Europe and its Steel producers
The first half of May 2019 was already announced that the merger between Thyssenkrupp and Tata steel would not take place. The share of Tata steel fell 7% on the Indian stock market. For the Germans, the merger was a relief, resulting in a 10% upward movement of the stock.
However, the fun did not last long. Only a few days later, Thyssenkrupp announced that they would close the past financial year with a negative result.
This news caused unrest among the shareholders, causing the share to reach its lowest level in 16 years at the beginning of June this year.
The merger, already canceled by Thyssenkrupp and Tata steel itself, triggered an alarm at the European Union. The EU made it necessary to have another expensive study carried out and to send a press release to the world on 12 June that a merger would be in conflict with competition, and prices for consumers could rise.
Europe is flooded with cheap Russian and especially cheap Chinese steel, but that does not seem to bother our European leaders.
A market flooded by Chinese cheap steel is, according to the EU, not an infringement of the competition clause.
30% to 40% imported steel naturally leaves its traces in industry and employment.
Metal semi-finished products and others, such as machines and their parts, the production of which has moved to China, are not yet included.
If we include that number of tons of steel and the lost of employment, the percentage will be hallucinantly high.
The American president Trump responded much quicker to the call of American steel producers and necessary sanctions were already taken in 2018.
The 25% tax on foreign steel was the first blow to European steel producers.
China increased its steel production, while now producing more than 1 billion tonnes of steel per year of which they dump a significant part on the European market.
That dumping of cheap steel, manufactured by Chinese companies, heavily subsidized with Chinese government money, completely de-stabilizes the European market does not seem to get through to the EU, that should protect its companies from what is currently going on.
As if it is not bad enough, our steel industry is being hit even more by falling production in the automotive sector.
Unclear European Union regulations and the very rapid evolution of batteries for electric vehicles make consumers try to postpone their purchase of a new car.
The frozen merger with Thyssenkrupp and the low steel prices, will make Tata steel focus again on the Indian markets.
Because the company has to reduce costs, there is a chance that certain activities will be divested. It is not yet clear whether direct jobs are at stake in the reorganization of the company.
The Austrian steel producer Voestalpine had a disappointing financial year for 2018. A sales increase of around 5% could not prevent the EBITDA from falling with around 20%.
Voestalpine therefore performed 1 / 5th less than the year before.
As we are currently in a so-called economic boom, than that will be promising for the future when we get to a downturn.
The dividend yield for 2019 was reduced with a proportional decrease of 20%.
Due to the current steel problems, Arcelor Mittal is also forced to reduce costs and implement a restructuring of the company. Arcelor Mittal employs more than 19,000 people throughout Europe. Whether these can all be preserved is not yet entirely clear.
The European Union no longer has time to lose if it wants to keep a shrill of steel production in Europe.
It seems more and more that European leaders are busy floating a sinking ship instead of protecting the much-needed European steel industry.
By: EEJ Convens
Black Bull Assets
15 juni 2019