Steel dumping

A Test of Mettle

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In the British town of Scunthorpe, a Tata steel work marks the skyline.
  • Why it matters

    Why it matters

    Europe’s steel industry is fighting for survival in the face of state-subsidized products from China. Jobs and technology could disappear from the Continent.

  • Facts

    Facts

    • China produces half of the world’s 1.6 billion tons of steel, in an industry heavily subsidized by the government.
    • European steel makers are struggling to compete against China’s inexpensive steel, triggering anti-dumping measures and import- tariffs from the European Union.
    • Tata Steel has cut 3,000 jobs in Britain, Arcelor-Mittal is closing down its electro-steel plant in Spain, Vallourec is cutting 3,000 jobs in Europe.
  • Audio

    Audio

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Luke Keogh is one of hundreds of steel workers from the Tata steelworks in the Welsh town of Port Talbot in the United Kingdom who’ve just joined the dole queue. For him it signifies the end of a dream and the abrupt end of a long family tradition.

“It was my first real job out of college,” explains the 20-year-old Briton, stunned, after his termination.

“My father worked here for more than 30 years, and my grandfather before him.”

The Indian firm Tata is one of Britain’s biggest steel manufacturers, with around 19,000 employees, yet it is crumbling under an onslaught from the East. China, with its massive production capacities is flooding world markets with cheap steel and dragging prices down to undercut production costs in Britain and the European Union.

Tata’s problems in Great Britain are not unique. In just one month, last October, the sector lost 4,000 jobs, around a fifth of the total employed in the steel industry.

“We cannot compete with a state-funded steel industry like China's, where the production costs don't have to be covered by market prices.”

Karl-Ulrich Köhler, European head of Tata Steel

The demise of Britain’s steel sector was already looming.

“What’s happening in Britain is just a foretaste of what could be threatening other European countries,” says Carsten Riek, industry analyst with Swiss bank UBS.

On Friday, the European Commission reacted to pressure from European economics ministers with a comprehensive protection program. The European Union’s executive body announced that it would introduce anti-dumping duties on specific imports from the People’s Republic of China and Russia.

The E.U. trade commissioner, Cecilia Malmström, announced three new investigations into dumping practices by the People’s Republic. She said all measures necessary would be pursued, to ensure a level playing field.

“We cannot allow unfair competition from artificially cheap imports to threaten our industry,” she said in a statement.

Germany, Great Britain, France and other E.U. countries have recently warned in a letter to the European Commission that the industry was on the brink of destruction and demanded rapid action to protect the sector from being undercut by cheap imports.

In total there are now 37 separate steel-related trade defense measures in place and nine investigations underway.

The provisional anti-dumping duties on Chinese cold-rolled flat steel range from 13.8 to 16 percent. The same product out of Russia carries duties of between 19.8 and 26.2 percent. The European Union is allowed to impose duties in cases where they find that imports are being offered for beneath fair market value and which could hurt European producers.

The European Steel Association, Eurofer, welcomed the introduction of the tolls but said that in the case of China, they were too low. The E.U. action against China helped shares in German steel producer Salzgitter to gain 16.1 percent on Friday, and its competitor ThyssenKrupp was up 8.7 percent as stock across the board recovered.

In the last two years rapidly increasing cheap steel imports from China have caused a dramatic price drop in Europe’s steel market.

“China’s overcapacity lies at around 400 million tons,” said Axel Eggert, director of the European Steel Association Eurofer.

“That’s three times the entire European demand,” he said.

It’s not clear if the protection measures which are being put into place can rescue the steel sector. There are other factors at play which are distorting competition. Heinrich Hiesinger, chief executive of ThyssenKrupp said recently that if tightening E.U. emissions regulations leads to further financial burdens, “the European steel industry won’t be viable in the long term any more.”

The quarterly results of ThyssenKrupp’s steel arm have pushed the corporation into minus territory once again, the company said last week. Even the world’s largest steel supplier, Arcelor-Mittal, booked a record loss. Tata Steel is at last count running a 24-million pound ($35 million) minus in Europe and has written off 862 million pounds on its investments.

Europe’s steel industry is in creeping decline. Tata’s reaction to the crisis consuming the industry is a case in point. The company is shedding 3,000 jobs in Britain, around 15 percent of all steel workers.

On Monday, around 5,000 steel workers are expected to march in protest in Brussels, where the European Commission is located. For the first time ever, steel industry managers will be among the ranks. Among them will be Andrea Goss of ThyssenKrupp and his chief financial officer Premal Desai, as well as Frank Schulz, chairman of the management board at Arcelor Mittal. Karl-Ulrich Köhler, European head of Tata Steel is also expected to join the ranks.

“In future it would be desirable,” Mr. Köhler told Handelsblatt, “if the consequences of political decisions or unfair trade practices could be thought through much earlier.”

He said that Britain’s steel sector is suffering doubly because of the strong pound, high business taxes and high energy costs.

“Without these factors, a steelworks on the coast of Great Britain is just as competitive as one in the Netherlands or in China,” he told Handelsblatt.

He said that China, because of its massive overcapacity, is looking for alternative markets to send its product. “They find that market in Europe, because it’s one of the most liberal and least protected markets in the world.”

The European Union should follow the example of the Americans, who took measures to protect their industry, Mr. Köhler said.

“We don’t want any gifts, we just want fair conditions for competition. We cannot compete with a state-funded steel industry like China’s, where the production costs don’t have to be covered by market prices.”

The protests in Brussels are mainly directed against the official recognition of China as a market economy, which is expected to happen this year.

 

Chinese Steel Floods the E.U. Market-01

 

“Quite simply, China does not fulfill the necessary criteria,” said the Eurofer boss Axel Eggert. The industry fears that recognizing China as an equal trading partner would castrate protection mechanisms like punitive tariffs. Aegis Europe, an alliance of 30 trade unions, has calculated that in this case the European Union would risk the loss of between 1.7 and 3.5 million jobs.

It is this concern that is driving steel workers and the top echelons of management alike onto the streets. Already, Arcelor-Mittal is giving up its electric steel plant in northern Spain. The French pipe-maker Vallourec, in the course of restructuring, is cutting another 1,000 European jobs. Just a year ago the company slashed 2,000 jobs, also affecting the company’s operations in Germany.

There are also signs that steel makers are being more cautious with their investments. That means ThyssenKrupp is looking at its blast furnace at Duisburg. A similar situation prevails at HKM, a joint venture of ThyssenKrupp, Salzgitter and Vallourec. The costs lie in the hundreds of millions.

Because blast furnaces are a 20-years investment, the companies need planning security. The investment has to generate returns in the long run.

“It is extremely important to know if we can successfully protect ourselves against dumping,” one ThyssenKrupp insider told Handelsblatt.

UBS analyst Carsten Riek warns of the socio-demographic consequences of the loss of the European steel industry.

“Europe would become terminally dependent on deliveries from Asia,” he said.

The technological leadership of other industries, including the automobile sector, machine-building and defense, would be massively threatened if Asian firms were allowed to decide the quality of steel delivered, Mr. Riek said.

 

Carsten Herz is a London correspondent for Handelsblatt. Martin Wocher is an editor with Handelsblatt, focusing on the mechanical engineering and steel industries. To contact the authors: herz@handelsblatt.com and wocher@handelsblatt.com

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