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.
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.
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.
Just prior to the onset of the 2008 recession, the steel industry could be described as having the
following overall characteristics
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.
(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.
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.