Sep 14, 2022
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European metallurgy will not survive without Russian gas or new anti-Russian sanctions

European metallurgy will not survive without Russian gas or new anti-Russian sanctions

Photo: AP/TASS

Ferrous metallurgy in Europe has found itself in a difficult situation due to high energy prices, industry leaders warn the EU leadership. As the European Steel Industry Association (Eurofer) said in a statement sent to the EU authorities, while the local steel industry is reducing production, competitors from other countries are increasing exports of similar products to the EU.

The Association points out that high gas and electricity prices threaten the viability of the steel sector in Europe. Foreign producers do not face the same increase in energy prices, which allows them to dump and increase supplies to Europe. This leads to the closure of factories or the reduction of their staff in the EU.

According to industry representatives, steel production in Europe fell by almost 5% in seven months, in annual terms – to 86 million tons. In July, the fall was stronger – 6.7%. Most metallurgical companies (ArcelorMittal, Salzgitter, Arvedi, Acciaierie d’Italia, Marcegaglia and others) have suspended smelting and are postponing the restart of equipment. In the worst case, up to a third of all capacities in Europe could close, including most of the electric steel plants.

At the same time, steel imports to the EU countries are increasing. According to Eurofer estimates, it grew by 9% in the first half of the year. Five countries accounted for 67% of all imports of finished steel: Turkey (17%), India (10.1%), South Korea (9.3%), Russia (7.3%) and Ukraine (5.3%). Of these, only South Korea was able to increase imports – by 35%. Imports from Russia, on the contrary, fell the most — by 46%. It should be noted that production itself has fallen in Russia, although there are no problems with energy in the country. Production in January-July decreased by 7%, to 41.4 million tons, and in July – by 13.2%, in particular, due to a decrease in exports to Europe.

As for the EU, it is likely that if the energy situation does not improve, the decline in production will continue and increase. Therefore, the association expects urgent measures from the EU authorities to stabilize the European energy market, otherwise the survival of European metallurgy will become doubtful. One of the proposed measures is the actual subsidization of metallurgical enterprises through taxes on the profits of oil and gas and energy companies.

Estimated Sergei Grishunin from the National Rating Agency, in the EU by the end of the year will close most of the energy-intensive electric steel plants, which provide 42% of total steel output. He assumes that the potential loss of smelting by European metallurgy can reach 20-30 million tons in the second half of 2022, and next year, if the situation does not improve, it will be possible to talk about a loss of 50 million tons.

Deputy General Director of the National Energy Institute Alexander Frolov explained to “Free Press” that the problems of European metallurgists began several years ago, and then the European authorities tried to stop them by introducing high protective duties. For example, the EU introduced anti-dumping duties against Russian and Chinese steel producers in 2016, as well as duties on all steel imports in 2018. The current energy crisis has only exacerbated the problems, and the industry will not survive without government support.

— European metallurgists turned out to be uncompetitive compared to their counterparts from other countries of the world, including Russia. What we see now is not a problem that has arisen overnight, and as soon as the energy crisis is over, it will disappear. No, this is a consequence of systemic problems in the EU.

Another thing is that the European Union itself is a major consumer of metallurgical products, therefore, by protecting its market from imports, they managed to maintain production. But then came the global energy crisis, which struck a blow to the industry in the form of rising prices for electricity and for such an important raw material for metallurgy as coking coal. And the industry began to crumble.

The fact that metallurgists are trying to solve their problems at the expense of the profits of oil and gas companies does not honor these enterprises, although such a concept as “honor” in business is, of course, conditional. If they have a chance to improve their business at the expense of another industry, energy, they will use it. But since the global energy crisis has not caused, but only exacerbated the difficulties faced by metallurgists, even sponsorship from the energy sector and government support measures will not have the impact they are counting on.

SP: How serious are these problems?

– European metallurgical enterprises several years ago demanded support in the form of protective duties, now they require support in the form of subsidies. It turns out that they cannot function outside the state aid system. This is not only black, but the whole metallurgy in principle. For example, the production of aluminum requires electricity and again electricity.

In fact, the European steel companies demonstrate the inability of the European market to reality. Here it is worth referring to the statement of Mrs. Ursula von der Leyenwhich said last October that the energy and gas markets are doing remarkably well. Yes, prices are rising, but this is not a reason to carry out any reforms. And already in August-September of this year, the same Ursula von der Leyen said that their energy market requires intervention, since it was designed for other conditions.

It turned out that when developing the model of the energy market, European officials did not think at all that some kind of crises were possible. Despite the fact that crises are an integral part of the socio-economic formation in which we are lucky to live. These people decided to create an energy system at random. And now it has a negative impact on all industries, especially metallurgy, as the most energy-intensive industry.

It turns out that Europe, on the one hand, is building an ultra-liberal economy in which prices are formed through market mechanisms. On the other hand, the real existence of the European economy is impossible without constant clear and strict control and state assistance, within the framework of which the state begins to redistribute funds between sectors, increasing taxes and directing additional funds to where support is needed. This is all great and good, such a system works in principle, but then why are you creating an ultra-liberal model of energy markets? What is the point of trying to cross a hedgehog with a snake, and then be surprised that the hybrid does not work out.

“SP”: – In this case, what are the prospects for European metallurgists?

– Without state support, European metallurgists will have to continue to close enterprises, which is already happening. They began to either reduce output, suspend operations, or simply shut down starting in the second half of 2021.

In addition, competitors from Russia and China are on the alert. They have significant competitive advantages, because the cost of producing metallurgical products there is much lower than in Europe, thanks to the “wise and competent” energy policy of the EU.

The Europeans were unable to maintain the competitiveness of their steel industry. Instead, they created a system in which only through strict state control and high protective duties on metal products could they keep their enterprises running. But this performance was based on a large volume of demand in the internal European market.

Given the difficulties that the European economy is currently facing, it can be assumed that the volume of demand for the products of the metallurgical industry will decrease. And on the world stage, those protective mechanisms that European enterprises have in their home market, they will not have. This will put additional pressure on European manufacturers. Especially in view of the growing competition from other countries, including Russia.

It is possible, of course, to introduce further sanctions against Russian metallurgists, and the European Union may have to do this in order to help its enterprises compete. But this will be done, of course, under the guise of rhetoric that this is because of the “unprecedented conflict that Russia unleashed”, and not at all because it is necessary to somehow protect its producers and increase their competitiveness.

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