RATIONALISATION IN EU
STEEL SECTOR TO CONTINUE - MEPS
Overcapacity remains a significant problem in the global steel
industry. A healthy rate of plant utilisation is around 85 percent -
allowing 15 percent to cover maintenance stoppages and unforeseen
One part of the world where the crisis of excess supply can be seen
most acutely is in the EU. Steelmakers in the region are presently
operating at approximately 70 percent of maximum production
potential. Even at this level, there is severe competition between
mills for orders as demand is so weak and buyers are keeping
purchasing to a minimum. Consequently, the financial performance of
European mills continues to deteriorate.
Numerous key figures within the steel industry have been calling on
decision makers to act for some time and the European Commission
(EC) has heeded the call. It is preparing an action plan, due to be
unveiled in the middle of this year, which aims to increase the
global competitiveness of the sector. The EC will cover a range of
concerns including energy prices, trade, labour, raw materials and
climate change policy. Although changes in the regulatory
environment are required in order for European steel companies to
compete effectively on the world stage, many would agree that market
forces should ultimately decide the fate of individual steelmaking
ArcelorMittal has taken the lead with capacity closures in Europe.
Many other local steelmakers have yet to follow and have instead
chosen to idle plants temporarily or run mills at a reduced level of
operation. ArcelorMittal has the advantage of being a global
organisation and can adjust its portfolio accordingly. Whereas, a
local steelmaker, with just one or two units, is unable to benefit
from such economies of scale.
It is clear that the decision to permanently close facilities
involves significant opposition by political and labour forces, as
seen by the recent experience of the Luxembourg-based steel
producer. The future of a number of the company’s west European
plants remains unresolved.
Some of the current overcapacity is due to cyclical factors.
Apparent steel consumption in 2012 declined by approximately 10
percent, year-on-year, and stood more than 50 million tonnes below
the level witnessed in 2007. No gains are forecast this year. Only
moderate rates of growth are envisaged thereafter.
The apparent level of structural overcapacity and the resultant
effects on long term profitability have led some producers to exit
the region’s business altogether. This scenario can be seen in the
export-orientated steel industry of eastern Europe. Mechel has
recently disposed of assets in Romania. US Steel in Serbia made a
similar decision last year. Evraz is considering the future of its
operations in the Czech Republic, including a possible sale.
Despite the drive for rationalisation, capital expenditure by
European mills is likely to continue in the future, albeit at a
reduced rate. Investment will be made for environmental upgrades and
energy efficiency, rather than in expanding production potential.
Furthermore, there will be an ever more increasing focus on
value-added products - targeting niche, high-end markets, with less
and less commodity material being manufactured.
The long term sustainability of the region’s steel industry does not
solely rely on changes in policies and the elimination of excess
capacity. The prospects are tied to the performance of steel
consuming sectors - construction, automotive, energy, engineering,
home appliances. A stronger economy will provide a significant boost
to the steel industry. Conversely, as we have seen in recent times,
a weak economy will create sizeable problems.
MEPS World Steel
Outlook Quarter 1-2013 - Now available
Also See: MEPS
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