In 2008, the world economy was affected by the US financial crisis in which it eventually became the world financial and economic crisis. International Monetary Fund or IMF estimated that the growth of world economy in 2008 would decrease to 3.7 per cent down from 5.0 per cent in 2007. According to the World Steel Association (WSA), the world crude steel production in 2008 stood at 1,329.7 million tons, down by 1.2 per cent from the previous year. Particularly, in December, the production dropped by 24.3 per cent owing to the hard hit from the economy crisis which drastically affected world steel demand along with the attempt for production cut to prevent further drop of steel price. China’s crude steel production in 2008 climbed 2.5 per cent to reach 502 million tons. Meanwhile, South Korea, India and Middle East increased their crude steel production by 3.8, 3.7 and 1.2 per cent respectively. In an opposite vein, Japan decreased its crude steel production by 1.2 per cent. CIS, Europe and North America also slashed production by 8.1, 5.6, 5.5 and 1.4 per cent respectively. WSA also estimated that the world steel consumption in 2008 would grow at 6.7 per cent.
Global steel price tremendously fluctuated as it had surged continuously since January to peak in August. A rising demand in China pushed the price of steel and coal to increase along with the freight rate jumped over 100 per cent as a result of tight demand. Such condition had driven the price of semi-finished products e.g. pig iron, scrap, slab and billet to rise continually in the first half of 2008. In the second half of the year, the world economy shrank due to the sub prime loan crisis in the USA which widely impacted global financial and economic regimes. As steel demand of major consumers i.e. People’s Republic of China, USA and Japan as well as ASEAN was largely decelerated, the price dramatically dropped in the third quarter of 2008. The sluggish demand coupled with continuous drop in price resulted in production cut of world major producers by 30 per cent as well as a temporary shut down of some plants. Under such scenario, some countries posed measures in assisting local manufacturers. For instance, Chinese government revoked export tax on several categories of steel products and Vietnamese Ministry of Finance revoked its export tax on billet.
The Fiscal Policy Office reported GDP of the country in 2008 was 3.0 per cent, compared to 4.9 per cent of the past year. This was mainly resulted from lower domestic expenditure and export of product and service in response to the world economy in recession. Additionally, the airport closure in late 2008 had a negative consequence on products transportation and tourism. According to the Iron and Steel Institute of Thailand, the Country’s apparent steel consumption in 2008 amounted to 13.5 million tons, increased by 6.4 per cent over the past year. This was partly due to increased inventory of middleman in the second half of the year as the price of domestic steel continued to rise in the same direction with world steel. Thai economy, however, was severely affected by sluggish world economy and Thai political problem as well as rising price of consumer products as a consequence of fuel price hike jeopardized consumer confidence. As consumers were more careful on their spending while governmental and private investments were scaled down, the construction and automotive industry, which are the large consumers of steel, were thus tremendously tumbled. The consumption of steel in the fourth quarter decreased by 23 per cent down compared to the same period of the past year, and that in the second half dropped by 19 per cent from the first half. The high volatility of steel was witnessed in the price of iron ore, crude steel, scrap and coking coal, while the transportation cost or freight rate jumped rapidly. All of these had pushed the price of slab, billet and scrap to rise sharply from the fourth quarter of 2007 to the second quarter of 2008 before the steel price in the world market dropped drastically afterward. The domestic steel price declined continuously in the same direction so that the manufacturers were unable to release products in time and thus realized a loss from provision for diminution in value of products and inventories (stock loss) at the end of 2008.
International Monetary Fund or IMF estimated that world economy will grow merely at 2.2 per cent. As for world steel industry, MEPS (International) Ltd. forecasted a downward trend in crude steel production in 2009 at 3.2 per cent to 1,285 million tons, as a result of decreasing demand in major industries e.g. automotive, electrical appliances and construction. Risks arisen from slow economic activities and a further slide into recession, brought about worldwide reduced steel production. The government of many countries, nonetheless, issued several measures to stimulate economy and support various industries e.g. automotive and parts and infrastructure of the USA as well as infrastructure construction of China, which may help trigger a demand of steel. With respect to price, the price of iron ore in 2009 is expected to decline by 20-40 per cent. Coal, which is used for coke making, is likely to drop by 40 per cent. Additionally, fuel price is estimated to go down as well, which will contribute to a lower production cost for steel manufactures.
Regarding the Thai economy in 2009, according to the Fiscal Policy Office, Thai GDP is expected to contract one per cent due to a negative impact from glooming prospect of private expenditure, a result of lower household income and uncertainties in employment. Meanwhile, the export sector tends to decline sharply because of slow-down economy of trading partner countries. Nevertheless, the consumption and governmental investment will be a major contributor in driving economy ahead. As for steel industry in Thailand, the Iron and Steel Institute of Thailand viewed that the slow economy will prompt an 8.4 per cent- decrease in steel consumption, resulting in a use of 12.3 million tons in the country. Also, the steel inventory will prevent an expansion of real consumption of steel. Adding to this, the export sectors using steel as raw material e.g. automotive and parts, tends to shrink. Nevertheless, it is fortunate that improved political situation in the country is believed to create more stability along side with economy stimulation package of the government which is trusted to help boost confidence from consumers and both domestic and international investors. In particular, the governmental projects will help encourage more consumption in construction sector. In 2009, the price of steel is estimated to improve compared to the past year which saw a high level of volatility and sharp decline. This year, the price will sustain and may rise slightly depending on domestic consumption. As for the competition, the rise in price of scrap price and softer price of semi finished steel products will result in a similar cost structure of both producers using scrap and semi finished steel products; domestic competition thus be more intensified. In addition, the measures launched by governments of some countries e.g. an export tax revocation which will lead to more steel import to the country, will fuel fierce competition in the country.
