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Vice-President of the European Commission, responsible for Industry and Entrepreneurship
Action Plan for a competitive and sustainable steel industry in Europe
11 June 2013
THE STEEL INDUSTRY: TIME TO ACT, AFTER 36 YEARS
This is the first time for 36 years – since the adoption of the Davignon Plan in 1977 – that the Commission is adopting an action plan for the steel industry.
My powers today cannot be compared to those granted to Etienne Davignon under the ECSC Treaty.
One of the triggers of European integration in 1951, the steel industry is still one of the EU's most important industrial sectors.
Even though the ECSC Treaty expired in 2002, the Commission has not neglected the steel industry, which became a priority industry with the new EU re-industrialisation strategy adopted on 10 October 2012.
With this strategy, we have placed industry at the top of the agenda, setting an objective that the share of GDP earned by manufacturing should rise from 15.2% today to 20% by 2020. This target cannot be reached without a competitive, innovative and sustainable steel sector.
The sector today is faced with a global overcapacity estimated at 542 million tonnes.
This excess capacity is to be found mainly in China, which accounts for 200 million tonnes of overcapacity. In Europe, the overcapacity is 80 million tonnes, representing more than 1/3 of total production.
DECLINE IN EUROPE OVER THE PAST 20 YEARS
Today's plan could no longer be postponed: China has become the leader in the sector, accounting for more than half of global production. The United States, also thanks to shale gas, is preparing to become a net exporter, whilst Russia, Ukraine and Turkey are all emerging powers.
The recession has aggravated the EU's decline in this industry: down 27% compared to pre-recession levels, with another 3% drop expected by the end of the year.
THE POTENTIAL OF STEELMAKING IN EUROPE
Ever fiercer competition notwithstanding, Europe remains the world's second largest steel producer, accounting for 11% and with export growth of 4%.
The sector therefore remains dynamic and potentially competitive in a context of global demand growing by 2.3 billion tonnes between now and 2025.
THE STEEL ACTION PLAN
Today, the Commission is proposing a strategic action plan based on six points:
THE RIGHT REGULATORY FRAMEWORK
One of the main curbs on competitiveness in the sector is the existence of national and European rules with a considerable cost impact acting as a disincentive to investment. What is needed is a clear, stable and reliable framework of rules.
To this end, the Commission has stepped up its impact analysis and assessment work with systematic competitiveness proofing.
Today, for the first time, we have published the conclusions of the first report on the impact of the combined effect of the EU rules on steel.
CUMULATIVE COST ASSESSMENT
The conclusions show that, in periods of recession, the costs of regulation can be particularly high, in some cases absorbing the entire gross operating margin (EBIDTA).
It is estimated that European rules increase the cost of steel by a maximum of 18 euros per tonne of steel in the case of electric arc furnace manufacturing and 12 euros per tonne of steel in the case of blast furnace manufacturing.
BOOSTING DEMAND WITHIN THE EU
Steel demand in Europe depends, for more than 40%, on two main "consumer" sectors: construction and the automotive industry.
These are two fundamental issues tackled in the European action plans Construction 2020 and CARS 2020. These two strategies will have the effect of relaunching internal demand for steel.
ACCESS TO INTERNATIONAL MARKETS
Smarter trade policy would also benefit the EU steel industry. Over recent years there has been a flood of protectionist measures which, today, impact on 2/3 of trade flows.
The Commission will use all the tools at its disposal to facilitate access to markets in third countries, such as free trade negotiations, missions for growth and the modernisation of trade defence instruments.
Another critical element is the growth in exports of scrap, which is gradually depriving Europe of an important source of secondary raw materials.
The Action Plan introduces monitoring of flows of scrap and the implementation of measures to restrict its export, including a legislative proposal on the inspection and monitoring of shipments of waste.
We will include coking coal and other critical minerals for steelmaking (such as nickel, magnesium and chromium) in the list of critical raw materials in the context of the raw materials strategy.
THE ENVIRONMENT AND ENERGY FOR INDUSTRY
Energy accounts for up to 40% of the production costs of a steel plant, meaning that the sector is particularly vulnerable to energy prices which, in Europe, are among the highest in the world.
Since 2005, Europe has seen an average price rise of 38% for electricity, whilst, on the other side of the Atlantic, costs have fallen by 4%, thanks to the use of shale gas. And the forecast for the EU is for energy prices to continue to rise significantly during the period up until 2020, discouraging investment in the sector.
To this should be added significant disparities in the national plans for renewable sources of energy, which have distorted the functioning of the internal market, contributing to keeping energy costs high.
Finally, the difficulty in obtaining long-term supply contracts should be mentioned, as this creates uncertainty and discourages long-term investments.
To meet these challenges, the Commission proposes:
In line with the conclusions of the last summit, the Commission will be presenting the European Council in February 2014 with a report on the structure of energy costs in the EU and their impact on energy consumers.
In parallel, we have asked the Member States to look at the impact of taxes on the price of energy and to adopt the necessary measures to make energy cheaper. The Commission will examine the impact of such measures and, if they are insufficient, will present recommendations, also in the European Semester.
CLIMATE AND THE ETS
The steel industry is one of the main contributors to CO2 emissions and, at the same time, is very vulnerable to relocation. As a result, the ETS provides for the free allocation of quotas to the most exposed sectors, including steelmaking.
As the list of sectors benefiting from free allocations heads towards its expiry date (31 December 2013), the Commission will be assessing all the elements relating to the competitiveness of the sector with the aim of keeping steelmaking on the list of beneficiary sectors.
Moreover, the Commission is preparing to define European objectives with a view to adopting an international agreement post-2030. Taking into account the current technological limitations and the lack of a binding international agreement, it is important to avoid punitive solutions, which would lead only to further relocations to places where there are no rules on emissions, thus harming both the climate and employment in the EU.
It is therefore necessary to promote incentives for innovation which support the sector's efforts towards greater energy efficiency and clean technologies. To this end, we propose that the proceeds of the ETS be reinvested in R&D and innovation.
The Commission is proposing the use of European funds to help disseminate innovative energy-saving and emissions technologies and an increase in resources for:
Finally, the Communication clarifies that the Member States may allocate state aid to innovation, the environment and to mitigate the impact of the ETS.
THE SOCIAL DIMENSION
The Action Plan is the result of ongoing dialogue with the social partners. Over recent years, more than 40 000 jobs have been lost in Europe, and the risk of closure and restructuring is growing.
Employment will be the priority of the summit of Heads of State and Government on 22-23 June, focusing on youth unemployment.
The Commission proposes:
A European industrial policy targeting growth and employment should be pursued with the necessary rigour.
Steelmaking is a decisive test of our determination to reindustrialise Europe on the basis of coherent policies. To this end, an Industrial Compact which places competitiveness back in the spotlight should be developed alongside the Fiscal Compact.
Today's plan is the first step in a journey towards promoting a key factor for all manufacturing activities.
In a few months we will see the formal launch of the High Level Group on Steel with the amendment of the Action Plan, already planned for June 2014.