Fortunately, the market sends right signals to the industry on how much to produce, but, unfortunately, the same is done with such a lag that most often the corrections are initiated much after the damage is done. The current trends in production of steel show that.

The good news (quite ironically) in the world steel market is that global crude steel production has increased only by 1.4 per cent in September over the previous month. The September figures were higher by 5.2 per cent over the same month last year. Cumulatively, in the first nine months of this year, the crude steel output, with the strength of the massive growth in the earlier months, rose 9.5 per cent over the corresponding period last year.

The important point is that on a month to month basis, there is a slowdown in production that will certainly help to reduce the current position of excess supply in the market. There are better news for those who believe that production cuts can only help the stabilisation of the market and prevent a chaos breaking out once again in the industry that had hardly a respite from the crisis of 1998. The countries and the regions generally more aggressive in pricing, having larger compulsions to export and cost competitive as well, are in the forefront of production cuts. Japan that recorded a 15.4 per cent increase in steel production in the first nine months of the year, saw the September production drop 2.2 per cent from the previous month.

Similarly, South America ( -2.5 %), North America ( -3.1 % ) have also seen drops in production in the same time frame. What the steel industry should rejoice is that even the CIS production growth rate is dropping to 5.8 per cent in September over August whereas their January- September production was higher by 18.1 per cent over the same in the corresponding period in 1999.

The IISI statistics also reveal a drop of crude steel production in India by 1.2 per cent in September from August. Although not quite surprising, the steel production in the European Union continues to increase at high pace. The market remains strong there although only early signs of a reversal are visible now. The steel industry, so far dependent on the general economic prosperity of the region that saw a surge in construction as well as export led growth in the manufacturing sector is at an uncertain position. So long the euro remains weak, the euro zone economies will see exports strengthen, but at the same time a drop in investment. Therefore, the gains for the steel industry will not be evenly distributed among all product segments in the industry. At present, the flat products are still relatively strong.

The prices, therefore, in the region have not fallen as much as in the rest of the world and that too in dollar terms. The euro or local currency denominated prices of steel in the European Union have not lost much ground.Hit once again by low world prices, high levels of imports and reduced domestic demand, the US steel industry is acting to put pressure on the administration to get some concession and perhaps work out something that comes to them easy and cheap. Lobbying is on high pitch and there are reports that as usual the industry will file a few more dumping cases towards the last days of the year. The US steel mills will perhaps not sit quiet seeing their production drop, losing the share of the market as a result.

The countries unable to utilise their capacities adequately, will see another round of financial crisis gripping their steel companies. The recurrence of this more frequently occurring events points to the fact that the market cannot take care of all the disturbances so well. It has also proved that even if one makes full use of the anti-dumping and countervailing provisions of the WTO, the steel industry problem remains unaltered.

The transition from the protected regimes in the past to the relatively free market scenario now was supposed to rationalise the steel industry's global capacity, production and lead to competitive prices. What we have now is ridiculous prices, rising trade disputes and unbridled capacity expansions.It will be worth the while to have a re-look at the possibility of co-operation among the steel makers on a larger plane. There are talks about an OPEC style output restriction to regulate prices. But, unlike oil, steel is produced in a much larger number of countries and in each, the number of players is also very large.

Unless there is a total restructuring of the industry with larger concentration of ownership, the market will continue to remain volatile. But, efforts to arrive at an agreement on production restraint on a global basis are essential for the survival of the industry.

( The views expressed here are of the author and not of the organisation he is employed with )