tienne Davignon OECD Symposium, 18 April 2016 Instead of capacity - - PowerPoint PPT Presentation

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tienne Davignon OECD Symposium, 18 April 2016 Instead of capacity - - PowerPoint PPT Presentation

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Restructuring of the European steel industry tienne Davignon OECD Symposium, 18 April 2016 Instead of capacity cuts there were continued investments in capacity expansions thereby exacerbating overcapacity W. Europe* investment in steel

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SLIDE 1

Restructuring of the European steel industry

Étienne Davignon OECD Symposium, 18 April 2016

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SLIDE 2

1 1

Instead of capacity cuts there were continued investments in capacity expansions thereby exacerbating overcapacity

  • W. Europe* investment in steel industry

(million ECU**)

1000 1500 2000 2500 3000 3500 4000 4500 5000 5500 1970 1971 1972 1973 1974 1975 1976 1977 Iron and steel industry only Steel and related industry incl. aids

  • W. Europe* production, capacity and

utilisation rate (million tonnes, %)

127 135 139 174 179 190 198 201 109 103 113 150 156 126 134 126

86% 77% 82% 86% 87% 66% 68% 63% 40% 50% 60% 70% 80% 90% 100% 50 100 150 200 250 300 1970 1971 1972 1973 1974 1975 1976 1977 Capacity (LHS) Production (LHS) Utilisation (RHS)

* EU 9 countries include Germany, UK, France, Italy, Ireland, Belgium, Denmark, Luxembourg, Netherlands *** 1 ECU is equivalent to FB 40.66, DKr 6.54, Ir£ 0.66, FF 5.6, FI 2.78, USD 1.13, Flux 40.7, £ 0.66, FS 2.76, DM 2.67, Lit 989.3, Can$1.14 as of Dec. 31, 1976

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SLIDE 3

2 2

This further worsened the market situation and losses continued

  • W. Europe* steel capacity utilisation rate

and profitability (%) Financial losses of EU companies between (million ECU***)

  • 1400
  • 1200
  • 1000
  • 800
  • 600
  • 400
  • 200

1975 1976 1977 France national steel (million ECU) British Steel Corporation (million ECU) Luxembourg(million ECU) Italian Finisider (million ECU) 86% 77% 82% 86% 87% 66% 68% 63% 2.5 0.8 0.6 2.8 3.4

  • 11.6
  • 4.6
  • 17.4
  • 30
  • 20
  • 10

10 20 30 40 50 60 20% 40% 60% 80% 100% 120% 1970 1971 1972 1973 1974 1975 1976 1977

Utilisation rate% Profitability % (RHS)**

* EU 6 until 1972, EU9 afterward ** UK steel companies average pre-tax income as % of sales *** 1 ECU is equivalent to FB 40.66, DKr 6.54, Ir£ 0.66, FF 5.6, FI 2.78, USD 1.13, Flux 40.7, £ 0.66, FS 2.76, DM 2.67, Lit 989.3, Can$1.14 as of Dec. 31, 1976

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SLIDE 4

3 3

During the restructuring phase, capacity in Europe was reduced by almost 20%, resulting in significant improvement of the utilisation rate

40% 50% 60% 70% 80% 90% 100%

50 100 150 200 250 300

1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

Capacity Production Utilisation

  • W. Europe* - production, capacity and utilisation rate (million tonnes, %)

*EU 9 countries include Germany, UK, France, Italy, Ireland, Belgium, Denmark, Luxembourg, Netherlands

Phase 1- Capacity expansion

  • to meet the high demand

growth Phase 2 - Restructuring

  • to deal with overcapacity

when demand saturated Phase 3 – Privatization and consolidation

  • to improve profitability and

ensure sustainability

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SLIDE 5

4 4

As a consequence of capacity reduction and other supporting policies, profitability recovered dramatically

  • 30
  • 20
  • 10

10 20 30 40 50 60 40% 60% 80% 100% 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

Utilisation rate% Profitability % (RHS)**

  • W. Europe* - steel capacity utilisation rate and profitability (%)

