Steel Closures: US Grumbles, Europeans Riot and Russians Grow Potatos

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US steel workers are sometimes accused of being intransigent but rarely can they be accused of the kind of behavior seen in Luxembourg at Arcelor Mittal’s annual shareholder meeting this week. Protesting at shutdowns, 1000 workers fought with riot police and tried to storm the building, setting off smoke bombs and smashing windows in frustration at the firm’s unwillingness to re-open idled facilities in France and Belgium according to Newsday.

Like steel workers in the US, Mittal’s European workers will continue to receive a reduced pay packet so they can hardly claim they are destitute. Considering the industry is running at 50% of capacity the fact only some 17% of the European steel workforce has been hit by the downturn suggests the producers are maintaining employment for the majority of their workers.

Conditions in Russia are not so supportive however. Steel workers at Magnitogorsk Iron and Steel works have been offered plots of land on which to grow potatoes in compensation for unpaid leave or forced holidays at the plant that employs some 25,000 people.

With demand cut in half since last year, Lakshmi Mittal is reported in the WSJ as saying it is pointless producing steel nobody wants but that as soon as demand picks up they will gradually re-start capacity. The company has, along with other manufacturers,  idled production capacity around the world as demand has plummeted. With no early sign of a recovery, many of these plants are likely to remain closed or work on reduced shifts into the third quarter but at some stage demand will gradually come back. This year, the industry has seen a profound de-stocking throughout the supply chain which translates to a 10-15% drop in end-user demand and a 50% drop in demand at the point of production. That process has some way to run but run its course it surely will. At which point demand could pick up within a period of a few months. You can be sure producers will take the opportunity to only re-instate production when lead times stretch out. The first priority will be to raise prices.

Timing in the US at least will probably not be until after the auto plant shutdowns leading up to the summer; as auto inventories further run down. Steel demand will likely pick up only in the third quarter as those plants come back on stream and new house construction begins to improve.

–Stuart Burns

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