Steel industry

Smelting into the Background

voestalpine_bbg
But will he still be working in Austria in ten years' time?
  • Why it matters

    Why it matters

    The rising cost of the E.U.’s emissions permits are eating into steel makers profits and restricting growth at a time of heightened competition from Asia.

  • Facts

    Facts

    • Austria’s Voestalpine is one of Europe’s biggest steel producers, with revenues of €11.2 billion, or $12.4 billion, in 2013/14.
    • Europe’s steel makers must buy emissions permits at a cost of about €15 per ton of CO2.
    • The industry argues that technology to lower its carbon emissions is still a long way off.
  • Audio

    Audio

  • Pdf

Wolfgang Eder has been boss of the Austrian steel producer Voestalpine since 2004. The group operates in more than 50 companies and employs almost 50,000 people, generating revenues of €11.2 billion ($12.4 billion) in 2013/14. It is one of the leading suppliers to the automotive and gas and oil industry.

Mr. Eder is also chairman of the World Steel Association, which represents 85 percent of world steel producers. The industry in Europe is under pressure at the moment as the European Union introduces ever tougher restrictions on pollution, and forces big emitters of carbon dioxide, such as steel producers, to buy emissions permits.

 

Mr. Eder, the European Commission (the E.U.’s executive arm) wants to make emissions permits more expensive. When will you close down your blast furnaces in Austria?

We are assuming that the fundamental decisions in the European Union concerning environment, climate and energy policies will be made in the next two to three years. We are using this period to make our own decisions about production sites.

That sounds like a threat.

There can be no talk of threats. We’ll do everything possible to keep as much capacity as possible in Austria. Our employees and their know-how are our crucial capital. But if the political establishment creates framework conditions that rob us of our competitiveness and force us to leave, then we have to react accordingly.

What sites are under consideration?

We are currently performing a general overhaul on all five blast furnaces in Linz and Donawitz. That will be the last time this is done in that form. Then they will operate for about another 10 years on average. What then remains or succeeds them technologically will be determined by the framework conditions.

You are investing in iron-ore processing in the United States and are planning a high-grade steel plant in China. Does this mean an end to European operations in the long term?

When the general repairs have been completed, we will only invest in European steel production for the purpose of maintenance, nothing more, until there is clarity about the long-term framework conditions here in Europe. In addition to environmental concerns, there are the problems of excess capacity in Europe and huge amounts of cheap, subsidized steel from China.

What are the consequences?

Because of a lack of competitiveness power with regard to simple sorts of steel, we will see a massive reduction in steel production in Europe by 2030. That hurts my heart. For 250 years, Europe set the tone for technological developments in steel. Now for the first time, our Asian competitors are investing more in innovation than the European steel industry.

In Europe, we have costs for environment, energy, personnel and infrastructure, along with taxes that are higher than in almost any other part of the world. Voestalpine operates what are probably the blast furnaces with the lowest emissions worldwide, yet we are the only steel manufacturer in Europe to have been paying for CO2 certificates ever since 2008, around €12 million per year on average – a strange political logic.

Voestalpine is the most profitable steel producer in Europe and most recently had net earnings of almost €600 million. Can’t it spare €12 million to protect the environment?

You can’t base that calculation on company profits which, in addition to steel production, also come from specialized divisions in steel processing, for example for the automotive or aviation industries or railway infrastructure. Steel manufacturing alone contributes significantly less than €200 million in profits …

But €12 million for the climate still wouldn’t hurt.

That’s just the beginning. If the price for CO2 certificates rises as the European Commission would like, then we will soon come to €60 million per year. And after 2020 with a predicted certificate price of €30 per ton, that would rise to as much as €200 million. That would be more for CO2 than our profits through steel production. We are currently trying to explain that to the political establishment.

 

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Wolfgang Eder has tripled revenues while head of Voestalpine. Source: Picture Alliance

 

Why don’t you reduce CO2 emissions?

Of course we are trying to do that, but we come up against technological limits. The steel industry is not in a position to become CO2-free in the foreseeable future. It may be possible to reduce emissions by a few percent. But in order to reach the scale of 30 to 40 percent that is compensated for by the rise in certificate prices, at least 15 years of research will be required. I get irritated when representatives of the steel industry itself convey the impression that it would be possible in the coming three years to make huge progress in CO2 reduction. For the moment, that is pure utopia.

Do you see positive signals?

Up to now, no. In October 2014, the European Council [made up of ministers from E.U. member states] issued several proposals for reducing the financial burden. But these received no attention from the European Commission in its most recent proposals for reorganizing the trade in emission certificates.

Will steel production still be an important part of Voestalpine’s business in the long run?

We need the steel we produce, because we can’t purchase that degree of quality for the products we process. But we are evolving from a steel to a technology company. In 2001, around 70 percent of our revenues came from production and 30 percent from processing. Today steel manufacturing contributes 30 percent to our revenues; over the long term, that will decline to about 25 percent. This is occurring simply because we are accelerating the construction of new plants outside Europe, for example for auto parts.

How is that shifting the priorities?

At the moment, about a quarter of our revenues come from outside Europe. We intend to drive up this share in the next five years towards 40 percent.

Last quarter, Voestalpine was able to increase profits before interest and taxes (ebit) by 8.5 percent to €237 million. Can that level of growth be maintained?

If the economic environment remains stable, we will most likely be able to reach our profitability goals earlier than expected. I hope that we will be able to raise our Ebit margin of 7.9 percent in the previous year to 9 percent by 2017/18.

What do you say to people who call for the state to renew its involvement in your company?

That is a leftover ideological discussion, the relic of a bygone era. In 1985, the state-owned company was bankrupt; today as a privately owned company in Austria, we employ more people than ever, more than 23,000. The substitute for the state is the employees’ holding of around 15 percent of company shares. Having the state as a co-owner is just as unappealing for our employees as it is for the capital markets.


Video: It’s been a good year for Voestalpine.

 

This article originally appeared in the business magazine WirtschaftsWoche. To contact the authors: forian.zerfass@wiwo.de and matthias.kamp@wiwo.de

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