Reinforcing the steel sector

Date: 17/10/1996

By Tim Jones

WHEN EU industry ministers sit down to debate the future of the steel industry next month, they will do so against the rosiest backdrop for the sector for many years.

This speaks volumes about just how bad times have been for the industry, given that the Organisation for Economic Cooperation and Development (OECD) is forecasting a fall in EU production of as much as 4&percent; this year.

In 1993, excess production capacity led the European Com-mission to attempt a coordinated 19-million-tonne shut-down programme. But the plan failed after 68 tiny private Italian steel firms around Brescia were unable to deliver the 6.5-million-tonne reduction in capacity required under the programme.

In that year alone, every tenth steelworker lost his job.

Two years later, the European Confederation of Iron and Steel Industries (Eurofer) complained to the Commission that floods of cheap imported hot-rolled coils, wire rod and heavy plate were being dumped on the Union market, depressing prices further.

Steel imports to the EU have been rising steadily since the Seventies - from less than 5&percent; of consumption to 15&percent; last year - adding to the weakness of the industry.

However, the crisis caused by overproduction, falling prices and a flood of imports seems to be coming to an end, with the latest estimates from the steel committee of the OECD suggesting that world demand for steel will grow by 7 million tonnes next year.

In the Union, the severe 8&percent; fall in production in the first six months of this year has come to an end, and the OECD has even pencilled in a 3&percent; increase in output to 154 million tonnes in 1997.

A slow-down in the growth of import penetration and a progressive increase in demand in the US from the mechanical and electrical engineering, as well as the construction, sectors is feeding through into improved production prospects.

At their meeting on 14 November, ministers will consider reports from the Commission on the current state of the industry - one in which companies are improving their performance, but combining this with increased productivity and job cuts.

Last year, more than 13,000 jobs (equivalent to 5&percent; of the total workforce) were lost in the steel sector, and the Commission expects a further 15,000 to be shed in 1996.

Yet despite its shrinking importance in Europe, the steel industry remains a political hot potato in most member states.

In Germany, 86,000 people are still employed in the sector, with close to 40,000 in the UK, France and Italy. Even Greece, where the industry is very small, has been fighting hard for its remaining companies.

As a result, the prospect of lost jobs has traditionally been met with an offer of subsidy more readily than in almost any other sector of the economy.

To cope with this, the Union operates a steel aid code which governs how and when subsidies should be paid. But this is due to expire at the end of the year and no new regime has yet been decided upon.

Early discussions among member states on the Commission's proposed new code have revealed major differences between EU governments on the way forward.

A proposal to allow aid for the construction of new plant to reduce environmental damage has sparked immediate opposition from the UK, Sweden, Denmark, the Netherlands and France, who fear that scores of companies and governments would cloak aid requests as 'green' investment.

Smaller member states have also pushed for regional aid to be enshrined in the new code, although the Commission is opposed to this. The recent furore over regional payments to Belgium's Forges de Clabecq steelworks is likely to strengthen the Commission's hand.

The November meeting will provide industry ministers with their first opportunity to discuss this case since Competition Commissioner Karel van Miert announced in September that the aid to Clabecq was under investigation by his services.

Experts say that the 38-million-ecu rescue of the loss-making company by the Walloon regional government appears to be a clear-cut case of illegal aid.

Since the 'investment' is to be accompanied by a 30&percent; reduction in Clabecq's capacity and the loss of a third of its workforce, the Walloon government claims to be acting in the same way as a normal shareholder in acquiring a 21&percent; stake in the firm for a symbolic one Belgian franc.

But most member states disagree, and are expected to back Van Miert's investigation, which is also likely to receive support from the Union's most commercial companies.

The last such case caused a serious dispute among industry ministers, after the Commission gave its provisional clearance to a 33-million-ecu capital injection to the Irish Steel Company.

The UK authorities fought against the subsidy on behalf of British Steel, the world's fourth largest steel manufacturer. It warned that the provision of aid to Irish Steel - a loss-making producer of steel medium sections - could force the British company to shut down its plant at Shelton in Staffordshire, with the loss of 400 jobs.

A deal was reached between the UK and Irish governments, but this was not enough for British Steel. In August, the company filed a complaint at the Court of First Instance in an attempt to annul the Irish Steel decision.

As they consider the industry's future, ministers will also be shown the latest data from the Commission on the eight steel companies currently being monitored for compliance with the terms of their state aids. The highest profile case is that of Ilva Laminati Piani, but firms in Austria, Germany, Portugal and Spain are also involved.

Meanwhile, the lack of certainty regarding subsidies has started to worry even those in the industry who have sometimes benefited from them.

Ruprecht Vondran, president of the German Steel Industry Federation, believes a new code should include mechanisms for ensuring that all state aids paid and unfair trading practised in the sector are fully transparent to regulators.

He argues that the rules on the kinds of subsidies which could be paid should be watertight and all others banned.

Diplomats are predicting a “substantial” debate on the subject at the November meeting in an attempt to break the logjam before the current subsidy code expires in December.

But whether the Irish presidency will succeed in clinching a deal before the deadline remains an open question.