By Stuart Burns
This is part two of a two part series – Part One can be found here.
“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.
What does that sound like to you?
Certainly in some European countries they will perceive this as access to state bailouts – using public funds to avoid layoffs and keep plants running. One can imagine Francois Hollande’s government in France rubbing its hands in glee at the prospect of accessing cash from all those funds. Whereas we can accept if public funds go toward retraining laid off workers but ‘retaining skills’ sounds very much like ‘no layoffs.’
According to SBB, “The Commission also wants to ensure the industry has the right regulatory framework. This would include investigating possible initiatives against tax evasion in some EU steel markets, and stimulating demand for steel in its two largest markets, construction and automotive”. Really, tax evasion? Does the Commission honestly believe the ails of the European steel industry come down to tax evasion? As for stimulating demand among the auto and construction industries, how will that happen? Subsidies perhaps?
Well if not at home maybe Europe can export? Well no, even the largest among them, ArcelorMittal (MT) has publicly stated Europe’s cost base does not allow it to export competitively. If European producers export in any significant volume, those comments alone should encourage any recipient market to start an anti-dumping action. If Europe’s own steel industry admits it can’t export profitably, than we can assume any exports must come close to or near a loss. Undeterred, the Commission says it “wants to help to improve access to foreign markets and ensure a level playing field. In particular, with an eye to the raw materials, it will “monitor the scrap markets and strengthen waste shipment regulations to enhance security of supply for EU steelmakers.”
Within hours of the Commission’s comments, the industry body Eurofer picked up on this and hinted darkly that export restrictions on scrap would be a jolly good thing for the European steel industry. The Indians thought the same thing about their iron ore industry. They banned exports only for the domestic iron ore industry to all but collapse. Does the Commission want that? Mature markets like the U.S. and Europe generate more steel scrap than they consume. Blocking scrap exports would harm the sophisticated gathering and processing infrastructure that has built up over decades. This would likely cost domestic producers as much as benefit.
Only in the closing paragraphs did the commission come out with any sensible ideas. First, they finally acknowledged that unilateral environmental targets serve as an “own goal”. The EU has set targets of 85-90% reduction in emissions by the industry by 2050. Yet the industry claims the best they will get is 15%. Even assuming an achievable middle ground, unless Asian and American steel makers have the same regulatory requirements, Europe’s steelmakers will carry so much additional cost burden they will have no hope of competing in their home market, let alone export markets. Likewise, the commission has recognized energy costs remain high and non competitive in Europe. With very limited indigenous energy sources, mass closure of nuclear and over reliance on costly wind farms and solar energy not only do Europe’s steelmakers suffer but a wide range of European energy intensive industries as well. If governments really want to help they should stop burdening consumers to pay for subsidized wind-farms. Instead, they should invest in nuclear power plants and support exploitation of energy sources like shale gas and tight oil.
Additional ideas for helping the industry involve supporting innovation and research into lower emission and less energy intensive steel production technologies with tax breaks. European authorities should also ensure any emission regulations have a global implementation component as opposed to some mandate unilaterally applied solely to European steel makers. One doubts the involvement of Brussels bureaucrats will actually achieve anything positive for Europe’s steelmakers in the long term but at least they have sat up and taken notice. In so doing, they have acknowledged the industry faces multiple challenges just to survive.