Brussels, 11 June 2013
Ensuring a future for steel in Europe
Since the Davignon Plan of 1977, this is the first time that the Commission has proposed a comprehensive action plan for steel, eleven years after the expiration of the European Coal and Steel Community (ECSC) Treaty in 2002.
The European steel industry has many assets in the form of modern plants, advanced products, demanding clients forcing constant product innovation, an important domestic market and a skilled workforce. However, today it faces major challenges: low demand, increasing energy costs, reliance on imported raw materials, stiff and often unfair competition and challenging environmental requirements. There is a heightened risk of plant closures and job losses.
This memo analyses the challenges the steel industry is facing and presents the European Commission’s Action plan, which was published today. It recalls the strategic importance of steel to the EU and its close links to many downstream industrial sectors such as automotive, construction, electronics. It emphasises in no uncertain terms that steel making has a future in Europe.
A. The challenges
Steel demand in Europe is currently 27% below the pre-crisis level. Employment in the sector fell by 10% from 2007 to 2011, as several production sites closed or reduced output. But the EU is still the second largest producer of steel in the world, employing over 360 000 people, with an output of over 177 million tonnes of steel a year, accounting for 11% of global output.
Globally, steel industry currently has approximately 542 million tonnes of excess capacity, of which almost 200 million tonnes are located in China. If capacity remains constant after 2014, it could take five to seven years for demand to match capacity, at the current rate of growth.
Competition is fierce, the Chinese steel industry now accounts for almost 50% of global steel production and China is the largest steel exporter worldwide. In the United States, the fall in energy costs resulting from the shale gas revolution has improved the competitive cost position of the industry, which is now attracting new investments. The US may soon become a net exporter of steel, further increasing global over-supply. Some neighboring countries (Russia, Ukraine and Turkey) have substantially improved their steel production capacity to export to the EU.
This being said, competition is not always fair - There is an increasing trend to protect domestic steelmakers through the imposition of export restrictions and export duties on raw materials, unduly raising steel production costs in the EU. This is the case in India, China, the Russian Federation and Egypt. Investment limitations in, and public procurement preferences for domestic steel sectors are in place in China and the US.
The OECD expects global steel demand to increase to 2.3 billion tonnes by 2025, mainly from the construction, transport and mechanical engineering sectors, in particular in emerging economies. It is vital that the EU steel industry is fit to take full advantage of this next surge in demand.
B. The steel action plan – Steel has a future in Europe
Clearly, we need to stimulate growth in demand for EU steel both within the EU and in third countries, cut costs and increase innovative, sustainable steel production. Only if there is targeted action by the EU, Member States and business will the EU steel industry regain competitiveness and develop the next generation of steel products vital for other key European industries.
1. Ensuring the right regulatory framework
In line with the Commission’s Smart Regulation agenda1, EU legislation must be effective and efficient in achieving its objectives. The Commission is determined to identify excessive burdens, inconsistencies, gaps or ineffective measures.
In this context the Commission will finalise a cumulative cost assessment for the steel sector in 2013 to assess the overall EU regulatory burden, as well as thoroughly assessing the impacts of any new initiatives which can be expected to have a major influence on the competitiveness of the steel industry.
In some Member States value-added tax evasion in the domestic steel market negatively affects the operational conditions for steel producers. As a result, they suffer from unfair competition from the black market, leading to cuts in production or closures. The Commission, together with Member States, will therefore investigate possible initiatives against the illegal EU market for steel products, including VAT evasion.
European standards can also promote sustainable production of steel construction products. The steel industry is already developing the Steel Construction Products Mark – SustSteel. It aims to promote sustainability in general, and in the production of steel construction products in particular. Its use may require require specific standardisation activities.
2. Easing restructuring and addressing skill needs
The outlook for employment in the steel sector is of serious concern and deserves full political attention, not least because 40 000 jobs have been lost in recent years, due to restructuring.
Structural funds, and in particular the European Social Fund and the European Globalisation Adjustment Fund, as well as several policy instruments can alleviate the social cost of adjustment and ensure that the necessary skills required are retained.
The age structure in most European steel-producing companies is such that more than 20% of the current workforce will have left the industry in the period 2005-2015, and close to 30 % will leave up to 2025. The industry thus needs to be able to attract young and creative talent.
The Commission will launch a series of measures, but also calls on Member States and industry to join in implementing the actions:
Ensure that the granting of EU fans takes into account the durability of the investments in creating and maintaining jobs.
3. Boosting demand for steel
In the EU, steel demand depends on the economic and financial status of a few key sectors which have themselves suffered in the financial crisis.
The construction and the automotive sectors account for a combined share of approximately 40% of steel demand. The EU initiatives targeting these sectors – CARS2020 stimulating demand for vehicles using alternative fuels and "Sustainable Construction" encouraging renovation of buildings – must be implemented.
