Czech steel city suffers from demand slump

The Czech Republic’s third biggest city Ostrava is renowned worldwide for its steelmaking. But the world economic crisis has hit the business hard with production down to levels not seen since the end of WWII. The downturn has been dramatic for an industry that caused Ostrava to be dubbed the steel heart of the Czech Republic.

The world crisis has hit big steel using industries like construction and shipbuilding hard with the downturn being passed onto Ostrava’s steel making giants. The business daily Hospodářské noviny reported on Tuesday that the situation is now even graver than when the city’s then state-owned steel producers were on the verge of bankruptcy 10 years ago.

Demand has slumped so low that Arcelor-Mittal Ostrava - part of the world’s biggest steelmaker - will have just one of its four steel producing furnaces in operation next week. That has never been witnessed since the steel production facilities were created in 1958.

Management of the company have even had to fend off speculation that the plant could shut down altogether or be transferred to neighbouring Poland.

Phil Price is editor of the industry’s specialist magazine, Metal Bulletin. He says the Ostrava unit of the world’s biggest steelmaker not suffering alone.

“The Arcelor-Mittal cuts are in line with production cuts they have put into force elsewhere in Europe and their operations further overseas as well. It is largely in reaction to a massive cut in demand for steel resulting from a build up of stocks at the end of last year which has yet to make its way out of the system.”

Not far away in Ostrava, Evraz Vítkovice Steel production is running at 50 percent of capacity with part-time work introduced for some of the 1,400 employees. One of its biggest problems is that demand has fallen out of the recently booming global shipping market. The firm’s steel sheets were used to build new cargo carrying vessels as well as for the construction industry and for transport equipment.

The steelmaker’s Russian owners are reported to be heading towards Ostrava to give out new instructions about the plant’s future.

Metal Bulletin’s editor believes an upturn in demand could be a long time coming.

“Some of the key consuming industries, such for example as the white goods sector and auto manufacturers are having their own difficulties in terms of end users no longer purchasing as much material as they were last year. So it is unlikely we will see any substantial increase until well into 2010.”

While Czech steelmaking has shrunk since the glory days of the Communist planned economy it still directly employs around 22,000. And for every steelworker, it is estimated that there are another six or seven jobs in industries supplying the furnaces and rolling mills.