EC STEELMAKERS ARE TURNING UP THE HEAT
At the Paris headquarters of Europe's largest steel company, Groupe Usinor Sacilor, a team of 100 employees is digging through files for evidence to fight off a U.S. dumping case that could cost $250 million in annual sales. Another group is putting together an urgent lobbying drive, aimed at persuading the European Community to slap quotas on soaring imports from Eastern Europe and helping to finance an "emergency" restructuring of the bloated EC steel industry.
Usinor is under siege, and so are other steelmakers across Western Europe. Their recession-racked home markets are under attack from newcomers, and Washington may squeeze them out of the U.S. Nearly all of Europe's 15 major steel companies lost money last year--and this year should be even worse.
SHOWDOWN. Now, the industry is striking back--and sparks may fly. A trade war with the U.S. is a real possibility. Within Europe, consolidation is likely, including cross-border mergers. Europe's steel crisis may also provoke a crucial showdown between the EC and former communist countries to the east, setting a grimmer, protectionist tone for trade ties between the two regions.
Steel from Eastern Europe adds to already rising EC steel imports (chart). To boost Eastern market economies, the EC dropped quotas on Eastern steel last March. Imports have leapt 70% as Eastern producers have undercut Western prices by 25% to win hard currency. Eastern companies, especially in Czechoslovakia, have watched ex-Soviet markets dry up and home demand fall as arms output falls.
In August, Western steel producers got the EC to put temporary quotas on Czech steel. Now, they're pushing for stiffer limits--part of a "crisis plan" that the steelmakers' trade association sent to Brussels last month. Easterners are crying foul. "Shops here are full of Western goods, and we're not protesting," says Dionyz Kunder, senior vice-president of Czech steelmaker VSZ. Eastern steel has only 5% of the EC market--but that's enough to send prices plunging, as recession has cut demand by 10%.
A big part of the EC's problem is overcapacity. EC producers went through a major restructuring a decade ago. British Steel PLC, for example, slashed employment from 250,000 in the 1970s to 41,500 now. It wasn't enough. The EC has an estimated 10 million tons of excess capacity, of the 130 million-ton total.
Italy has far too many companies turning out similar steel products, says Giovanni Gambardella, CEO of the biggest producer, state-owned ILVA. In Germany, six big companies "are crying out for consolidation," says Ewan Fraser, analyst at James Capel & Co. The industry wants Brussels to encourage capacity cuts by committing a $975 million EC steel fund to defray plant closings and layoffs. EC ministers are to discuss the idea on Nov. 24.
Mergers have already begun in Europe. This month, British Steel and Sweden's Avesta expect to merge their stainless-steel units. In Germany, Krupp and Hoesch merged last June, but the deal didn't reduce capacity. Observers say it was an attempt to prevent a cross-border raid. "Producers are still locked into their national identities," says Rod Beddows, a London management consultant. Why? Nationalism often spells subsidies. Madrid, for example, wants to pump some $5 billion into upgrading Spain's archaic steel industry.
BIG TARIFFS. But Spain's plans are nothing compared to the threat from across the Atlantic. Last March, Washington let lapse decade-old "voluntary restraints" on steel imports. Three months later, U.S. steelmakers filed 84 unfair-trade complaints against 21 countries. EC producers say the complaints, all involving flat-rolled steel, could cut their exports by $1 billion. What's more, in September, the Commerce Dept. recommended up to a 65% tariff on European steel bars.
"The Americans can't compete, so they're taking it out on us," charges Yves-Thibault de Silguy, international director for Usinor. Not only that, he says, if the U.S. slaps big tariffs on Brazil, South Korea, and others as threatened, they will simply ship steel to Europe instead. The result, says de Silguy, could be "a world steel war." But when it comes to protectionism, the EC steel industry is surely the oven calling the blast furnace black.Stewart Toy in Paris, with Paula Dwyer in London, Patrick Oster in Brussels, Sabrina Kiefer in Rome, and bureau reports