Photographer: Simon Dawson/Bloomberg

There's More Pain to Come for Europe's Wounded Steelmakers

  • Slump leaves 30% of EU capacity unused on record China exports
  • Industry group expects more furnaces to close as losses mount

The fate of some huge blast furnaces in the Belgian city of Liege a few years ago may offer clues to where the rest of Europe’s beleaguered steel-making industry is headed -- more doom and gloom.

Known for its bike race and meatballs, Liege was home to a steel mill owned by ArcelorMittal, the world’s top producer. While the city had been a metal-making hub since the end of the Napoleonic Wars, the aging plant was too far from raw materials and spread out along miles of the Meuse River, making it uncompetitive after the global financial crisis sapped demand. In 2013, ArcelorMittal tired of losses and shut much of the facility.

Since then, things have gotten worse. China, which accounts for half the globe’s output, is exporting the most on record as its own demand slows. That means more supply to compete with European producers who can’t make money at current prices and already aren’t using about 30 percent of their capacity. Since the 2008 financial crisis, more than 75,000 steel jobs were lost, or 20 percent of the industry’s workforce in Europe. More will probably follow.

“The European steel industry has never stopped restructuring,” said Edwin Basson, director-general of the Brussels-based World Steel Association, which represents more than 150 producers. “I don’t for a moment think we are at the end of this.”

Overcapacity

Even after eight years of cutbacks and plant closings, Europe is still making more steel than it needs. Between 2007 and 2013, when demand plunged by 30 percent, companies reduced capacity by just 4 percent, according to Jefferies International Ltd. The continent produced 166 million tons last year, well below its capability of 230 million tons.

“Nobody should really be surprised,” said Wolfgang Eder, chief executive officer of Voestalpine AG, a producer in Austria. “We have to reduce European steel-making capacity because we are oversupplying the market.”

ArcelorMittal, which produced a combined 92.5 million tons of steel from mills in the Americas, Europe, Africa and Asia last year, has posted a net loss for four straight years, including a $7.9 billion in 2015. The Luxembourg-based company tapped shareholders for $3 billion this month to help pare its debt.

Few Buyers

Tata Steel Ltd., part of India’s largest conglomerate, says the assets of its U.K. business have almost no value, and the company wants out. It reached an agreement last week to sell blast furnaces in Scunthorpe, England, to a private-equity firm and is looking to unload its remaining plants in Britain.

That’s riled officials in the U.K., where Prime Minister David Cameron is caught up in a political crisis and is concerned about the prospect of job losses. At Tata’s 4,000-worker plant in Port Talbot, Wales, where steel has been forged for more than a century, the government has pledged to do all it can to keep the furnaces open, including offering to co-invest with potential buyers.

Such interventions haven’t always worked. France threatened to nationalize all of ArcelorMittal’s plants in the country when the company sought in 2012 to shut blast furnaces in Florange. ArcelorMittal, which shed almost 100,000 workers over five years, agreed with the government’s demand to look for a buyer. But no one wanted the mill, and Florange was closed in 2013.

In Belgium, steelworkers held ArcelorMittal executives hostage for 48 hours in 2013, hoping to stop the shutdown in Liege. It didn’t. In northern England last year, Tata Steel closed its Redcar blast furnace after no buyers were found.

“If you’re not one of the most-efficient producers, it’s very hard to be sustainable in the long term,” the World Steel Association’s Basson said. “The restructuring event in Europe will continue.” 

China exported a record 112 million tons last year and pushed output to an all-time monthly high of 70.65 million tons in March. That’s led to a global price slump.

European hot-rolled coil, a regional benchmark, plunged 44 percent last year and touched $272 a ton in February, down from $1,113 in July 2008, according to Metal Bulletin data. Having moderated at the beginning of 2016, steel exports from China rebounded in March to the strongest level for the year.

The global market is so weak, China is vowing to close 150 million tons of steel-production capacity in the next five years, which would eliminate 1.8 million jobs, including at the mines that supply blast furnaces with coal.

“We have to undergo this painful restructuring process,” Voestalpine’s Eder said. “If we don’t do it, the future will be even more painful. We have to do it, and the quicker we do it, the better for everybody. ”

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