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Mon, Jan 17, 2005 - Page 12 News List

Steel output primed to hit new record high

CHINA EFFECT Driven by the Asian giant, output is expected to boom -- but the recent price surge is bound to abate as producers eventually cut back, analysts say

AFP , Paris

Worldwide steel output, powered by robust Chinese economic momentum, is expected to hit a new record this year, but the dizzying surge in prices seen last year should eventually spark resistance from consumers, the OECD has predicted here.

After breaking through the one-billion-tonne barrier last year, production is projected to rise by about five percent this year and 3.5 percent next year, according to the Organization for Economic Cooperation and Development.

Output last year came to 1.05 billion tonnes, up 8.7 percent from 2003. China was responsible for more than a quarter -- 26 percent -- of last year's total.

While steel prices are expected to edge still higher in the first half of this year, "they will then stabilize and in some cases undergo a readjustment," said Franco Mannato, a steel economist at the OECD.

"We can't have an infinite increase in prices," he told reporters. "Steel after all is one of the most important base materials in the world and price increases have repercussions everywhere. We have to realize that at a certain moment steel producers ... will have to limit the increases."

Steel industry consumers will become increasingly reluctant to accept continued price hikes, he warned.

World Steel Dynamics (WSD), a US steel research group, has even spoken of a possible "strike" on the part of buyers, notably in Europe where they are suffering from the effects of a weaker dollar as well as higher steel prices.

"The steel industry has to be careful," added Mannato. "At a certain price level, substitute materials will be increasingly considered. We've seen it in the automobile sector where certain marques now use aluminum."

But Mannato added that talk of a buyers' strike was exaggerated. "Everyone needs steel," he said.

In addition Chinese imports, which have driven the price surge, declined 24 percent last year to around 30 million tonnes.

Mannato said the cut-back in Chinese steel imports should be maintained this year and next year while exports, which may have doubled last year, will likely continue to grow.

Economists are meanwhile predicting that the currently fragmented global steel industry should see further consolidation in the years to come similar to movements that produced such giants as Arcelor in 2002 and Mittal last year.

At an OECD conference here last week, World Steel Dynamics produced a list of 45 potential takeover targets in the sector as well as 11 possible buyers. The list represents 60 percent of world steel output.

The 11 potential buyers are world leader Mittal Steel, the European-based Arcelor, Nippon Steel and JFE of Japan, POSCO of South Korea, BaoSteel of China, Nucor, US Steel and Commercial Metals of the United States, Severstal of Russia and the Brazilian-US-Canadian firm Gerdau.

Among the 45 targets are heavyweights such as Corus of Britain, ThyssenKrupp of Germany, Riva of Italy and Sumitomo Metals of Japan.

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