GERMANY'S
ELECTION RESULT UNLIKELY TO STIMULATE STEEL PRODUCTION
The formation of a “grand coalition”
government in Germany has left economic commentators unimpressed.
Many believe decisive and radical action is needed to spur
industrial growth – and, with it, steel consumption. But a
coalition government – composed of left and right wing parties who
have little in common – could see compromise, indecision and even
paralysis.
Once the powerhouse of the European
economy, Germany has been floundering. National finances have
deteriorated as stagnation took hold. More than 10 percent of the
workforce is unemployed. At the recent election, the conservative
Christian Democrat Union leader Angela Merkel campaigned on a
platform of radical reforms of tax and the labour market. However,
voters failed to back her in sufficient numbers and left no single
party with enough seats in the Bundestag to take power.
After three weeks of wrangling, Merkel has
finally succeeded in forming a government – but has been forced to
concede control of key ministries. This will leave her struggling to
implement the promised economic shake-up. With the social democrats
holding the ministries of finance and labour, the extent of any
economic reforms is unlikely to be radical.
So the economic outlook for Europe’s
largest steel producing and consuming country remains distinctly
lacklustre. Steel demand this year was already forecast to be down
by more then 3 percent compared to last year, which saw a massive
stock build. Crude steel output in January-September was 4.6 percent
lower than in the first nine months of 2004, as mills cut output to
bring supply better into line with demand.
There are some signs that market conditions
may be starting to improve. September saw a 12 percent increase in
German steel mills’ order intake over the same 2004 month. At 3.3
million tonnes, it was the highest September figure since 1999.
Export orders led the way. Foreign sales of steel-containing goods
will also be favoured by the decline in the value of the euro
against the dollar. So far this year it has lost more than 11
percent of its value against the US currency.
The European Commission’s latest survey
shows that economic sentiment for the EU saw a remarkable increase
during August and September – defying the threat posed by high oil
prices. Industrial confidence improved a little, and the indicator
for the construction industry showed a significant jump. The
building sector consumes almost a quarter of Europe’s steel, and
in Germany it has been in the doldrums for a long time. Any upturn
makes prospects for steel demand considerably rosier.
In period four of this year, the German and
EU economies do not appear strong enough for steel mills to secure
all the price rises they are demanding. Some upward movements are
taking place – but these are largely confined to southern Europe
where prices were lower anyway. If the new coalition government is
unable to make the structural adjustments that many consider
necessary, there will be less impetus behind any rise in steel
prices in the first quarter and maybe the rest of 2006 as well.
