European Commission Misses Mark to Revive Euro Steel Industry

This is Part One of a Two Part Series.

Platts’ Steel Business Briefing reported the essentials of the European Commission’s recent “action plan” designed to address the challenges facing the European steel industry. Steel demand in Europe today remains 30% below pre-crisis levels. At the same time, the European steel industry continues to face the repercussions of low demand and overcapacity.

Employment in the sector also fell by 10% from 2007 to 2011. Nevertheless, the EU taken as a whole remains the second largest producer of steel in the world, with an output of more than 177 million metric tons of steel a year. This accounts for 11% of global output while the industry employs more than 360,000 people, according to a 4-traders article. Global steel demand is expected to increase to 2.3bn tons by 2025, and the European Commission wants to help the European steel industry maintain its share of that global growth target.

Acknowledging the main challenge facing the industry today as the drop in demand for steel in the European market, one would think the thrust of the action plan would involve managing capacity to more closely match demand and hence support prices. With over-capacity crippling competitiveness, high costs and far more bureaucracy than in other parts of the world even some in the industry wonder if Europe’s steel industry has a future. The commission says it wants to lay the foundation for future competitiveness by fostering innovation, creating growth and ensuring fair trading in international steel markets. Sounds good but what does it mean? To understand that we need to look at the rest of the comments.

We have quoted Platts here who impartially repeat many of the comments made by the commission, “In the current situation, where EU steel demand is down by 27% from its pre-crisis level, a new political strategy is needed, EU Commission vice president Antonio Tajani said. The Commission proposes to support demand for EU-produced steel (at home and abroad), by acting to ensure EU steel producers have fair access to third country markets and are not victims of unfair trade practices”.

We have no problem with the suggestion that fair access to third country markets remains important. After all, some countries do support their own exporters yet put up barriers to imports, against both the letter and spirit of the WTO. But we do have a bit of a problem with the starting point that weakened demand necessitates a “political strategy.” Since when do governments play a role in steel demand apart from temporary boosts like infrastructure projects? We’d suggest that appears highly unlikely in Europe’s cash strapped state along with subsidized car sales – which provide a sugar rush of demand until removed.

“Acknowledging over-capacity in the global steel industry, the Commission said it wants to ease restructuring while ensuring that highly skilled labor is retained in Europe”. This brings up an obvious question – without downsizing or reducing capacity how can one tackle over-capacity? Read retaining highly skilled labor as avoiding layoffs at all costs. “Structural funds, and in particular the European Social Fund and the European Globalisation Adjustment Fund as well as several policy instruments, can alleviate the social cost of adjustment and ensure that the necessary skills required are retained”, SBB (Platts) quotes the commission as saying.

Continued in Part Two.

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