Memorandum submitted by UK Steel Association
(continued)
APPARENT CONSUMPTION (CRUDE STEEL) 1998
| Country | Total Consumption
(million tonnes)
| Kg per
capita
| Kg per
US$ GDP
|
| Japan | 71.2
| 567 | 13.6
|
| Korea | 26.0
| 560 | 54.0
|
| Austria | 4.2
| 514 | 16.6
|
| USA | 133.0
| 494 | 16.4
|
| Germany | 39.9
| 485 | 17.2
|
| France | 19.4
| 330 | 11.8
|
| Switzerland | 2.2
| 306 | 6.9
|
| UK | 16.6
| 288 | 13.7
|
| China | 123.8
| 99 | 137.5
|
| India | 27.2
| 28 | 61.3
|
Source: International Iron and Steel Institute.
These figures suggest that while steel consumption accounts
for a similar proportion of economic wealth in the UK and Japan,
the UK seriously lags Japan in its capacity to produce manufactured
goods.
World steel consumption has grown at some 0.5 per cent per
annum for the last 10 years.
Demand growth has been strongest in the newly developing
economies in Asia.
European stainless steel consumption has grown at 5 per cent
or more per annum for the last 27 years. Note again that the UK's
performance is well below the average.
STAINLESS STEEL CONSUMPTION GROWTH PER CENT PER ANNUM
| | 1970-96
| 1990-97 |
| Europe | 5.6
| 5.0 |
| Spain | 8.4
| 9.1 |
| Italy | 6.8
| 6.0 |
| Germany | 6.1
| 4.4 |
| France | 4.2
| 5.6 |
| UK | 3.3
| 2.6 |
Source: British Stainless Steel Association.
Steel consumption per capita by industry provides an interesting
insight into the strength of the US economic performance and manufacturing's
special role in it, compared with other leading European economies
and the UK.
CHANGES IN CRUDE STEEL CONSUMPTION PER CAPITA 1989-98
| | UK
| Germany | USA
| France |
| Consumption per capita 1998 (kg) | 288
| 485 | 494
| 330 |
| Change since 1989 | -7 per cent
| -13 per cent* | +20 per cent
| +7 per cent |
Source: International Iron and Steel Institute.
Note: *Realignment on this measure following integration
of the Eastern Laender.
Some thoughts for the future. World Steel production will
have to rise some 60 per cent for China to enjoy a standard of
development similar to Germany's. For India to reach a similar
goal will require an additional 400 million tonnes of steel each
year. That's another 50 per cent on top of all the steel produced
this year, which is in any case expected to be a record.
KEYS FOR
COMPETITIVE STEEL
PRODUCTION
The benefits of a competitive domestic steel industry
For all practical purposes, steel is fundamental to all manufacturing
processes and therefore occupies a highly sensitive position in
a national economy where making things is crucial to international
viability.
Metallurgical know-how and skills depend on steel producers
for the drive to extend and propagate knowledge and its application
through the manufacturing supply chain. The UK has developed this
reservoir of talent in depth. Working together with customer companies
on their specific performance requirements, from concept through
design to manufacture, enables UK manufacturers to rely on a local
presence and a shared culture and commitment to integrated problem
solving. All of these benefits are only available at the cutting
edge through a globally competitive domestic steel industry, that
is "plugged in" to customer needs and trends on a world-wide
scale.
There are also some important long-term social benefits.
There is increasing recognition of the need to promote the concept
of sustainable development. In the face of gradually depleting
resources, the UK steel industry offers big advantages as a key
contributor to successful recycling. Forty per cent of all steel
produced in the UK is recycled and all new steel produced there
contains old steel, from cars and washing machines to so-called
"tin" cans.
Keys to successful steel
Finance
As a capital-intensive industry, the cost of capital and
return on investment are key determinants of the industry's future
competitive capacity. Returns on capital in the UK are currently
negative.
Interest rates, that may be considered low by domestic standards,
have to be compared with rates offered internationally to competing
firms.
In the last 18 months investment has fallen to levels less
than half of depreciation, so future competitiveness is being
lost at a rapid rate.
Process development
Current liquid steel producing processes are at or very close
to their optimum theoretical thermal performance. New liquid steel
process technologies are thought to be some 10-20 years away.
As a result, current investment world-wide is focused on secondary
process efficiencies, such as near-shape casting. These are still
major capital items. But in some cases they are of little or as
yet unproven operational or financial benefit, especially in the
economic circumstances currently prevailing amongst our UK manufacturing
customers. In addition, such new investment is vulnerable to changes
in the fiscal and regulatory regimes.
Proximity to customers
Basically, steel plants world-wide are either sited "on
top" of natural resources (eg iron ore), as in Brazil and
South Africa, or near centres of steel use, such as in Germany
or the USA.
In the UK, steel plants tend to be sited near centres of
high steel demand, or alongside facilities that make the handling
of imported raw materials and the export by ship of finished products
as easy as possible. A combination of both is of course ideal.
But those advantages will be rendered obsolete if the immediate
national customer manufacturing industries are not of a critical
mass that: warrants major investment in steel production; generates
supply chain efficiencies or encourages the spread of skills.
Energy
Energy accounts for 20 per cent of steel's production costs.
Prices for electricity and also more recently for gas have been
volatile. EU and US based steel companies have been able to acquire
their supplies of electricity at substantially cheaper rates than
UK based firms.
Skilled employees
After raw materials, staff are steel companies' most expensive
and important resource.
Manufacturing industries like steel have developed with a
strong training ethos. They have been able to take on relatively
untrained recruits at the start of their careers and develop the
required skills in them. It may be argued that these employees
did not have strong academic achievements behind them. But their
positive attitude combined with the companies' commitment to training,
enabled them to fill demanding jobs and earn a good wage. A solid
benefit for all concerned, including the broader community.
But this is changing. Companies are as committed as ever
to continuous training (the UK steel industry spends £65
million on training), but their recruiting requirements have changed.
Now they require communications and team and IT skills as the
typical steel production or process plant, with a replacement
value of may be hundreds of millions of pounds, is now more likely
to be run by a small team of operators supported by an array of
computer controls.
This pace of accelerating change means that employees will
need to radically update their skills four or five times during
their working lifetime. Steel companies will have very special
demands for future recruitment and need to drive their training
investment as hard as possible, because, already according to
an EEF study, 75 per cent of the steel industry's workforce for
2010 is already working in steel companies and maybe as much as
50 per cent for 2020.
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