Outlook

Problems ahead

  • It is expected by about the year 2000 that approx. 53,000 workers will be employed in the Czech iron and steel metallurgy (not only in the steelmaking sector), i.e. approx. 40,000 workers less than in 1990. Placing this quantity of the released workers in other sectors in the normal way will not be possible, the more so because the decrease in job opportunities will be concentrated in certain regions (see employment policy, sales and production outlook and relation to productivity).
  • The conditions of the steel market cycle between high boom and a situation which may be classified as crisis. The cycle’s length ranges between 4 and 6 years as a rule. The last crisis in 1994 and partly in 1995 which hit especially Europe and Japan threw many works in these regions into losses whereas our steel works remained in the profit zone owing to coping successfully with large export volumes and utilising comparative advantages.
  • Continuously declining comparative advantages are, above all, low levels of wages, depreciations, freight rates and also a pro-export rate of exchange.
  • A permanent problem is the necessity of encountering dumping actions. Export to geographically very well situated EU countries, especially to Germany, is governed by a regulation mode agreed on by both parties. For the so-called sensitive commodities, a dual licence system based on limiting and monitoring trade with these items is agreed on and put into practise. A more relevant threat may be, however, the effort of manufacturers in some countries to replace volume limitations by dumping actions. These actions are keenly used in the present steel trade and sometimes they may result in penal custom duties being imposed in the amount where it will be no longer possible to export effectively the respective commodity. These custom duties may be imposed for a time longer than 5 years.

The only permanent handicap of the Czech Republic is its inland position and missing adequate water ways affecting transportation costs both in raw material import and in export. This is, however, simultaneously a compensating effect and, in fact, a partial protective filter against imports so that it is possible to consider it a balance factor from the viewpoint of strategy of production and trade location.

 

Significant factors in steel industry development

The essential pre-requisites of further development of the steel industry in the Czech Republic will be the recovery of the Czech economy and, in this regard, domestic consumption of steel is one of the most conclusive factors.

 

This is because

  • the steel industry in the Czech Republic has no conditions for keeping up permanently as a predominantly exporting branch;
  • chances of indirect steel export in the form of products containing steel are more versatile and flexible;
  • let us hope that the state will embark on building up infrastructure which always brings along a boom in steel consumption.

 

The volume of economically realisable steel production will also be affected by the balance of import and export of steel products. A part of the imports of steel products is and will be tied to the range and make of the products unrealised in the Czech Republic because the whole range of the required products cannot be realised at low production volumes. An active balance of export and import of about 0.5 mil t appears, for the time being, to be optimum, and realisable what would allow production of approx. 5 mil t products at relations 1.5 mil t export and 1 mil t import. A higher limit could be production of 5.5 mil t at export of 2.5 mil t and import of 1.5 mil t. If we call in question higher utilisation of capacities in boom conditions, then the potential of steel production and processing can surpass even 7 mil t. A 30 % share of export from the total production can be considered a real volume, which is usually realised by and large by steel industries abroad with analogous parameters. Therefore, we may say that it can be presumed for a more distant time horizon that export volumes of the metallurgical works of the Czech Republic and domestic consumption will not deviate from the position corresponding to the manufacturers in the EU. However, attention should be paid here to the fact that the balance of the steel foreign trade expressed in value can appear quite differently.

 

Long-term strategy of survival of steelmaking in the Czech Republic

This strategy consists in the stabilisation of delivery possibilities of its products to inland. The well-known rule is valid here that steelmaking may easily face the development provided the economy attains permanent GDP growth of at least 3 %. 1995 was a favourable year from this point of view. In 1996 the rates, however, decreased.

 

 

The situation of the economy of the Czech Republic is continuing to profile into the form of structure of economic activities corresponding to the standard of countries with advanced economies. This may be characterised also by per capita steel consumption ranging between 350 and 600 kg. This is a base giving a real starting chance to the steel industry (with its entrepreneurial activities) to compete for participation in this domestic steel consumption and to combine them suitably with pro-export activities.

 

This in itself best delimits the possibilities as well as the necessity of the steel industry to aim at keeping up in a competitive zone of steel manufacturers, suppliers and processors. The role of the state would be, in particular, the need to introduce a course of economic policy corresponding to the standard in the advanced countries. This means, among things, to create in the economic environment incentives to year-to-year GDP growth of at least 5 %.