4. Supporting demand by improving access to foreign markets and ensuring a level playing field at international level
The EU is an open market, but too often non-EU steel producing countries use trade restrictions or distortions including tariff barriers, non-tariff measures, export incentives and subsidies to give unfair advantages to their own steel industries
There is a particular need in this sector for fair international competition and a level playing field. Steelmaking depends on resources that are scarce in Europe. Europe recycles steel scrap, which is one of the inputs to steel-making, but even here there is a shortage in part due to illegal exports.
Bilateral and multilateral trade policy and notably negotiations of free trade agreements (FTAs) are the key instruments to ensure access to third country markets and raw materials, backed up by Trade Defence Instruments to address unfair trade practices. In 2012, eleven new investigations on iron and steel products were initiated following complaints by the industry.
The Commission will also:
5. Boosting competitiveness with the right energy, climate, resource and energy efficiency policies
Energy costs represent approximately 40% of operating costs in steelmaking. As in other Energy Intensive Industries (EII), energy costs are one of the main competitiveness drivers.
European industry pays higher energy prices than most of its international competitors, prices which rose by 27% in real terms between 2005 and early 2012. Future energy policies must identify ways to reduce or compensate for adverse impacts on the competitiveness of EIIs.
Differences in end user electricity prices between EU Member States are due to a complex interaction of various factors, including fuel costs, taxation policy, market structure, renewables policies and different approaches to price regulation. While high shares of renewable energy with low marginal costs can have a downward pressure on wholesale prices, the impact on end user prices from expansion of renewable energy can be negative in the short to medium term through the addition of renewables levies by the Member States. An efficient internal energy market will stimulate competition and reduce prices but this requires adequate cross-border and trans-European energy infrastructure, which will only be achieved through targeted action by the EU and its Member States.
Another challenge is the ETS related increase of electricity prices which hit producers using Electric Arc Furnaces and recycled scrap as the primary raw material particularly hard. Continued investments in energy efficiency are needed: plants using best technologies are already operating close to their thermodynamic limits.
As one of the largest sources of CO2 emissions, the steel industry is at particular risk of carbon leakage. Consequently, it will be allocated emission allowances at 100% of the benchmark based value for free. Under the ETS state aid guidelines it may benefit from financial compensation from 1st January 2013 until 31 December 2020.
Climate policies will be another important driver for technology changes. A stable and transparent regulatory framework is necessary to ensure that long-term investments, indispensable for the renewal of the industrial base, take place. The EU’s climate policy post-2020 will play a crucial role as will the commitments and ambitions of non-EU countries. In the short term, an increase in the use of scrap material could make an important contribution to emissions reduction, but the EU availability of quality scrap is limited. Increasing scrap use further necessitates improving and stimulating the recycling market.
A critical area is the successful demonstration of breakthrough technologies for CO2 emission abatement including industrial carbon capture and storage (CCS). There are however important challenges to be taken into account like high costs and lack of public awareness and acceptance.
Ensure global comparability – Standards for emissions
Improved commitments as well as efficient systems of monitoring, reporting and verification must be in place to ensure transparency of the future international climate change agreement and internationally recognised measurement standards are essential to ensure the EU steel industry is not unfairly handicapped.
One innovative idea to support the implementation of the EU Climate Policy and to facilitate achieving the objectives of the UN Framework Convention on Climate Change is to adopt European Standards for assessing the greenhouse gas (GHG) emissions in EII. Identifying quantifiable contributions to emissions reduction, at plant and industry sector level, requires transparent methodologies and a solid consensus on monitoring, reporting and verification procedures as well as key performance indicators. The standards will enable the performance of plants to be compared globally.
Amongst other initiatives, the Commission proposes:
Member States can contribute to these reduction goals by
The Commission will assess the impact of the measures taken and if necessary give additional recommendations to minimize energy costs for energy intensive industries (EII).
6. Boosting Innovation
The European steel industry is constantly developing new types of steel for specific applications. To further boost this competitive edge, there is a need to stimulate innovative R&D to a much greater extent than in the past, particularly the economically risky and very expensive pilot and demonstration phases.
The European Innovation Partnership on Raw Materials (EIP) fosters innovation through the value chain of steel, from exploration and extraction, to efficient processing, recycling and substitution.
The Commission will:
This action by the Commission can be complemented by dedicated programmes at the Member State level. European Investment Bank can also contribute by considering long-term financing applications for projects that aim to ensure compliance with requirements under the Industrial Emissions Directive based on best available techniques (BATs).
Additionally the steel sector benefits from state support measures that contribute to EU 2020 objectives, notably R&D, innovation training and employment aid as well as aid to increase environmental protection.
Within twelve months of the adoption of the Action Plan, the Commission will assess how its implementation has impacted the competitiveness of the steel industry and, if necessary, provide additional recommendations and guidance
COM (2010) 543 and COM (2012) 746