Although some markets had undergone rationalization, as we mentioned in Part One, others have been protected by state support and political pressure, such as in France.
French labor costs are some of the highest in Europe, while their working week is among the shortest. No wonder low value-add industrial operations like basic steelmaking are facing tough times in today’s market — it’s a surprise any but the most efficient, most ideally located blast furnaces are still working.
Part of Mr. Montebourg’s case is that Mittal made promises when it took over Luxembourg-based Arcelor in 2006, but the reality is the world has moved on since 2006 and employment promises made then may no longer be possible in a post-crisis world.
France’s president François Hollande is reported to have also stepped into the fray, telling Lakshmi Mittal that if he does not guarantee to keep the blast furnaces operating, France will nationalize the whole Florange site, which includes rolling mills and other operations, and is rumored to have Severstal lined up to take over the whole operation.
With unemployment rising to 3.1 million, its highest level for more than 14 years, the French government’s attempts to keep any and all jobs is understandable, even if the employer is losing money on every ton of steel produced.
As governments elsewhere have found, though, the only way to keep uneconomic plants operating is to nationalize them or subsidize them with state aid.
Watch out for the words of the negotiated settlement in the final communiqué, should the decision to close the furnaces be reversed.