The steel industry: enlargement creates opportunities for EU mills

Abstract:

When the central and eastern European countries join the European Union, steel manufacturers in the region will also have to be fit to face competitive pressures within the EU. The steel industry is already one of the most important sectors in many accession countries. Its share in total industrial production amounts to 5% in both Poland and the Czech Republic, while the figure is barely 2% in the EU. According to estimates by the German Steel Federation, the accession countries' crude steel capacities come to approximately 40 million tonnes. By contrast, total production capacity of the EU countries is over 200 million tonnes - with Germany accounting for 51 of these. This means that the central and eastern European countries' steel capacities amount to almost one-fifth of the EU level. In terms of productivity in the steel industry, however, the central and eastern European countries lag far behind the current EU. According to the German Steel Federation, the former countries produce 130 tonnes of crude steel per worker and year, while the figure is almost 600 tonnes in the EU. However, unit labour costs are 60% higher in Germany than in Poland.

To date, much has been achieved in the restructuring of the steel industry in the EU accession countries. But the key figures still show that a lot remains to be done in order to catch up with western European productivity and quality levels. Capacity utilisation in eastern European mills has improved but is still markedly below the current level of 90% in western Europe. The momentum of crude steel production in the accession countries will likely remain subdued in the current decade - not least because of the competition from western European steel mills. For this reason, product quality must be improved and the range of products adjusted. Privatisation has not yet been completed in all accession countries as investors shy away from spending considerable amounts on debt restructuring and modernisation. In addition, the governments - for example in Poland - want to have a say in restructuring, especially as regards job cuts. Overall, however, the steel industry in the central and eastern European countries is on the right track and seems to cope well with the painful adjustment process. Companies are enjoying the support of both the governments of the individual countries and of foreign investors. However, it is doubtful whether the restructuring will be completed in 2006, as called for by the EU.