Restructuring of the European steel industry Étienne Davignon OECD Symposium, 18 April 2016
Instead of capacity cuts there were continued investments in capacity expansions thereby exacerbating overcapacity W. Europe* investment in steel industry W. Europe* production, capacity and (million ECU**) utilisation rate (million tonnes, %) 5500 300 100% 5000 86% 87% 90% 86% 250 4500 82% 4000 80% 77% 201 198 200 190 3500 179 174 68% 70% 66% 3000 156 150 63% 150 139 135 134 2500 127 126 126 60% 113 109 2000 103 100 50% 1500 1000 1970 1971 1972 1973 1974 1975 1976 1977 50 40% 1970 1971 1972 1973 1974 1975 1976 1977 Capacity (LHS) Production (LHS) Iron and steel industry only Utilisation (RHS) Steel and related industry incl. aids 1 1 * EU 9 countries include Germany, UK, France, Italy, Ireland, Belgium, Denmark, Luxembourg, Netherlands *** 1 ECU is equivalent to FB 40.66, DKr 6.54, Ir£ 0.66, FF 5.6, FI 2.78, USD 1.13, Flux 40.7, £ 0.66, FS 2.76, DM 2.67, Lit 989.3, Can$1.14 as of Dec. 31, 1976
This further worsened the market situation and losses continued W. Europe* steel capacity utilisation rate Financial losses of EU companies between and profitability (%) (million ECU***) 120% 60 0 50 -200 100% 40 87% 86% 86% -400 82% 30 77% 80% -600 20 68% 66% 63% 10 2.5 2.8 3.4 -800 60% 0.6 0.8 -4.6 0 -1000 -11.6 -10 40% -17.4 -1200 -20 20% -30 -1400 1970 1971 1972 1973 1974 1975 1976 1977 1975 1976 1977 France national steel (million ECU) British Steel Corporation (million ECU) Utilisation rate% Profitability % (RHS)** Luxembourg(million ECU) Italian Finisider (million ECU) * EU 6 until 1972, EU9 afterward 2 2 ** UK steel companies average pre-tax income as % of sales *** 1 ECU is equivalent to FB 40.66, DKr 6.54, Ir£ 0.66, FF 5.6, FI 2.78, USD 1.13, Flux 40.7, £ 0.66, FS 2.76, DM 2.67, Lit 989.3, Can$1.14 as of Dec. 31, 1976
During the restructuring phase, capacity in Europe was reduced by almost 20%, resulting in significant improvement of the utilisation rate W. Europe* - production, capacity and utilisation rate (million tonnes, %) 300 100% Phase 1- Capacity expansion Phase 3 – Privatization and Phase 2 - Restructuring - to deal with overcapacity consolidation - to meet the high demand - to improve profitability and growth when demand saturated 90% ensure sustainability 250 80% 200 70% 150 60% 100 50% 50 40% 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 Capacity Production Utilisation 3 3 *EU 9 countries include Germany, UK, France, Italy, Ireland, Belgium, Denmark, Luxembourg, Netherlands
As a consequence of capacity reduction and other supporting policies, profitability recovered dramatically W. Europe* - steel capacity utilisation rate and profitability (%) 100% 60 Phase 3 – Privatization and Phase 1- Capacity expansion Phase 2 - Restructuring - to deal with overcapacity consolidation - to meet the high demand 50 - to improve profitability and growth when demand saturated ensure sustainability 40 80% 30 20 10 60% 0 -10 -20 40% -30 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 Utilisation rate% Profitability % (RHS)** 4 4 * EU 9 countries ** UK steel companies average pre-tax income as % of sales
Under Davignon II, Europe reduced ca. 40mt (20%) of steel capacity within 5 years W. Europe * capacity change (million tonnes) W. Europe* capacity change by country between 1980 and 1986 (million tonnes) 240 Ca. 40mt vs target of 30-35mt 203 198 195 200 -0.3 -0.5 186 -0.9 -4.3 -4.0 170 166 162 -5.4 -6.1 160 120 -19.4 80 40 1980 1981 1982 1983 1984 1985 1986 -41 5 5 * EU 9 countries include Germany, UK, France, Italy, Ireland, Belgium, Denmark, Luxembourg, Netherlands
The European producers received state aid of almost 38 billion ECU during Davignon II, but only a fraction of this was directly required for closure and redeployment State aid by country 1980 - 1985 State aid breakdown by category (million ECU) 1980 - 1985 (billion ECU) 12000 38 10000 8000 23 6000 4000 12 2000 2 1 0 Total state Financial Investment Aid for R&D and aid aid for to improve closure others continued ongoing operations operations 6 6
Ca. 5 billion ECU came from the EU commission of which more than 2 billion was used to support manpower reduction State aid from commission (million ECU) 1096 977 140 105 747 690 145 425 594 661 574 516 101 86 67 424 268 140 222 142 224 63 113 60 45 50 29 72 82 305 110 266 235 227 163 140 86 1980 1981 1982 1983 1984 1985 1986 Reconversion aid for job creation Aid for redeployment of workforce Aid for early retirement Investment for industrial modernisation Others 7 7
About 0.5 billion ECU was used for redeployment of more 180000 employees Financial aid for redeployment, number of people that received aid and aid/person (million ECU*, thousand, ECU/people) 600 5,000 • Redeployment aid was income support for the workers affected, whether 480 3728 4,000 they are 3345 - Unemployed 3082 - Employed in a different job 360 3,000 2689 2487 - Undergoing vocational training 1848 240 2,000 • The ECSC also contributes towards the cost of organising 142 110 training courses and helps to 120 1,000 82 72 facilitate re-employment by 60 53 44 45 paying travel or resettlement 24 22 22 19 allowances for redeployed 0 0 1981 1982 1983 1984 1985 1986 workers Aid for redeployment No. of people that received aid Aid per person 8 8
Nearly 1 billion ECU used for creating new jobs in other sectors Reconversion aid for job creation, number of jobs created, cost per job created (million ECU, thousand, ECU per job) 500 25,000 • Creation of new jobs primarily for workers in steel and coal industries 19583 18667 400 20,000 • Loans with reduced rates of interest were given to 305 support job creation in 13950 300 15,000 other sectors and 13265 235 227 investment in small and 9576 medium-sized businesses 200 10,000 163 (SMEs) 140 6333 86 100 5,000 23 17 14 12 12 10 0 0 1981 1982 1983 1984 1985 1986 Aid for reconversion No. of jobs created Cost per job 9 9
Bilateral Trade Agreement in terms of volumes and prices supported market stabilisation W. Europe * steel imports and exports (million tonnes) 40 • The European Commission developed an international 35 framework in order - To maintain a reduced imports 30 level but of the same economic value 25 - To authorise a reduced export 20 level but at an economic level which would not threaten the 15 profitability of exporters nor that of steel plants in the importing 10 countries 5 0 Imports of steel Exports of steel 10 10 *EU9 countries include Germany, UK, France, Italy, Ireland, Belgium, Denmark, Luxembourg, Netherlands Sources: The Politics of Steel, OECD, Eurostat, Steel industry annual report, ArcelorMittal Corporate Strategy team analysis
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