A debate is going on among Europe’s steel producers about how best to save the industry.
All of them agree that with demand down some 30 percent below pre-crisis levels and no sign of an imminent recovery, excess capacity needs to be closed. Yet politicians and labor unions are fighting closures at every turn while the more socialist-minded are calling for public funds to be made available to soften the impact of plant cutbacks or closures, particularly to meet social costs.
Some steel producers like ArcelorMittal are calling for outright protectionist measures to block cheap imports to the region from countries like China, while others such as Tata Steel, the second-largest producer in Europe, support regional aid to meet closure costs.
But here the industry is divided.
Mr. Wolfgang Eder, the president of European steel association Eurofer, said that the majority of European steelmakers are against the implementation of subsidies to help troubled companies survive.
Mr. Eder, who is also CEO of Austrian steelmaker Voestalpine, said, “I am absolutely against subsidies because they only make things worse. It is also a question of fairness within the industry,” adding that “there are companies who have done their homework with respect to innovation, restructuring, environmental optimization and some haven’t. I think it would not be the right political stand to support the latter.”
Apparently 70 percent of Eurofer’s members are against subsidies, according to the organization.
A recent report published by the EU Commission argues that China has become one of the EU’s fastest-growing export markets and suggests that protectionist measures would not be in the region’s best interests.
The document also underlines that China and Europe now trade well over €1 billion a day ($1.3 billion), mainly thanks to the cooperation project known as EUCTP II, which supported from 2010 to 2015 the Chinese government’s trade reforms and sustainable development agenda to promote fair competition and value for consumers, facilitate harmonization with international standards and promote safe products.
China is now the EU’s second-largest trading partner, behind the US, and the EU is China’s biggest trading partner. The two regions are already on a knife edge over recent proposals for the EU to apply anti-dumping penalties on Chinese-supplied silicon solar cells, covered in a separate article later this week.
The legality even of the EU’s proposed regional aid is being tested in Brussels this month; as state aid has to pass strict acceptability rules, the temptation to splurge using funds on meeting social costs will be huge.
If you can’t force a company to continue losing money, the next best thing is to compensate the laid-off workers so lavishly that there is no political fallout.
Tata Steel took a $1.6 billion impairment charge this week as a result of weak market conditions in Europe. The pressure to do something – anything – must be immense.