The European steel industry is confronted with unfair competitors outside the EU, Axel Eggert, Director General of Eurofer, told EURACTIV Slovakia.
Axel Eggert was nominated Director General of Eurofer, the association representing steel producers in the EU, on 1 November 2014. From 2007 to September 2014, Eggert was Eurofer’s Director for Public Affairs and Communications.
He spoke to EURACTIV Slovakia’s Editor-in-Chief Zuzana Gabrizova, and Martina Dupáková.
What are the main issues the steel industry is facing currently in Europe?
First, we are still facing recession in the steel industry and we are still not fully out of the crisis. For example, if you compare steel demand in the EU in 2007 and today, it is still 28% below. We have lost more than 20% of the steel workforce. This is massive.
Our sector is restructuring. In 2008, we had production capacity of 235 million tonnes in the EU, of which 15 million tonnes is now permanently reduced. A lot of facilities and plants are still idle.
Steel demand is particularly low compared to pre-crisis levels, for material for the construction sector. It also depends on the region. It is easier in Germany, and more difficult in the east and the south of Europe – such as in Italy, Spain and Greece.
We support the EU institutions’ program That is, what Mr. Barosso, and now Mr. Juncker, promised: to reclaim a 20% share of the EU’s GDP for industry. Presently, it is at around 15%. The other two main issues are actually unfair trade practices from steel producing countries outside the EU, and the EU’s unilateral climate and energy policy.
The big issue is China’s production. Can you give us an assessment of that problem?
China is building up huge overcapacity. They have had an immense growth of 10 and more percent per year. If you look 10 or 15 years ago, the share of Chinese steel industry in the world was below 10%. Today it is more than 50%. They have a capacity of 1.1 billion tonnes, and of that 340 million tonnes is excess capacity. This overcapacity alone is double the EU’s total steel production, and more than double the EU’s steel demand.
They [China] put these products on the global market and this pushes down the prices globally, not only in Europe but in particular in Europe, because we have the most open market in the world. The US has a much stronger trade defence system. In Europe, you have relatively low dumping margins. The US is quicker and the margins are higher: they can be up to 200% or more.
Our objective is free trade. Fair competition, however, is a condition for that. China supports its domestic industry, with subsidies export rebates, by restricting trade and putting trade barriers, and so forth. For that, we are requesting that the EU institutions vigorously enforce our trade defence instruments and approve the Commission’s proposal to modernize them.
The industry rings alarm bells about granting China the status of a market economy. What would that mean in real terms?
The WTO accession protocol for China from 2001 says that China should become a market economy by December 2016. If that happens, anti-dumping measures won’t make sense anymore, because you cannot get real injury margins on their prices. You would have to compare the dumped prices with domestic Chinese prices, but those have all the elements of the state controlled economy. The subsidies, everything that makes steel products artificially cheaper in China, you would have there, and it would be much more difficult to prove dumping. There is, by the way, a very interesting study by Markus Taube, which was published last week, which demonstrates in detail how the Chinese system works. We are almost defenceless.
Is there any way the EU can intervene in this process of granting China market economy status?
Well, they simply cannot grant China market economy status. If the Chinese disagree, they have the possibility of going to the WTO panel and asking for the settlement. The Commission is discussing whether it should propose market economy status for China to the Parliament and to the Council. This would have to be adopted in the legislative procedure.
A huge mistake would be that if the EU agreed to grant China the status, and then later on the Americans do not, then the WTO panel would say there was no need to grant it. Then we would certainly have a problem – the trade difference between the Europe and the US would be ever greater. We would be completely defenceless and it could go as far as to jeopardise a large part of our business. It is an issue of equal importance to us as the EU’s reform of the European emissions trading scheme (ETS).
What are the main challenges of ETS reform to the steel industry?
The main one is that we need achievable emission targets for our sector. Otherwise no one will be interested in investing in Europe anymore. We proposed, together with other industries – the so-called Alliance of Energy Intensive Industries – a return to the basic principle of the ETS Directive: CO2 emission reductions, whilst safeguarding the global competitiveness of industry.
The benchmarks are set at the level of the most efficient installations. This means that the average of 10% of the most efficient installations will set the benchmarks and that is 5 out of 100 installations. These receive 100% of the free allocation. The other 95 have to buy additional allowances on the market.
