Modelling steel demand in the UK

Overinvestment in the steel industry is very costly and often results from an inability to assess the processes determining steel demand. To help understand the factors affecting steel consumption, a simple model for the UK is developed and estimated. The model relates steel consumption to changes in the intensity of use and the level of economic activity. The results indicate that steel intensity of use (SIU) in the UK has declined because of a reduction in the relative size of the manufacturing and construction sectors, a growth in high technology industries, and resource saving technological change. Steel prices are shown to have had little effect on SIU, The model is capable of explaining the general downward direction in SIU and many of the cyclical movements - most notably the temporary upturn in the late 1980s. This represents a substantial improvement on the intensity of use hypothesis. (C) 1996 The Institute of Materials.