Steel executive Karl-Ulrich Köhler isn’t among the industry pessimists. The boss of Tata Steel Europe was in expansive mood recently in his office in the Dutch city of Ijmuiden, northwest of Amsterdam. A gray carpet covered the floor, and apart from a photo of his family and a briefcase, the room was otherwise free of personal objects. Mr. Köhler wasn’t in the office much anyway – he preferred to be with clients.
Mr. Köhler felt better visiting them in recent weeks. The mood in the steel industry was upbeat. “At long last, demand is improving in Europe,” said Mr. Köhler in an interview with Handelsblatt. European suppliers were expected to use the better situation to increase prices. Clients in the automobile industry as well as machine and plant engineering might have to get used to the idea that steel will become more expensive.
Higher prices could signal the end of a long period of weakness in the steel industry. Europe’s hasn’t fully recovered from the downturn that followed the 2008 financial crisis. Many factories are working at far below optimum capacity, and most manufacturers are still suffering losses. Among them is Tata Steel, the second biggest steel maker in Europe. The company is part of the India-based Tata conglomerate, and for the last four years responsibility for its European business has been in the hands of Mr. Köhler, a former ThyssenKrupp board member.
The upbeat outlook extends to other European steel producers such as ThyssenKrupp , ArcelorMittal and Voestalpine. Next week, industry leaders will be at a meeting of the World Steel Association in Moscow. The last time they met, the Europeans looked bad in comparison to the Asians and Americans. After years of China’s industry setting one sales record after another, U.S. manufacturers have also been able to post clear gains in recent times.
The development in the United States is due of the country’s reindustrialization and the boom sparked by the production of natural gas from shale deposits. In North America, steel costs more than in other regions of the world — which has helped U.S. steel mills get back on their feet. Companies to a large extent have been able to bridge the gap in quality between their steel and that of the Japanese and Europeans.
Mr. Köhler will travel to Moscow, fortified in knowledge the economy is picking up. “The industry has pulled through the crisis period when nobody was earning money,” he said. Steel prices have remained stable throughout the summer after falling in the year’s first half, which was an enormous burden on the companies’ balance sheets.
“The industry has pulled through the crisis period when nobody was earning money.”
“We are now expecting prices to increase,” Mr. Köhler said. Some companies including world market leader ArcelorMittal have already increased prices for some products, according to industry insiders. The steel industry isn’t suffering negative effects from the conflict in eastern Ukraine, even if automakers in Russia are selling fewer vehicles. Also, the long-suffering steel industry is getting some relief on the purchasing side: Iron ore and coal have become considerably cheaper in recent months. Industry insiders talk of production savings of about €50 ($63) per ton.
Mr. Köhler wasn’t relying solely on the improved economic climate. He modified Tata Steel’s product lines. The company is producing higher- quality steel, which is in demand particularly from car and machine manufacturers who are also prepared to pay the higher prices.
To implement the change, the parent company in India agreed to invest heavily in plant modernization. Tata Steel has invested hundreds of millions in its British plants in addition to the Dutch location. The change in strategy was slowly bearing fruit, Mr. Köhler said. “Even in the years when the automobile industry did not grow, we were able to increase market shares.” The company now sells almost every fifth ton to the automobile industry, and that share is set to rise, he said. Clients confirmed Tata Steel has made considerable progress. “The quality has improved,” said a spokesperson for a big automaker. Mr. Köhler said quality would increase even more: “We are not top-of-the-heap yet.”
Martin Murphy is an editor at Handelsblatt and covers the steel industry. To contact the author: email@example.com