Western Europe: Hard Times for Steel

Europe’s major steel producers will set a tonnage record this year, but the industry’s predominant mood is one of gloom rather than cheer. Reason: despite repeated warnings from the European Coal and Steel Community, steelmakers have expanded too rapidly. This year, capacity in Britain and the Common Market countries will rise by 10.7 million tons—while orders from such important customers as the construction and auto industries have slacked off. Britain will have excess capacity until 1970. Italy’s state-owned Finsider, which supplies 63% of Italian steel, has completed a string of four coastal mills that will help raise national output 26% this year, making Italy a net exporter of steel for the first time and thus increasing pressure on European markets.

Inevitably, the result of this squeeze has been layoffs, shutdowns and cutbacks. Last week Germany’s Rheinische Stahlwerke, whose industry orders are down to a two-month backlog, cut the work week for 1,500 men. Britain’s Richard Thomas & Baldwin—the only large steelmaker still nationalized—announced plans to shut down two open hearths at Ebbw Vale, thus idling 300 men. Giant August Thyssen-Hütte, Europe’s biggest steel company, gloomily expects to cut its work hours soon.

Europe’s chances of utilizing excess capacity by selling elsewhere in the world are meager. Emerging steel industries in other areas are helping to pour out an estimated world total of 17 million tons more than markets will require. Though European exports to the U.S. have increased 11%, Europe banked on a U.S. steel strike this fall to raise that total considerably and help work off its excess. The strike, of course, never materialized.

The glut has dropped most European steel prices toward their lowest level in ten years, yet the cost of production keeps rising. West German plants are forced by Bonn to use uneconomical coal from the Ruhr instead of cheaper U.S. imports; the difference causes a pricing disadvantage of up to $5 a ton in competition with incoming Dutch and Italian steel. Steel imports, as one result, have climbed from 15% of German sales to 25% in the past five years. French steelmakers must import 25% of their coke, pay a 15% to 20% duty on it.

To add to the difficulties, wages continue to soar. In Germany they have risen 7.5%, while productivity has risen only 2.5% . In Britain, pay has gone up 8.6% in the last year v. 4% for productivity. Since their rich year of 1960, earnings of German steel companies have slipped a total of $450 million. French firms this year and last had to issue $196 million in bonds to cover costs. Not surprisingly, only the Italians are making significant profits.