The free allocation is decreasing, and you can’t invest because you have even less money than before to reinvest. We say that the incentive is there when the targets are achievable.
So, is it only the benchmarking that is a problem?
The same accounts for the indirect costs, CO2 costs which are passed through by the power sector via their electricity prices to the energy intensive industries. If we have to take 100% of the cost increases due to CO2 policy, than we have also another competitive disadvantage on the global level.
We are not saying we want to have the protection forever, but we want the most efficient steel plants in Europe to be at a competitive level globally.
If your profit margins are squeezed due to imports, less domestic demand, unilateral ETS costs, and other regulatory charges, this is a huge disadvantage. One has to see this holistically. Individual elements alone cannot explain why we face a competitive disadvantage with our global competitors.
How much of that do you attribute to regulatory costs?
There is already a famous study by the Commission and CEPS – (an) accumulative costs assessment for the European steel industry, published in 2013. It looked at the regulatory impact on the European steel industry and there you can compare the EU regulatory costs, which they say that in the period 2002-2011 they were 14 euros per ton of steel produced.
The previous European Commission launched an initiative called the Regulatory Fitness and Performance programme (REFIT), which also covered the steel sector. Would you evaluate it as insufficient?
I think it is a good start that the EC is thinking about and acting on better regulation. We have to give them some credit. The initiative started under the former Commission Vice-President Antonio Tajani and is still relatively young. We have to give credit also to the new Commission VP Timmermans, who has started some good initiatives to strengthen the impact assessment (IA).
But the EC has to deliver. We have a very recent example where it did not work at all and this is the EU ETS. The Commission managed to have an inter-service consultation on the draft proposal of just three days in length. Usually, intra-service consultation takes two weeks. If you have a controversial dossier, then it is normally extended to three weeks.
What expectation do you have of COP 21?
We published a letter together with the industrial unions a couple of weeks ago, before the G7 meeting in Germany. We are of course in favour of the ambitious global agreement, which puts us on the same footing as our competitors. It is of no use, however, if the EU says it will reduce emissions by 40% and China says it will peak its emissions in 2030, which in real terms means a doubling of their emissions.
Electricity pricing is another pressing issue for energy intensive industries. What do you think of the proposals of Maroš Šef?ovi? for the Energy Union?
I am very much in favour of a common EU electricity market. The problem is the transition. If you remember the Communication from Mr. Oettinger a couple of years ago, when he was still the Energy Commissioner, you’ll recall that he put a number on the transition costs: more than €1000 billion. Who is expected to pay this cost? It is, of course, the consumers: private households and businesses.
Should Slovakia be worried then?
Absolutely. The transition period during which you have to make investments in new infrastructure: someone has to pay for that. If the period is too long and the costs are too high, you can destroy whole industrial sectors. You need to keep it in line with other objective of the EU to create competitive consumer prices for energy – for private households and industry, as the European Council conclusions from March last year mentioned very clearly.
In general, we are in favour of the single electricity market, but we have to do it step by step and look at how to mitigate the costs.
The trending topic now is the circular economy package. What is in it for the steel industry?
Steel is the perfect material for a circular economy. You can recycle it over and over again, it is an eternal material, one of the few you can actually upcycle (upgrade it). Also, in terms of reducing production, we now make lighter steel, with the same or even better properties. We have decreased the amount of steel used in cars and that also reduces the total amount of steel produced in Europe. That is one of the targets of the circular economy.
But what you cannot do is to say that by 2030 we will reduce the metal consumption in the EU by 30%. These ideas are still floating around in the European Parliament, for example. It needs to be considered from environmental and economical point. If you decrease the consumption of material, does it mean that you will decrease the environmental impact? It is not always that clear. If you replace one material with another, its impact on the environment could be much higher. It has to be taken into account. We have the highest recycling rate of all materials. Steel should be recognised as a permanent material.
What should be result of such recognition?
The circular economy has to be assessed based on the full life cycle of materials and products. Some other materials are recyclable as well, but not permanently. A better classification of materials is therefore needed. We also produce by-products such as slags, which are used in the construction sector. For this we need incentives to increase their use on the market and to be part of the circular economy. It substitutes for primary materials and reduces CO2 emissions in other sectors.