albeit with imports down by 4,2 % and exports up by 2,3 % -, Community production should stabilise at 162 million tonnes, virtually the same as in 2000.

3. RAW MATERIALS

3.1. The scrap market

Scrap prices on the Community market declined in mid-year, influenced probably by the weaker demand which followed the slowdown in steel production. However, in September this downturn ceased and, following a slight rise, scrap prices stabilised in most European Union countries, including Spain. This internal price stability appears to be due, on the one hand, to some decline in imports from the Commonwealth of Independent States and, on the other, to the rise in Community exports, which remain competitive owing to the persistent weakness of the euro.

In 2001, there are unlikely to be major changes in scrap supply and prices, apart from the usual fluctuations linked to the seasonal effects of demand. However, this is on condition that the scrap export barriers put in place by some countries do not lead to a reduced supply on the international market.

3.2. Iron ore

After substantial increases over the first six months of 2000, iron ore deliveries to the world market have fallen off since the end of the summer, following a gradual drop in demand. However, this downturn is unlikely to last more than a few months, since the reduction in consumption is likely to be very short-lived. This is because the need to rebalance stocks has recently led to a slowdown, then a drop in steel production in the United States, Japan and Europe, causing the temporary fall in demand for iron ore.

This period of downturn in the market is in no way cyclical, however, since from spring 2001 the need to build up stocks should fuel steel production, thereby boosting consumption of, and consequently demand for, this raw material for the steel industry.

The larger number of mergers between iron-ore producers could in future, by shifting the balance of power on the market, introduce a greater element of unpredictability into price trends, which until now have reflected demand.

3.3. Tin, zinc and nickel

World tin production continued apace throughout 2000, fuelled by higher world demand. In 2001 the slowdown in tin consumption is unlikely to lead to significant price variations since supply will be sufficient to meet market demand.

After increasing substantially during the first part of 2000, zinc production fell off sharply during the summer holiday period, although demand remained high. As a result zinc stocks shrank considerably and are now at their lowest level since 1988. Thus, despite the sharp rise in Chinese exports, zinc prices rose constantly up to September, before recording a slight fall thereafter. Since consumption is likely to remain at very high levels even in 2001, it is likely that zinc prices will rapidly resume their upward trend.

Nickel prices reached unimaginable heights in 2000, even if these alternated with brief downturns. This boom in nickel prices can be attributed to the strong recovery in stainless steel production and to the limited capacities and stocks available to supply the market. However, these prices fell sharply from autumn 2000, although the market remains on a sound footing, with good growth prospects in the stainless steel sector.

Despite their volatility, nickel prices are encouraging the creation of new capacities and are improving the general supply of nickel. Consequently, in 2001, price trends for nickel will depend on the balance between supply and demand and on how easy it is for stainless steel producers to obtain adequate supplies of scrap of this quality.

4. EMPLOYMENT

The constant need to improve competitiveness in the Community steel industry is exerting pressure on steel companies to reorganise internally, to restructure and even to group with other industries in order to take greater advantage of the potential of the single market and the international market.

In the wake of technological developments and globalisation, there is still an ever-increasing trend on the part of the Community steel industry towards specialisation and the manufacture of higher quality products and products with higher value added.

Past restructuring programmes, which led to many job losses in the sector, have changed not only companies' structures but also their working methods, internal organisation and social requirements and have led to a younger workforce in the industry.

All these changes - which are part of the effort to increase the competitiveness of the Community steel industry - call for the use of best practices, including in the social field. It is therefore vital to maintain a very high level of skills in the workforce by providing further training at all levels and particularly by extending such training to include new technologies and the latest technologies offered by the advance of the information society.

In this context of profound change in work organisation, it is vital to step up the social dialogue both inside companies between management and labour and outside them between local players.

As part of such increased dialogue, it is particularly important to adopt best strategies aimed at protecting and increasing permanent employment in the steel industry in order to anticipate further developments expected in the sector.

As regards the problem of dealing with the social consequences of any further restructuring that becomes necessary, national and Community programmes for granting aid under Article 56 of the ECSC Treaty are still applicable. Net job losses in the Community steel industry arising from such restructuring are estimated at 5000 in 2001, even if the United Kingdom is expected to remain by far the worst affected country in the Union. However, for various reasons, and particularly since some Member States are not taking part in the readaptation policy, these job losses do not correspond to the true number of workers eligible for ECSC support.

The appropriations earmarked in the draft ECSC operating budget for traditional aid for retraining in the coal and steel industries amount to EUR 80000000 for 2001. In view of the forthcoming expiry of the ECSC Treaty, it has been decided to use these funds to cover not only the expenditure for 2000 but also an initial tranche of the expenditure for 2001.

(1) OJ C 27, 29.1.2000.

ANNEX

TABLE 1

Supply and demand for crude steel((Factor for converting finished products to crude steel: 1.11)) - EU-15

>TABLE>

TABLE 2

Indicators of activity - Community of 12((In the absence of basic steel consumption data by sector for Austria, Finland and Sweden, these indicators refer only to expected development in the Community of 12.

Indexed forecasts of the level of activity of the various steel-consuming sectors derived by weighting national data provided by the trade associations of those industries. Some figures are partial estimates as the data for certain countries are not available.))

(not seasonally adjusted)

>TABLE>

Source:

Commission data.

TABLE 2(a)

Trends in the steel-consuming sectors in the main producer countries((Source:

National steel users' associations.))

(activity indicators((Reference index: 2000 = 100.)))

>TABLE>

TABLE 3

Changes in the numbers employed in the steel industry (including apprentices)

>TABLE>

Source:

Eurostat.