Sad news about the disastrous state of European steel industry appears in the media almost every day. European steelmakers reduce output and idle capacity (US Steel Kosice, Liberty Ostrava, Acciaierie d’Italia, ArcelorMittal Asturias, Arvedi AST), cut off workers (Thyssenkrupp Steel, Swiss Steel, Stahl Gerlafingen). Some companies delay wage payments (Liberty Dudelange, Liberty Dunaújváros). Also, some companies have been declared insolvent or are on the verge (Huta Czestochowa, Liberty Specialty Steel UK).
The dire state of both the steel sector and industrial production as a whole has sparked a wave of discussions about the need to strengthen support measures.
Existential challenges
The European steel industry, which is in the process of transitioning to low-carbon production, has been vulnerable to market crises.
Key issues facing the European steel industry include:
- Low margins amid growing exports from China due to excess capacity;
- Rising energy prices due to both geopolitical factors and green transition policies;
- Deterioration of domestic demand due to the crisis in the EU downstream sectors.
This year steel exports from China may increase by 22-24 million tons – to 117-119 million tons. This creates colossal pressure on prices. The price of hot-rolled coil in the EU for 11 months of 2024 fell by 12% y/y. At the same time, despite the negative marginality, China is not reducing steel production, that is why prices of raw materials remain elevated and the entire global steel market faces losses.
The period of growth in exports from China coincided with a period of cyclical crisis in the EU. In 2023, steel consumption in the EU fell by 1.5%. This year, according to GMK Center estimates, it will fall by another 2.8%. Expectations for next year are hardly rosy, since demand may again fall by 0.7%. Many experts in the EU have started talking about the fact that the industry is not experiencing a cyclical decline, but deindustrialization.
EU imports of finished steel products increased by 20% y/y in 10 months of 2024. The current import quota system, which was introduced in 2018, has proven ineffective in overcoming challenges such as global oversupply. The current system leads to imbalances: in the first month of quotas, we see an aggressive influx of imports, after which there is no demand for the next two months, that ultimately puts pressure on prices.
As a result, EU steel production fell by 15.5% in the first 10 months of 2024 compared to the same period in 2019. The average capacity utilization for flat finished steel products in 2024 was 65%, forcing steel companies to shut down production facilities and lay off staff. At the same time, there remains a need to invest billions of euros in the green transition. Amid above-mentioned problems, discussions about the survival of the industry are indeed very relevant.
Industrial agenda
To present the challenges facing the European steel industry to European policymakers, industry participants have developed at least five anti-crisis initiatives with support measures over the past two months:
- German “The National Steel Action Plan”
- Open letter of chairs of seven large European steelmakers
- Eurofer, The European Social Partners (a set of organizations representing the interests of workers and employers in the EU) and industriAll initiative
- “European Steel Action Plan” presented by Eurofer and industriAll
- Article of Voestalpine`s CEO with policy initiatives to support Austrian steel industry.
These initiatives contain both urgent anti-crisis measures and strategic initiatives that are necessary to ensure competitiveness in the long term.
Energy is probably the most painful issue for the energy-intensive steel industry. High energy prices will have negative strategic effects. All initiatives listed called for competitive electricity prices in Europe. This can only be achieved through good old-fashioned energy subsidies and reductions in other fees and tariffs included in the price of electricity.
The second important and demanded instrument is «effective trade policy.» It must respond to the problems associated with global excess capacity and rising imports. The initiators talk about the need to strengthen import restrictions within the WTO rules, the need to replace the existing import tariff quota system, and regularly conduct anti-dumping and anti-subsidy investigations.
The issue of trade restrictions can also be attributed to CBAM. Several initiatives at once note the need to expand CBAM to downstream sectors, which is important for maintaining domestic steel consumption. This is probably a way to protect the market from imports of automotive or engineering products from China. The necessity of export support within the CBAM framework is also voiced. A completely logical requirement, but it rather relates to regulations in the field of EU ETS. This is an internal tax issue that should not be considered an export subsidy and can work similarly to VAT refunds.
Several initiatives also draw attention to the advisability of “recognizing scrap as a strategic raw material,” “retaining steel scrap in Europe,” and “strengthening control over the implementation of the Waste Shipment Regulation.” All of these initiatives are aimed at limiting scrap exports. This is an attempt to use the EU’s internal advantage in scrap supply, as the EU is a major scrap exporter, supplying this raw material to the steel industries of other countries.
Germany’s plan is more strategic. It involves stimulating the consumption of low-carbon steel products and developing the hydrogen market through infrastructure investments. This makes perfect sense. If the EU cannot compete with its competitors on fossil fuel prices, then the transition to renewable sources should change that.
The EU is a pioneer in low-carbon production, so incentives for the green steel market could boost demand for local products. The IndustriAll plan includes “promotion an EU labelling system for green steel,” “public procurement,” and “stimulus for downstream sectors to buy green”.
The initiatives of the European Social Partners have a short-term anti-crisis focus. For example, such measures as «EU fund to support national short-term work schemes, via the implementation of SURE 2.0» and «short-term emergency solutions that limit the costs and prices of gas and electricity».
There is probably a problem with institutional support for the industry in EU countries. In his article, Voestalpine’s CEO Herbert Eibensteiner calls for the creation of a specialized ministry with the appropriate powers in Austria.
What’s next?
The importance of the industrial agenda in the EU is well understood. The issue of anti-crisis measures in the steel industry was even raised at a plenary session of the European Parliament. Eurofer and IndustriAll called on the new European Commission to adopt a European Steel Action Plan within its first 100 days.
There is no doubt that appropriate measures will be taken. There is only uncertainty regarding the format of these measures and their timeliness.
Nowadays, support for the European steel industry is focused on:
- Restricting imports of steel products;
- Restricting scrap exports from the EU;
- Increasing energy subsidies;
- Other anti-crisis subsidy measures, such as support for short-term work schemes.
These are precisely the measures that can be taken quickly. However, the real challenge is to develop and implement systemic industrial policy. The main request of steel producers is ensuring the competitiveness of the industry in the long term. In this direction, incentives are needed for the downstream sectors and an effective «green« transition.
In line with European practices, dialogue between state institutions and steelmakers will continue to find mutually beneficial strategic solutions. This is an important advantage of the European governance model, which takes into account the interests of different stakeholders.
