Why Europe's Steel Industry Is In Structural Long-Term Oversupply

Continued from Part One.

An article this week reports that Europe’s steel industry needs to shed around 25 percent of its capacity within the next three years if it hopes to remain a global player.

“It is a matter of fact that the European steel industry is in a massive structural crisis,” said Wolfgang Eder, who, as well as chairing the Eurofer trade body, has been chief executive of Austrian steelmaker Voestalpine since 2004.

Mr. Eder is further quoted as saying: “We have an annual capacity of around 210m tons in Europe. In my opinion, there are about 40m to 50m tons too much. That is an overcapacity of 25 percent.”

“If the structures and capacities are not adapted in the next two or three years,” he continued, “then more than half the steel production sites in Europe will vanish over the next 15 years because of continuous price pressure, and Europe will end up playing nothing more than a marginal role in the global steel industry.”

Governments are hampering the process in several ways.

Firstly, they are resisting attempts by steel companies to cut overcapacity and so improve capacity utilization, said to be running at 75% or less. Secondly, high electricity and gas prices make competition against steel producers in North America (who are benefitting from low-priced shale gas) challenging. Lastly, bureaucratic red tape and labor laws making hiring, firing and social welfare costs uncompetitively high in Europe compared to other parts of the world are certainly not helping.

In the absence of a highly unlikely massive turnaround in demand, Europe’s steel industry is set for a painful period of restructuring for years to come – during which the pressure for protectionism will only grow.

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