In Romania, the effects of the global economic and financial crisis were strongly felt in 2009, when the production of iron and steel decreased from 8 million tonnes in 2008, to 4.3 million tonnes in 2009, representing a 45.8% decrease. In 2010, Romania’s steel production partly recovered, increasing the output by 34.8%. The production growth was due, to some extent, to the implementation of the Romanian metallurgy restructuring programs according to the European Union’s requirements, which led to the modernization of several steel production facilities. These measures also impacted the production of crude steel in 2011, when the output registered an increase of 2.9%. Despite this recovery, in 2012, the production of crude steel decreased by 14%.
As previously mentioned, in 2013, the steel output increased by 1%, mainly supported by ArcelorMittal Galati’s new steel plant in Hunedoara, put in function in Q3 2012, at the end of a EUR 43 million investment in a brand new rolling mill. The move is in line with the steel mill’s shift toward higher value-added segments.
A negative impact on the output levels of iron and steel was the decision of Mechel to dispose of all its Romanian steel assets, which was having a negative impact on the Group’s financial results and cash flow for some period of time. The group of five steel plants abandoned by Mechel and currently under the ownership of a small Russian investor (Nikarom) is struggling to continue operations.
Main recent events
According to a local business publication, Romania’s steel roof tile producer Bilka Steel put into operation a new production line at the end of April, part of an investment program of EUR 5 million carried out between 2014 and 2016.
Higher performances were also recorded by TMKArtrom, which, according to their representatives, managed to boost sales by 13% in the first quarter of 2014, compared with the same period from last year, and the company expects a 25.4% increase in its full-year sales to RON 1.1 billion in 2014.
ArcelorMittal’s steel plant, the main employer in Galati and the largest steelmaker in Romania continued in 2013 the harsh restructuring steps that it started upon privatization and laid off 936 people last year. In order to minimize the social and economic impact of such decisions observed in the steel industry, the European Parliament Committee had recently approved an aid in amount of EUR 3.5 million for 1,000 workers that were laid off from Mechel Campia Turzii and its supplier. The aid will be used to pay for vocational guidance, starting up new businesses and providing mentoring after landing a job, according to the statement.
Due to high energy prices and lower demand for iron and steel products, ArcelorMittal Tubular Products Iasi reported a turnover of EUR 155.9 million in 2013, down 16.8% from a year earlier. In contrast, ArcelorMittal Hunedoara registered 14.6% higher turnover to RON 499.6 million in 2013, from RON 435.6 million a year before.
The automotive sector continues to exert a strong influence on the Romanian metallurgy sector, with flat products making up to 62% of hot-rolled output and much of that production is dedicated to serving automotive companies. At the beginning of 2014, this sector was expected to be boosted significantly by the increase in capacity at Ford’s Craiova plant, which enjoyed significant expansion in 2013; however, the YTD 2014 evolution proved to contradict in part these optimistic expectations.
The construction sector, which is also a key consumer to the steel industry, has registered one of the most significant falls during the crisis years. Economic uncertainty has held back the residential and nonresidential construction sector and, mainly because of this, in 2013, the sector registered a relatively flat evolution, compared with the previous year.
The 2013 stagnation in Romania’s constructions sector turned into a decline in 2014 as public investments are mostly lacking and private investments are unable to offset the deficit in infrastructure works. According to INS, in the first seven months, the construction output decreased by 12.3% compared with the same period of 2013.
The China phenomenon
World crude steel production was 1,582 Mt in 2013, reflecting a 4.8% annual climb, led by increases in Asia and the Middle East that helped counter the declines seen in the other main markets. China was once again the leading producer of steel, contributing a record 49.2% of the global output, followed by Japan, United States and India.
Based on industry officials, 2014 is expected to be a “transition year” for the steel industry with all major steel-consuming countries expected to register positive growth. This could also be the first time since 2006 when the growth rate in China could be outpaced by growth elsewhere in the world.
In the long term, as urban population increases worldwide, so will the need for steel to build residential buildings, skyscrapers and public-transport infrastructure. Emerging economies are also expected to continue to be a major driver of demand due to the huge amount of steel required for urbanization and industrialization. The demand for steel is thus expected to remain strong in the years to come.
Globally, the steel industry offers a worthy investment opportunity for 2014, as optimism returns, the automobile industry looks good and so does the construction sector in most developing economies.
With the global economy gradually on the mend, the World Steel Association expects continued recovery in steel demand and projects global steel usage to increase 3.1% in 2014. For 2015, world steel demand is projected to grow further by 3.3% and reach 1,576 Mt. Improving demand is also expected to boost steel prices.
The rise in energy prices on the Romanian market and global oversupply mainly caused by China’s rising steel output are the drivers for the country’s iron and steel industry. Also, the significant decrease in the plant production is due to a lower local demand for metal products and the strong competition exerted by producers in countries that are not part of the European
Union, where energy costs are less than half compared to the ones paid by local producers. Despite of this, local energy prices are still lower than EU averages, and because of that they should further rise in line with the single-market concept, adding further pressure on local steel companies.
Joint ventures with regional neighbours, such as that with Bulgaria are also encouraging for Romania’s domestic metals market. Romania and Bulgaria are building the Calafat-Vidin bridge in order to connect the two by road and rail, which should improve trade ties between the two nations.
The short-term outlook for the regional iron and steel industry continues to remain unfavourable due to rising energy prices on the local market and global oversupply partly caused by China’s rising steel output. In the longer term, the industry should pick up pace, as economy in Romania started to show improvements and the positive growth in the metal-intensive sector of automotive (in spite of mixed signals coming from Ford’s plant), continues to be a supportive factor for Romania’s domestic metals market in the long run. According to BMI, the performance in steel production is expected to reach 3.58 million tonnes in 2018, representing an average annual growth rate of 1.5% from current levels. While this reflects positive growth, output still remains at approximately one third of 2007 level.