On the Fos-sur-Mer steelworks close to the French metropolis of Marseille, molten iron is flowing once more from blast furnace no. 1 for the primary time in six months.
The restart of the ability on the ArcelorMittal plant on the Mediterranean coast provides uncommon reduction for the €170bn European metal {industry} that was struggling lengthy earlier than coronavirus.
Bruised by international commerce wars and confronted with EU local weather change insurance policies focusing on the continent’s greatest polluters, metal producers might do little when the pandemic eviscerated demand from their important prospects.
However as a resurgence in Covid-19 threatens extra financial disruption, the disaster could show the catalyst required to confront what many consider is the largest — and politically most contentious — impediment to a affluent future for Europe’s metal sector: an excessive amount of capability.
“The metal {industry} wants to offer a reputable plan: how from a sundown {industry} it may come again once more as an {industry} which is clear and essential within the industrial provide chain of Europe,” mentioned Roland Junck, the interim chief government of Liberty Metal Europe & UK, one of many continent’s top-five producers.
A veteran of an {industry} that employs 330,000 individuals in Europe, Mr Junck mentioned the disaster had delivered the “single greatest hit” to demand he had seen in his profession.
A few of that is right down to the automotive sector, which makes use of so-called flat metal in automobile our bodies and accounts for about 20 per cent of European consumption of the metallic. International vehicle gross sales is not going to get better to pre-pandemic ranges till 2025 on the earliest, based on elements provider Continental.
“Profitability was already depressed earlier than the coronavirus disaster, and now with the weak point of key end-markets like automotive, the issue has gotten worse,” mentioned Ingo Schachel, an analyst at Commerzbank. “We’re seeing traditionally low ranges of profitability.”
Earnings earlier than curiosity, tax, depreciation and amortisation at ArcelorMittal, Europe’s largest producer, plunged by 65 per cent within the second quarter from a 12 months earlier. German conglomerate Thyssenkrupp warned in August that its metal division would rack up losses of about €1bn this 12 months.
The precarious monetary place is inflicting deep unease among the many {industry}’s workforce, which has endured a decade of cutbacks and job losses within the decade because the 2008-09 monetary disaster.
“We’re extraordinarily fearful in regards to the present scenario,” mentioned Judith Kirton-Darling of IndustriALL, a federation of European commerce unions. “About 40 per cent of the workforce is both on short-time working preparations or below risk of redundancies. Persons are feeling very insecure and anxious.”
If there’s consolation available, it’s that Europe’s automobile factories and building websites have largely reopened, whereas some idled metal manufacturing amenities are returning. UBS estimated that about one-third of the European blast furnaces that had been quickly closed had been fired up once more, or quickly might be.
European costs of hot-rolled coil, a benchmark sort of metal and an enter for a lot of manufactured items, have climbed by 1 / 4 since touching a low in June, based on information from Argus Media.
And authorities pledges from France and Germany to assist steer their economies by means of the disaster by spending on infrastructure is prone to buoy demand for so-called ‘lengthy’ metal merchandise corresponding to beams, girders and rail strains.
Some are uncertain that even this modest rebound has legs. Colin Richardson of Argus warned that “all the present demand is predominantly restocking, so it’s going to most likely fizzle within the fourth quarter”.
Even when it proves resilient, most executives agree that the pandemic has injected new urgency into the necessity for an industry-wide overhaul.
“It’s a query of consolidate or be consolidated,” mentioned an government at one metal group. “These firms who went into [the pandemic] dealing with some issues, then the Covid scenario has made it a hell of loads worse.”
Like the remainder of the worldwide metal market, Europe has lengthy suffered from an extra of factories, dragging down costs and earnings. International overcapacity is estimated at about 500m tonnes, in contrast with whole manufacturing of 1.87bn tonnes final 12 months.
Regardless of the closing of many older and soiled mills in China, there are nonetheless issues about an excessive amount of provide from the world’s greatest metal producer.
“What must occur is perhaps much less consolidation, and a bit extra capability closing,” mentioned a banker who advises European metal producers. “No person truly seems at it economically. Do we actually want all that capability open? The reply is not any”.
However it isn’t simply firms that should be satisfied of the deserves of rationalisation. Because the metal {industry} has traditionally been regarded by governments as a logo of nationwide financial power, politicians have been loath to sanction plant closures.
Thyssenkrupp, Europe’s second-largest steelmaker, is the pure candidate to guide any shake-up after the conglomerate offloaded its elevators enterprise for €17bn earlier this 12 months.
The potential for an all-German merger with rival Salzgitter, by which the state of Decrease Saxony holds a 26 per cent stake, has some political help. It’s prone to be seen extra favourably by native labour unions than a tie-up with Sweden’s SSAB, an choice reportedly backed by the activist investor Cevian Capital, which has a holding in Thyssenkrupp.
But with Thyssenkrupp having already introduced 3,000 job cuts, the potential for extra is prone to be resisted by politicians intent on defending one of many final main blue-collar employers in Germany’s former industrial heartland, the Ruhr valley.
Certainly, three of the contenders to interchange Angela Merkel on the head of Germany’s governing Christian Democratic occasion hail from North Rhine-Westphalia, dwelling to the majority of the corporate’s metal operations.
If a worsening coronavirus disaster might but break the resistance of politicians to consolidation, Europe’s regulators may also want persuading.
Final 12 months, the EU competitors watchdog blocked Thyssenkrupp’s plan to forge an {industry} powerhouse by means of a €15bn tie-up with Tata Metal Europe, although the German group is interesting towards the ruling to forestall a precedent in case the Indian big makes one other strategy.
Though antitrust issues in Brussels should show an impediment, one other initiative might provide the European {industry} higher safety from abroad imports and likewise spur funding in inexperienced know-how.
The EU’s push for a ‘internet zero’ financial system by 2050 has emerged as a serious problem for the sector, which globally is without doubt one of the greatest sources of greenhouse gasoline emissions. Over the previous three years, the value of the carbon permits that European polluters should acquire to offset their emissions have soared. ArcelorMittal alone has estimated that decarbonising its operations might value as much as €40bn.
However the European Fee is now contemplating a ‘carbon border tax’ that will impose a CO2 cost on items from outdoors the bloc, making certain firms in international locations with decrease environmental requirements don’t have an unfair benefit.
Along with public funding for low-carbon tasks, the hope is that European steelmakers can emerge as leaders in producing the metallic extra cleanly. Nevertheless, many observers consider this can stay elusive until troublesome choices are taken to shrink to a more healthy dimension.
“The metal {industry} has to search out methods of dealing with a requirement stage that’s structurally decrease,” notes Mr Schachel of Commerzbank, who says the disaster will go away a “lasting impression”.
