France's metals sector is set for an extended period of very modest but uninterrupted growth in terms of both output and consumption through to the end of our forecast period in 2018. As long as major producers in the sector hold back on investment, however, we will not see growth accelerating at a rate any faster than the broader European market. Within the metals industry, steel will continue to dominate the country's metals industry, aided by a turnaround in the fortunes of France's domestic autos industry in 2015. ArcelorMittal and Rio Tinto, the two largest producers in the country, are facing an increasingly hostile and competitive operating environment, with steel still cheap on a relative basis and aluminium being exported from China. We therefore do not expect France to return to pre-2008 rates of production or consumption before the end of our forecast period to 2018.
Uncertainty surrounds the future of ArcelorMittal's Florange steel mill, which has turned into an increasingly fraught political dispute. By 2013, a deal by the government to save the plant from closure with a five-year investment programme appeared to have failed due to technical difficulties, but it seemed unlikely the government would carry through with its threat to nationalise the facility.
|Pre-Crisis Highs To Remain A Memory|
|France - Steel Output (kt)|
While France has been one of Europe's better performing steel-producing countries, output was still 20% below typical pre-2008 levels in 2014 and we estimate that utilisation levels are averaging 70-75%. Cuts in crude steel-making capacity are therefore inevitable in order to ensure the long-term stability of both the French and EU steel industries. For now, however, we are forecasting a year-on-year (y-o-y) increase in steel production in France for the remainder of our forecast period, with growth averaging 0.7% y-o-y to reach 16.2mnt by 2018. This is a forecast supported by the monthly data to have been released for the French steel industry so far this year (correct to the end of August, with activity up by 2% in the year-to-date). Similarly over the same four-year time period, we are forecasting steel consumption in France to increase by average of 0.5% y-o-y to 2018 to reach 15.0mnt.
On an intercontinental level, in February 2014 the European Parliament passed a resolution backing a plan to revive the bloc's steel industry, calling on the European Commission and member states to adopt 'economically feasible' climate and energy targets. The resolution came just two weeks after the Commission scaled down its 2030 climate and energy targets and underlines a new sense of pragmatism in Brussels at a when European growth is slow. In a move unlikely to be popular with the green lobby, the resolution said the most energy efficient steel plants in Europe should not have to bear any additional costs resulting from EU climate policies. It was not immediately clear how the resolution will tally with attempts by the Commission to prop up the EU carbon prices by delaying the sale of, or backloading, carbon permits - a major additional cost for industries like steel.
The Commission launched the so-called 'steel action plan' in June 2013 in a bid to stem a decline in Europe's steel industry, hit by a roughly 30% drop in demand since 2008 that has led to plant closures. EU industrial output fell to around 15% of GDP in 2013, well short of an informal goal of 20% by 2020, set by the Commission. The United States, by contrast, is reindustrialising with the help of cheap energy thanks to the shale gas boom. Gas prices in Europe are around three times higher than those in the United States, prompting the IMF to warn that energy intensive industries like cement and steel could relocate if action is not taken. The IMF estimates these industries employ over 30mn people. Eurofer estimates the European steel industry, which employs millions of people directly and indirectly, has suffered a loss of about 40,000 jobs in recent years.