Steely Man

Smelting Away

steel_donawitz
European steel producers suffer from very high production costs.
  • Why it matters

    Why it matters

    A cocktail of pollution limits, high energy costs, overcapacity and cheap Asian imports could kill off the European steel industry within 20 years.

  • Facts

    Facts

    • Wolfgang Eder is chair of the World Steel Association and boss of Voestalpine, a producer.
    • He believes two-thirds of European capacity must be cut by 2035.
    • Producers’ energy costs in the United States can be half those in Europe.
  • Audio

    Audio

  • Pdf

Wolfgang Eder is chairman of the World Steel Association, whose members account for around 85 percent of global steel production. The industry body has a lot on its plate at the moment as ever tougher climate regulations hit its members’ power-hungry and polluting mills, forcing costs up and profits down.

But the 63-year-old is not scared to criticize his industry, and as chairman and CEO of Voestalpine, a steel-maker based in Linz, Austria, he can afford to as the company is more profitable than the competition thanks to its early decision to specialize, particularly in railroads. In the last fiscal year, it generated sales of €11 billion ($12.5 billion).

Mr. Eder, will there still be a working blast furnace in Europe in 20 years’ time?

Bearing in mind the prevailing conditions of the last ten years and the likilihood that they will continue, I have a hard time imagining that there will still be an active blast furnace in Europe.

What bothers you about the prevailing conditions here?

Costs, costs, costs – in all areas. It starts with taxes and levies, ends with climate and energy and covers the whole social sector. I don’t want to question the European model of society, but you cannot preserve the structures of the last 200 years. We won’t be able to afford it.

Lowering costs certainly can’t save the day by itself.  

We have to make better use of the potential of people at the same time. But Europe is losing its appeal, above all for young, highly qualified people. We are too inflexible, have rigid, antiquated structures, and there is too little movement in society compared to other regions of the world. And what’s more, we regulate everything.

That sounds almost like desperation. Are there any positive signs, for example from the new European Commission?

The Commission under new president Jean-Claude Juncker is on a considerably better path than the one we had in the last ten years. It talks about energy concepts, and responded quickly to the high unemployment with a €315 billion package. That was exactly right.

Do we actually need our own steel industry in Europe? Couldn’t we just get the raw material and concentrate on further processing?

If I want to produce high-tech products in Europe, I can’t just get steel from China or India. Voestalpine would probably no longer exist in its present form if we didn’t have what is probably the most sophisticated and highest quality steelmaking in Europe. But that requires massive investment in new technologies, in research and development.

REVISEEU Total Crude Steel Production-01

 

That was certainly always one of the strengths of European steel companies . . .

. . . but for years now they haven’t even earned the costs of capital and therefore are becoming less and less capable of affording those expenses. Europe is falling behind in technology as the lead is shifting in the direction of Asia to Japan, South Korea and China.

That is why we must solve the problem of overcapacity. And we have to get away from the production of mass-market steels because their production is considerably cheaper in other regions.

That is bound to have an impact on jobs.

We will probably have to say goodbye to about two-thirds of our capacity in Europe over the next 20 years. It will be difficult to remain competitive in mass-market steels in the future. We have to concentrate on high-quality special products and at the same time offer value-added services and maintenance.

There were many steel executives who for years failed to make this change and only looked at the tonnage of steel produced.

I would be the last to contradict you. The industry is conservative and changes too slowly. It isn’t the size and amount that counts, only profitability. I can only achieve this with specialization. Therein lies the actual value of steel – in demanding products likes airplane turbines, rocket parts, high-tech cars or high-speed rail lines.

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Man of Steel: Wolfgang Eder. Source: Picture Alliance

 

It is urgently necessary to reduce overcapacity to improve the companies’ profitability. Who should make the first step?

That is something only the companies can decide. That doesn’t work through politics.

But nationalization is being discussed in Italy?

That is Stone Age economic thinking for me. If we don’t free ourselves of that, then the survival of the steel industry in Europe will have a huge question mark. The countries wouldn’t be able to afford the subsidies involved.

Your company is now investing massively in the USA and China. What is working better there?

First of all we go into these countries to gain a balanced distribution of risk. We have to position ourselves globally to be better armed against economic problems in a region such as Europe and Brazil. Secondly, we must enter those regions that show sustainable growth at least for the next ten years. Those are countries like China, India or Brazil.

But China, in particular, is fighting massive overcapacity.

Steel now represents only 30 percent of our portfolios. In China we are constructing auto-part plants, special profile plants and perhaps also a stainless steel plant. But that doesn’t cost hundreds of millions or even billions of euros.

We will certainly not invest in anymore blast furnaces. By the way, we don’t use only steel in the product application but a lot of aluminum, synthetics and titanium. This way we are developing more and more into a multi-material company.

Then steel no longer has a future at Voestalpine?

It is the only material we produce ourselves. We won’t increase it capacity-wise anymore but will try to maintain our current steel production.

What was the reason you built your iron-making plant in Corpus Christi, Texas, and not in Linz?

The same plant at our corporate headquarters in Linz would cause an increase in costs of €200 million a year.

And somewhere else in Europe?

It is senseless to build such a plant in Europe. No location would be competitive here. Gas in Corpus Christi costs less than a third of the price in Europe. Electricity costs half as much. And we have a deep-sea port right in the plant and can transport to Europe at unbeatable prices.

But Europe could never match the low cost of U.S. energy.  

If Europe wants to continue to play a role in the global arena, the only way is through the knowledge of its people. Europe has long been a leader in many areas of technology. But we must create an attractive environment for motivated, committed and productive people.

Has the European Union recognized that? 

At least to some extent. But more must be done on the national level. There they would rather think about stricter climate protection goals, even though Europe is responsible for only eight percent of the worldwide carbon dioxide emissions, or about even more regulation. That is apparently more attractive than dealing with issues that are of existential importance for the continent.

 

Hans-Peter Siebenhaar is Handelsblatt’s Vienna correspondent, Martin Wocher is an editor at the paper. To contact the authors: siebenhaar@handelsblatt.com, wocher@handelsblatt.com

 

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