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Out Of Europe: Steel Industry Plans Great Exodus

Carsten Dierig, Die Welt

Brussels wants to tighten the EU Emissions Trading Scheme. The steel industry threatens to move abroad.

At first, Wolfgang Eder thought it was a joke. As he worked through his mail some time ago, the CEO of Austrian steel company Voestalpine had a letter from the American economy minister in his hand. In the letter, the minister said that he was pleased that Voestalpine considered the United States as the location for a new plant, and that he wanted to meet with Eder for dinner. Then, as a few days later, the US Embassy in Vienna called Eder’s office to arrange the requested dinner. Scepticism about the author of the letter gave way to enormous enthusiasm.

“That was a great gesture,” Eder says in retrospect. The Americans had taken him and his company seriously and always supported him and it. “They have been with us from the very beginning. In Europe, I have never experienced that.”

The result of the American efforts can now be admired in Corpus Christi, a port city in the state of Texas. Voestalpine has invested 550 million euros there in a new plant, which, from 2016 onwards, will produce two million tonnes of so-called iron sponge annually, a raw material for steel production, although all of Voestalpine’s blast furnaces are in Europe. Despite the transport costs, the cost advantage amounts to 200 million euros per year. Moreover, it is no longer certain that the blast furnaces remain located in Europe. By 2018, Voestalpine will decide whether the aging plants will be replaced in Europe or rebuilt in other regions of the world.

Currently, the management would probably decide against Europe. “The attractiveness of the location has fallen sharply,” says Eder. The EU has been indicating again and again that the industry is no longer welcome here. The pugnacious manager, who is currently also President of the World Steel Association World Steel, is alluding to the recent plans by the European Commission to revise the EU Emissions Trading Scheme.

The reform proposal for the so-called fourth trading period from 2021 stipulates an increase in the standard values for CO2 emissions and at the same time to cut back the number of available industrial emissions rights. In addition, the EU intends to allow fewer exemptions for energy-intensive industries such as steel, cement or chemical industry.

The reactions has been correspondingly severe. “If the Commission’s proposal is implemented in this way it is a very stark existential threat for us,” says Heinz Jörg Fuhrmann, Chairman of the Lower Saxony steel group Salzgitter. The additional burden on his company would account for over 100 million euros. “We simply cannot bear this burden.”

That Salzgitter is fighting its way out of a crisis may indeed play a role in this radical assessment. But Fuhrmann is by no means a single voice.

Karl-Ulrich Köhler, the European head of the Indian industry giants Tata Steel, predicts an exodus of the European steel industry if the proposals are implement. “The proposals represent a risk for the steel production in Europe.” This model would be leading to a shrinking process in the industry. After all, all competitors in Asia and America would enjoy much better conditions. “When I talk about emissions trading in Europe before the Tata board in India, it is very difficult for the colleagues there to understand why Europe’s politicians undermine the competitiveness of their steelmakers”, says Köhler.

Managers at ThyssenKrupp, however, refrain from public scolding. Germany’s largest steelmaker declined to comment on the Commission’s plans. However that CEO Heinrich Hiesinger wants his group no longer to be perceived as a steel supplier but as a “diversified industrial group” and remodels it accordingly, is ultimately also a statement about German and European climate policy.

In any case, the predicted shrinkage should strongly affect Germany especially. After all, Germany has by far the largest steel industry in the EU. Around 43 million tonnes of crude steel were produced in this country in 2014 – a quarter of the total EU amount of over 170 million tons. Currently nearly 90,000 people still work in the German steel industry, most of them in North Rhine-Westphalia, where Duisburg is the largest steel production site in the Europe.

The discontent at the German Steel Federation is accordingly great. “In the weeks when key issues of the future of Europe are in play, the European Commission in Brussels takes a decision with the tightening of emissions trading, which threatens industrial value creation in Europe,” criticizes Hans Jürgen Kerkhoff, President of the German Steel Association. The German steelmakers alone faced an increased burden of one billion euros every year as a result of the reduction of emissions allowances and the resultant increase in electricity prices at the same time. “The companies will be overwhelmed by the additional costs.”

In fact, the steel industry in Europe and particularly in Germany are regarded as technological world leaders. This, however, has not been taken into account, nor the fact that steel makes an enormous contribution to climate protection through its recyclability, experts criticized. “The EU misses in its reviews the complete life cycle of steel,” says, for example, Nils Naujok, partner at strategy consulting Strategy &. Of course, parameters such as recyclability or the possibility of lightweight construction were difficult to measure. “But to ignore them is negligence. This sets the wrong incentives.”

The consultant now warns against European de-industrialization, a process that happened at one point in the United States. “Steel production in Europe could gradually disappear”, Naujok predicts given the lack of competitiveness. There are already some harbingers. Voestalpine has not only invested in a new plant in the US. “We also have a number of further plans,” says CEO Eder. The Austrians plan, for example, new plants in Asia, including China and India. The investment volume lies in the hundreds of millions.

In Europe, however, the industry currently manages virtually only existing inventory. “We are currently investing only exactly that what is needed to remain technologically up to date and competitive,” Salzgitter CEO Fuhrmann says, speaking representatively for the entire industry. Fundamental decisions on the other hand, about capacity expansions or new plants, are placed completely on ice in Europe.

After all, a lot of money and long periods of time are at stake. “The installation of a blast furnace for the next 10 to 15 years costs easily 100 million euros. That are amounts and periods where the steel companies are now pondering whether they should still making these investments”, Nils Naujok describes. “The currently discussed scenario makes it clearly more difficult to make long-term decisions,” says Tata’s Köhler, who has recently shut down a plant in the north of England partly because of this development.

If these new investments do not take place, it will create serious problems in the medium to long term. And not just in the steel industry. “Established and especially integrated supply chains would be destroyed,” warns Nils Naujok and refers to the close cooperation between the steelmakers and, among others, the automotive industry and mechanical engineering, the two flagship industries of the German economy.

Of course, the manufacturers of cars and machinery could also import steel. “However, then they do not get the quality steel they need,” says Salzgitter CEO Fuhrmann. “For this you need the appropriate equipment and, above all, decades of process know-how.” You could not just change suppliers and order in Russia, China or America. “We need the partnership with the German steel manufacturers, this makes our strength”, confirms Matthias Zelinger, energy policy spokesman of the German Engineering Federation (VDMA). It would be extremely important that these partners remained in Germany.

The politicians are aware of the particular importance of value chains. “The basic industries are at the beginning of the value chain and thus form the foundation of our economy,” says, for example, Federal Minister Sigmar Gabriel (Social Democrats, SPD). However, as the steel industry complains, the policy decisions of recent years thwart such statements regularly.

For Heinz Jörg Fuhrmann, the EU Commission’s proposals make the situation even worse. “The raw material steel is always needed – whether we still exist or not,” says the Salzgitter boss who, as steel-President Kerkhoff, appeals to the European Parliament and the national governments in order to stop the Commission’s proposals at the last minute.

Otherwise, steel will no longer be produced in Germany and Europe in the future, but imported from other regions of the world. “And there, much less attention is paid to issues such as environmental protection and pollution control.” For him, the EU’s ES plans are accordingly totally absurd. “They will not help the climate in any case.”

Translation Philipp Mueller

Full story (in German)