* EU 9 countries ** UK steel companies average pre-tax income as % of sales

Phase 1- Capacity expansion

  • to meet the high demand

growth Phase 2 - Restructuring

  • to deal with overcapacity

when demand saturated Phase 3 – Privatization and consolidation

  • to improve profitability and

ensure sustainability

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SLIDE 6

5 5

Under Davignon II, Europe reduced ca. 40mt (20%)

  • f steel capacity within 5 years

* EU 9 countries include Germany, UK, France, Italy, Ireland, Belgium, Denmark, Luxembourg, Netherlands

  • W. Europe* capacity change (million tonnes)

203 198 195 186 170 166 162

40 80 120 160 200 240 1980 1981 1982 1983 1984 1985 1986

  • W. Europe* capacity change by country

between 1980 and 1986 (million tonnes)

  • Ca. 40mt vs target of 30-35mt
  • 41
  • 19.4
  • 4.3 -4.0
  • 0.5
  • 6.1
  • 0.9
  • 5.4
  • 0.3
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6 6

The European producers received state aid of almost 38 billion ECU during Davignon II, but only a fraction of this was directly required for closure and redeployment

State aid breakdown by category 1980 - 1985 (billion ECU)

2000 4000 6000 8000 10000 12000

23 12 2 1 Total state aid Financial aid for continued

  • perations

Investment to improve

  • ngoing
  • perations

Aid for closure R&D and

  • thers

38

State aid by country 1980 - 1985 (million ECU)

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SLIDE 8

7 7

  • Ca. 5 billion ECU came from the EU commission of which more

than 2 billion was used to support manpower reduction

State aid from commission (million ECU)

266 86 163 140 227 305 235 110 72 82 45 142 60 29 113 50 63 424 224 140 222 268 425 661 67 86 101 145 105 140 690 516 574 594 747 977 1096 1980 1981 1982 1983 1984 1985 1986 Reconversion aid for job creation Aid for redeployment of workforce Aid for early retirement Investment for industrial modernisation Others

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SLIDE 9

8 8

About 0.5 billion ECU was used for redeployment of more 180000 employees

Financial aid for redeployment, number of people that received aid and aid/person (million ECU*, thousand, ECU/people)

110 72 82 45 142 60 44 22 22 24 53 19 2487 3345 3728 1848 2689 3082 1,000 2,000 3,000 4,000 5,000 120 240 360 480 600

1981 1982 1983 1984 1985 1986

Aid for redeployment

  • No. of people that received aid

Aid per person

  • Redeployment aid was

income support for the workers affected, whether they are

  • Unemployed
  • Employed in a different job
  • Undergoing vocational

training

  • The ECSC also contributes

towards the cost of organising training courses and helps to facilitate re-employment by paying travel or resettlement allowances for redeployed workers

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SLIDE 10

9 9

Nearly 1 billion ECU used for creating new jobs in other sectors

Reconversion aid for job creation, number of jobs created, cost per job created (million ECU, thousand, ECU per job)

86 163 140 227 305 235 14 17 10 12 23 12 6333 9576 13950 18667 13265 19583 5,000 10,000 15,000 20,000 25,000 100 200 300 400 500

1981 1982 1983 1984 1985 1986

Aid for reconversion

  • No. of jobs created

Cost per job

  • Creation of new jobs

primarily for workers in steel and coal industries

  • Loans with reduced rates
  • f interest were given to

support job creation in

  • ther sectors and

investment in small and medium-sized businesses (SMEs)

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SLIDE 11

10 10

Bilateral Trade Agreement in terms of volumes and prices supported market stabilisation

  • W. Europe* steel imports and exports

(million tonnes)

5 10 15 20 25 30 35 40 Imports of steel Exports of steel

  • The European Commission

developed an international framework in order

  • To maintain a reduced imports

level but of the same economic value

  • To authorise a reduced export

level but at an economic level which would not threaten the profitability of exporters nor that

  • f steel plants in the importing

countries

*EU9 countries include Germany, UK, France, Italy, Ireland, Belgium, Denmark, Luxembourg, Netherlands Sources: The Politics of Steel, OECD, Eurostat, Steel industry annual report, ArcelorMittal Corporate Strategy team analysis