European steelmakers are at a challenging crossroads

Europe’s steel industry appears to be at a crossroads.
Hurting before the coronavirus pandemic-induced lockdowns, the industry struggled with overcapacity, high costs, weak demand and competition from lower-cost sources (like China and Russia).
The lockdowns decimated demand. Major consumers, like the automotive sector, which takes something like 20% of European production of flat-rolled steel, according to the Financial Times, have now largely reopened.
Even so, auto sales are not expected to recover to pre-pandemic levels until 2025, according to major European component supplier Continental.
Volatility is the name of the game. Do you have a steel buying strategy that can handle the ups and downs?

Could M&A be the answer for European steelmakers?

Mergers and consolidation have traditionally been posed as solutions. Bigger is better and economies of scale will solve the challenge of profitability, the argument goes.
However, many are arguing European steelmakers should worry less about consolidation and more about rationalization.
Furthermore, politicians are among those reluctant to consider job losses in their own regions.
The steel industry employs some 330,000 people across the continent. About 40% of the workforce is currently on some form of short working or under threat of redundancies.
However, if the government does not support closures with retraining and regional enterprise policies to support alternative employment opportunities, the European steel industry will limp on with, at best, marginal profitability and poor capacity utilization.

Pandemic impact

Many view the pandemic as potentially the death knell for all but the largest European steel producers.
In fact, it could, with government resolve, be its savior.
The E.U. appears adamant in its drive towards “net-zero” carbon emissions by 2050. The objective carries enormous challenges for heavy polluters, like the steel sector.
In that vein, a proposal seriously under consideration in Brussels that Europe should introduce a carbon border tax, imposing a CO2 charge on goods from outside the E.U. that didn’t operate the same environmental standards – a major reason producers in places like China and Russia can undercut European mills – would level the playing field.
Meanwhile, if politicians can accept some level of job losses in their own back yard, a leaner, more technologically advanced steel industry could emerge from the current morass.
Are they up to the task? Well, that remains to be seen.
Does your company have a steel buying strategy based on current steel price trends?

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