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History of the steel industry (1970present)

Material for development[edit]


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[edit]


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.[1] 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.[2]

World steel production in the 20th century[edit]

Bethlehem Steel in Bethlehem, Pennsylvania was one of the world's largest manufacturers of
steel.
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[edit]


Amongst the other newly steel-producing countries, South Korea has stabilised at around 4648
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.[3]

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.
[4]

Reduction in workforce[edit]
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 19962000[edit]


Thousand at end of each amount.
Country
Austria
Belgium
Denmark

1974
44
64
2

1990
21
26
1

1996
13
23
1

1997
12
21
1

1998
12
20
1

1999
12
20
1

2000
12
20
1

Finland
France
FR Germany (1)
Greece
Ireland
Italy
Luxembourg
Netherlands
Portugal
Spain
Sweden
United Kingdom
European Union
Yugoslavia (2)
Canada
United States
Brazil
South Africa
Japan
Republic of Korea
Australia
World Production

12
158
232
0
1
96
23
25
4
89
50
197
996
42
77
521
118
100
459
n/a
42
644 (3)

10
46
125
3
1
56
9
17
4
36
26
51
434
69
53
204
115
112
305
67
30
770

7
39
86
2
0
39
5
12
2
24
14
37
306
17
53
167
79
71
240
66
21
750

7
38
82
2
0
37
5
12
2
23
14
36
293
17
53
163
74
70
230
64
20
799

8
38
80
2
0
39
4
12
2
22
14
34
290
17
55
160
63
61
221
59
20
777

7
38
78
2
0
39
4
12
2
22
13
31
280
15
57
153
59
54
208
58
24
789

8
39
77
2
0
39
4
12
2
22
13
29
278
15
56
151
63
56
197
57
21
848

(1) Includes former German Democratic Republic 19962000 (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[edit]


Components of the recession relating to the steel industry[edit]
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[edit]


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[edit]
(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[edit]

(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[edit]
(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[edit]
(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[edit]


(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)[edit]


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)

Recovery[edit]
(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 19802010. Apparent consumption is a calculated figure
based on production, plus imports, less exports plus or minus change in stock.
In December 2015, United States Senator Nolan from the State of Minnesota introduced
legislation to ban steel imports for five years. The five-year period would allow the American
iron industry to recover from years of fierce competition with the countries of Asia.[5]

Summary[edit]
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.

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