The happenings in the global steel market is nothing that was not predicted in the past. The lack of acceptance of it is the problem. One is not talking about the price forecasts here. There are distinct but disturbing changes taking place in the character of the international steel market. It is shrinking and breaking down. While the early signs are in place, if the current trends continue, the steel companies dependent on the global market will face some uncertainty to begin with and rough weather later on.

The international trading in steel is falling as per discreet reports, although the aggregate numbers are yet to be announced for the year that has just passed by. The annual trade in finished steel remained more or less unchanged during 1997-99. The pure volume of trade does not also mean much. There has been a clear structural change in the pattern of trade. This is a new development and against the trend in global steel trade since the nineties.

Over the period, partly facilitated by the nation's urge to get integrated into the global economy for various reasons, and largely by the excess capacity the steel industry developed over and above their domestic needs, the global steel trade increased phenomenally over the eighties and till the mid nineties. The rapidly improving infrastructure for transportation and banking did also contribute to the expansion of global trade in steel. For some time it looked as though the regional trade blocks were weakening for steel to make for one big world market. The real ocean trade in the product was booming and many had thought that this would be the shape of steel business in the days to come.

But the developments in the last three years show that the trend may reverse.

During 1990-99, the total international trade in steel (semi and finished) increased from about 171 million tonnes to about 265 million tonnes. As a percentage of the total global production, it jumped from 26.1 to 34.6. The increase was recorded at a substantial 39.84 per cent in four years during 1990-94, whereas in the later five years, 1994-99, growth was recorded at about 11.5 per cent.

In fact, if intra EU and intra NAFTA trading volumes are eliminated, global trade increased only by about 53 million tonnes during 1990-98, as against  about 102 million tonnes recorded when the total trade is taken into account. In the same period, intra-region trade had grown by a huge 42 per cent, much against the trends of globalisation. It will, however, be inappropriate to ignore the fact that global ocean trade increased by a huge 75 per cent during the same period. Much of it, however, was achieved in the first half of the '90s.

In 1998, the top twenty steel exporting countries in the world accounted for 220.1 million tonnes of steel exports. If the European Union countries are excluded from this group (because these countries are involved very heavily in trading within the unified custom territory of EU), the figure drops to 125.8 million tonnes, accounted for by 11 countries - Japan (25 million tonnes), Russia (24.8), Republic of  Korea (17.5), Ukraine (15.9), Brazil (8.8), Taiwan (6), Mexico (6), Turkey (5.7), USA (5.6), Canada (5.3) and Mainland China (5.2).  The exports from these countries constituted 64.4 per cent of the total exports of steel worldwide excluding the intra EU trade.

And now let's take a look at the importing countries: the top ten steel importing countries, excluding the EU member countries and Singapore and Hong Kong  as these two regions are involved in substantial re-exporting) registered import of 92.2 million tonnes of steel. This is 34.7 per cent of the total volume of steel traded in 1998.

The statistics above indicate that exports are getting more concentrated in terms of the share of the top exporting nations in the exports. The trend is the other way round for imports. Importantly, this concentration of exports has taken place at a time when the actual number of countries exporting steel has increased. This means there are more and more marginal players in global steel trade. In the same way, despite hectic import substituting production all over the world, in whatever quantities, the number of countries importing steel has grown and the dispersion has increased.

The other important observation is that while during 1994-99, global steel trade overall rose by only 11.5 per cent, the same for  semis ( 27.56 per cent), HR coils (34.54 per cent), CR sheets (19.1 per cent) and galvanised sheets (66.2 per cent) went up at a much faster pace. As against it, trade in bars and rods (including rebars and wire rods), structurals and plates have either dropped or grew at a slower pace.  Another group of products, pipes and tubes, including fittings has also increased at rapid pace, accounting for an increase of nearly 30 per cent during the same period.

The scenario above shows that the global steel trade increased mainly on account of a few products and larger involvement of importing countries in the world mart as a consequence of their urge to globalise.

This very process seems to be under strain now as steel importing countries (mainly those producing steel as well) are getting dissociated from the global market.

There are many reasons for this observed decline.

One, more and more countries are producing steel and if not for the world market at least are finding themselves increasingly comfortable with taking care of home markets. Therefore, despite huge supply increases in the world market, dependence on it has decreased. One interesting example is that of China. Over the years, Chinese steel trade balance has changed significantly as imports are falling and exports rising. More and more of its domestic consumption is being met from domestic production. There are countries in Africa and the Middle East, once large importers of it, which are slowly becoming self sufficient.

Two, global trade will take place only when there is a price advantage. Today, if offshore quotes are lower, it makes more sense to local producers to match that price to remain in business. This happens almost everywhere now - the European Union, Korea or India. With the urge to retain market share and maintain high capacity utilisation, domestic mills are forced to match import prices thereby preventing actual increase in imports. With some tariff protection, if not quantitative restrictions, the local producers manage to get a price higher than the border price for the offshore material. They can continue to do so long their losses are not questioned. Not often this is done.

Three, trade actions are becoming an inseparable part of global business. With actions everywhere, the opportunities for exports have also become limited for major steel exporting countries. The countries affected by trade barriers are also resorting to counter measures more in retaliation than needed merely to protect the home turf for the local producers. Look at the number of trade cases in steel worldwide.

The latest count puts the figure at over 150. On top of that, there are so many non-tariff barriers and quantitative restrictions that the concept of free trade in steel is taking a ridiculous turn. If there is a case against China, there are cases initiated by China against several countries. Even the US that has perhaps slapped the largest number of dumping suits so far in steel, finds its own steel coming under trade actions in several places. If Indian steel faces dumping and subsidy charges in major markets, there are equal number of actions in India restricting imports. With the current enthusiasm seen in slapping anti-dumping actions ( or at least initiating such investigations) among national governments in major steel producing countries, one is sure to conclude that the course of international trade in steel will remain confined only among steel surplus countries to steel deficit countries.

Yet, every day, one talks about free trade, the need for it and the benefits it offers. It is only common understanding now that there cannot be free trade the way one talks about it in the text bookish sense.

Four, with the drop in steel prices, the average cost of freight as a percentage of the export price is also rising. This puts the players located at a distance at a definite disadvantage. It may not be easy for Brazilian mills to compete against the Japanese, the Chinese or the Koreans in South East or East Asia. Similarly, Indian mills may find it tough competing against the Brazilians in the US or in Latin America. Thanks to the comprehensive agreement that restricted Brazilians in the US HRC market last year at the time when the Indian exports to the country was increasing sharply, freight costs hit the commodity grade steel markets mainly.

Five, increased regional trade is also bringing in a structural change in the steel mart. More steel is traded within South East Asia or South America or North America or the European Union. This will change the pricing structure substantially. The c&f price within a region may be widely different from that in another for the same product. What happens in a region may not get fully transmitted to another region. There is enough indication of that happening in the global steel market. It is in this context that a statement recently made by Wilfried Von Bulow, the newly elected Chairman of American Institute of International Steel is worth taking note of " ...each country needs a steel industry (and) America needs a steel industry..."

There are many other factors, important in their own place, but may be ignored for the moment.

Implications for the domestic steel makers? Look homeward. It will be worthwhile not to put all the eggs in this shrinking export basket.