overcapacity unaddressed

Steel Doesn't Need State Help

Thyssenkrupp – Stahlproduktion
Source: DPA Picture-Alliance / Oliver Berg [M]

Election years are good times for troubled companies, especially big ones. Politicians suddenly want to help out companies and their workers and families – potentially mobilizing thousands of voters.

Most likely, that’s why Economics Minister Brigitte Zypries complained about a misaligned global steel market and called for fair conditions and improved access to international markets.

Fair enough. We’re going through a wave of protectionism in the labor-intensive steel industry. The US has already slapped sanctions on European companies, including two German companies, Salzgitter and Saarstahl, to protect its own steel industry. In China, though, the steel industry is artificially inflated and Beijing keeps on subsidizing its exports. Dozens of countries are trying to protect their own steel industries from these cheap imports.

It would be better if we openly told steel executives and their employees they need to start solving the problem.

But how much can politicians do? State subsidies only tend to give companies a reprieve. EU anti-dumping measures have pushed up steel prices and taken the pressure off companies to cut uneconomical capacity. Right now, more steel is being made than any customer could want, in China and in Europe alike.

Steel makers must address the root problem and depend less on politicians’ protection. Companies must develop innovative steels that are lighter, stronger and have new properties. They could sell such products more easily and at higher prices to carmakers, machine builders and the construction industry. Automation and digitalization could help increase efficiency. If the industry sells every ton before it produces it, that would lessen dependence on subsidies and cut inventory. Companies are making some progress but more is needed, though radical solutions like cutting staff and closing plants are unpopular.

But this structural transformation is necessary, as soon as possible, even if means job cuts or plant closures. Politicians need to realize they are being instrumentalized. It would be better if we openly told steel executives and their employees they need to start solving the problem.

That might hurt at first but self-reliance is the only way the steel industry in Germany and Europe can survive in the long term.

 

To contact the author: wocher@handelsblatt.com

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