President of the World Steel Association believes that in the next 15 years Europe should halve its steel production, which means a very uncertain future for the 150,000 employees in the steel industry.
Globally, the steel industry is faced with a challenge unseen so far. China, which was lately the generator of world steel consumption, "suddenly" slowed down, and ruined many business plans. The global steel market was quickly flooded with steel products from which no longer had buyers. Logically, this was followed by a global decrease in prices which shook all markets, including the Chinese one, where steel prices fell to a very low value. According to analysts, a large number of Chinese steel manufacturers has been working at a financial loss, and which amount to about $ 50 per ton of steel.
China still produces too much steel
Production capacity of China are estimated between 1.2 and 1.3 billion tonnes of steel a year. With standard consumption of 700 million tonnes and exports of 100 million tons, it is still a surplus of between 300 and 400 million tonnes of steel a year.
The respectable economic analyst David Humphreys is very resolute on this issue: "In China there are 300 million tons of excess production capacity, which should not only be close down - it should be eradicated, leveled the ground. Steel production must fall."
This problem is not really that easy to solve. Let's take an Chinese industrial city of Tangshan with 7 million people, as an example. According to official data, there was 90 million tons of steel produced there last year, more than in the US in the same period. The Chinese government plans to cut production in Tangshan by 40 million tons of steel annually by 2017. Tangshan by 2017. This decision will result in the loss of a number of jobs, which could possibly lead to serious social disorder.
The European steel industry under big pressure
One of the markets that suffers most under pressure of too low price of steel is the European market. The first major problems began to show in the UK, where the steelworks close their facilities and seek help from the government. It is estimated that at least 2,000 people closely associated with the steel industry lost their jobs so far. The abolishment of another additional 5,000 jobs is announced. British situation is very similar to the great crisis of the steel industry 35 years ago. Experienced people say that it is now easy to blame it all on China, but Britain has not been able to compete even with the rest of Europe.
The situation in other European countries isn't much better. Until October the northern Europe was standing aloof from the situation, trusting their partners who were primarily looking for quality and specific products. Meanwhile, the difference between prices at the northern and southern European market has grown so much that not even the quality is a good reason for the higher prices. In contrast to the policies of the north, the south of Europe has been in the open price war with cheap imported products for months. A war that they certainly won't win without help of European Union institutions.
Steel prices have been continuously declining for months. Beginning of November brought even lower price levels. The owner of the Russian company Severstal PJSC, Alexey Mordashov, said he hoped that prices in Europe, which decreased to the lowest level in the last twelve years, finally touched the bottom ...
For these reasons, the European Steel Association (EUROFER) held an emergency meeting with the leaders of the EU and requested to urgently make decisive actions to save the European steel industry. The meeting was held on the 9th of November in Brussels, it was concluded only that the situation was serious, and that appropriate measures should be taken. It is proposed to discuss it later this year.
Europe must restructure the steel industry
Wolfgang Eder, CEO of Voestalpine and chairman of the World Steel Association (WSA), agrees that Europe must use all available means to protect its own steel industry. On the other hand he believes that this crisis has revealed all the shortcomings and problems that the European steel industry faces, and that they must be eliminated as soon as possible in order to survive.
In the interview he gave to the British Telegraph, Wolfgang Eder, explained his view: : " The problem in Europe is that there is too much capacity ". He pointed out that Europe should reduce its production by 50% during the next 15 years. "We need to bring down capacity as a precondition for a solid base in the long run ."
He also stressed that the situation in the UK is an example of the bad situation that could happen throughout Europe if it does not take appropriate actions on time: "European industry struggles under a cost structure that is not commercially competitive in the long run "
He added "There is no way out, because in the long run we cannot neglect these disadvantages. Decline is invitable in the face of worldwide trends "
The European steel industry employs about 330,000 people working in 500 different plants. Its production facilities are around 200 to 210 million tons of steel a year.