EUROFER’s Annual Reports are an opportunity to look back at the preceding twelve months and examine the work of the European Steel Association (EUROFER). It also serves as a benchmark for the performance of the whole sector over that timeframe.
However, this edition’s release is overcast by its release coinciding with a pandemic – COVID-19. This means that as an analysis of 2019 it still provides an understanding of what the steel sector went through. However, as a guide to EUROFER’s future priorities, it is clear that what is written here today may be out of date by tomorrow.
2019 was already a difficult year for European steel. Even though the EU economy grew by 1.4% over the year, EU crude steel production dropped 6% to 157 million tonnes and apparent steel consumption fell by 5.3% to 154 million tonnes. Increasing trade tensions and a deterioration in the performance of key steel-using sectors – most notably in the automotive industry – underpinned a decline in demand for steel.
The decline in demand also precipitated a fall in imports of 11.5%. However, this is only a decline compared to the import record set in 2018, meaning import levels have returned to the level of the still high volumes seen in 2016 and 2017. However, this reduced figure hides significant market-destabilising volatility, and this instability has also undermined the functioning of the EU steel safeguard, even as the import quota has been raised continuously.
However, 2019 may well come to be seen as a prelude to an unprecedentedly difficult year in 2020. Previous EUROFER economic analyses had expected growth to return to the market in 2020, but with the advent of the coronavirus pandemic, the question regarding the performance of the steel sector this year is not a matter of asking: will it be bad? – it is a question of how bad can it get?
Provisional sectoral statistics collected by EUROFER during the coronavirus crisis suggest that during the acute phase of the lockdowns in March and April 2020 there was a collapse in steel demand, approaching 50% – and more, in certain segments. At the peak, nearly 45% of the workforce was either furloughed or on reduced time working. It is not clear how temporarily these setbacks are and how long it might take to recover from them.
At the same time, other regions also hit by the pandemic continued to produce for stockpiling, anticipating the recovery of third markets, such as the EU's. Low-ball offers at EU borders depress domestic prices even if they aren’t then followed by imported volumes. However, in the current conditions of stalled local production and the availability of imported substitutes there is a non-negligible risk of imports absorbing most or all resurgent steel demand, once it comes.
It is clear that the European steel industry is in a very precarious a position, at least in the near term. The steel sector – along with its value chains – must be supported today and empowered to contribute to the recovery. In practice, this means EU leaders must sharpen every available policy tool, even if they were not in principle designed with the specific purpose of economic recovery in mind.
To some extent, the EU has already been working to achieve this: the spate of State Aid approvals in the first half of 2020 attest to the understanding that EU companies need emergency support during this crisis. Shifted interpretations of foreign direct investment rules highlight the fact that policy makers appreciate that there are global players that would be terribly eager to acquire momentarily distressed assets at fire-sale prices. The recovery action plan developed by the Commission also seeks to set the European economy back on its tracks once the peak of the pandemic has passed. However, this approach has not been taken to its logical conclusion, most notably in trade policy. There are lawful trade measures available that could be deployed in these emergency circumstances that would ensure the already weakened market is not overrun with by a flood of imports when steel demand picks up again. Steel is an intensively traded product – one for which volume and price volatility at the border is immediately echoed in domestic market conditions. The EU should be unafraid to sharpen its trade defence tools, especially as global competitors are prepared to do whatever it takes to penetrate the market.
The multilateral trading system is weaker than it has been at any time in the post-war period. Increasingly, regions are playing off against each other. And it is Europe – and European steel – that stand to be worst hit in these circumstances if the EU doesn’t act. EUROFER will continue to offer support and make clear its recommendations in this respect.
The EU and industry must work together to overcome the pandemic-induced economic disaster in the short term, so that our sector and related value chains can help contribute to the recovery. We are still in the early days of this crisis, and there is still time to ensure that the EU and its industry rises stronger, cleaner and greener than before.
We hope that you enjoy reading the EUROFER Annual Report 2020.
EUROFER holds bi-annual seminars on the state of the EU steel market. This event will be held ahead of the release of EUROFER's quarterly economic and market outlook. This quarter's edition will be online only due to COVID restrictions.
The European Commission published, on 21 September 2020, its revision of the EU ETS State Aid guidelines for the compensation of indirect carbon costs for the period 2021-2030.
The EU's Joint Research Centre has just published a detailed report on production costs for iron and steel in the EU and third countries, exploring the various production factors that make up the competitiveness of these sectors.