BMI View: France's metals sector continues to be buffeted by global headwinds, including falling steel prices and increasing competition from low-cost overseas producers. We are expecting French steel output to decline this year, following a series of contractions in recent years. While we forecast production to begin growing again next years, overall output will remain significantly below levels seen 10 years ago.
Though still among the largest producers in Europe, France's steelmaking capabilities have receded considerably over the past. Standing at more than 20mn tonnes (20mnt) a year in the mid 2000s,in the decade since, the country's total crude steel output has contracted by about 25% and is forecast to dip under 16mnt this year following a year-on-year (y-o-y) decline of about 1.3%. Rising labour and production costs and falling competitiveness have combined with the effects of the global economic downturn and a sluggish French economy to sap investment as the country's larger producers have scaled back capacity. In particular, the future of France's steel sector remains clouded by uncertainty surrounding the future of ArcelorMittal's Florange steel mill, which, having been mothballed by the company in 2012, has morphed into an high-stake 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.
|A Harsh New Environment|
|France: Steel Production 2007-2019|
|f=BMI forecast. Source: BMI calculation, World Steel Association|
A gradual recovery in domestic steel demand is forecast as automobile production and construction activity start to pick up over the next few years. However, With French exporters continuing to underperform on the global stage and facing increasing competition from the likes of China, we are expecting the investment climate within the country's steel industry to remain tepid at best over the duration of our 2015-2019 forecast period. Looking ahead, we believe further 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.
With global steel prices continues to bump along the bottom, French steel producers will be looking increasingly to Europe for assistance. 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.