Steel is an essential element of the world in which we live; it is a material fundamental for construction, infrastructure and also for the ecological transition. So important is this alloy of iron and carbon that when its price varies too much, the world economy becomes constipated. Steel is currently going through a perfect storm that has generated a crisis that could have enormous consequences.
On the one hand, China, where production continues to fall due to circumstances in its domestic market. It is a transcendental issue because the Asian country is by far the world’s largest steel producer.. In addition, the United States is trying to defend the “Americanness” of one of its most important steel mills. Meanwhile, Europe is producing less and less steel (it depends more and more on others), but at the same time wants to decarbonize.
China is the world’s largest steel producer and has sounded the alarm. The protracted housing recession in that country shows no sign of ending, while factory activity continues to decline. Given the importance of Chinese steel, its crisis has the potential to spread around the world and plunge the sector into a deeper recession, Bloomberg reported last August.
Conditions in China’s steel sector are like a “harsh winter” that will be “longer, colder and harder to bear than we expected,” said China Baowu Steel Group Corp. president Hu Wangming. This company alone produces around 7% of the world’s steel and its top executive warns of a “longer, colder and more difficult winter”. a crisis worse than those of 2008 and 2015.
The Asian giant produces more steel than the rest of the world. Between January and August this year, China accounted for more than 55% of world production. This crisis in the real estate sector has led Chinese companies to increasingly exporting to the rest of the world. That, in turn, means prices that are impossible to compete with. Last week, the European Parliament debated the issue and almost all groups criticized China’s policies, which by subsidizing its steel is hurting the European steel industry.
ArcelorMittal, the world’s second largest steel company, considers the increase in exports from China “aggressive”. But the company says the current steel crisis will not affect its business in Spain. Headquartered in Luxembourg, ArcelorMittal owns plants in Avilés (Asturias), Gijón (Asturias), Sagunto (Valencia), Pedrola (Zaragoza), Etxebarri (Vizcaya), Lesaka (Navarra), Sestao (Vizcaya), Olaberria (Guipúzcoa), Vergara (Guipúzcoa) and Zumárraga (Guipúzcoa).
U.S. defends its Opas steel
In the United States, the problem is United States Steel (US Steel), one of the world’s largest steel producers. Its shares plummeted this year in the face of the possibility that it might be bought by Nippon Steel, Japan’s largest steel producer. As a sign of the importance of steel, the president Joe Bidenmade a move and, at the end of his term in office, wanted to veto the purchase of the operation.
Pending regulatory and shareholder approval, US Steel would be acquired by Nippon Steel. for $14.1 billion. The deal, announced in mid-December 2023, would keep the name and headquarters in Pittsburgh. But in reality, the Japanese friendly takeover bid is offering $55 per share, 87% above the current price.
The decision is now in the hands of the Committee on Foreign Investment in the United States (CFIUS), under the Treasury Department, which can either stop the acquisition or leave it on the table in the Oval Office. In any case, the matter has clouded U.S.-Japan relations.
Will Harris or Trump decide
In late September, Nippon Steel reapplied to CFIUS for a review of its proposed acquisition of US Steel. The White House has now extended the review of the purchase, which will delays the decision until after the November 5 elections.. It will be the winner, Harris or Trump, who will have the final say.
Biden has put the brakes on a hypothetical takeover of US Steel and, likewise, presidential candidates have been in favor of the company remaining American. But statements don’t pay bills and there is not a dollar in the company’s cash box.
So US Steel is not ruling out plant closures, which would greatly affect the U.S. labor market. The steel company directly employs 85,000 people. Its mills produce flat-rolled steel, tubular steel and iron ore.
China consumes half of the world’s steel
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Global consumption of finished finished steel products reached 1.8 billion tons in 2021, up 2.7% from 2020. The world’s largest steel consumer is China, which takes 52%. However, its consumption compared to previous years decreased by 5.4%. In contrast, the rest of the world has increased its use and consumption (European Union by 16%).
Europe or how to produce clean steel
It is vital, one would say strategic, but the industrial steel production in Europe has declined by 20%. in the last 10 years, from a trade surplus to a trade deficit of some 10 million tons, according to European Commission data.
Right now, “Europe is only 7% of world steel production.” explained Commissioner Helena Dalli in the European Parliament last week. She called for “reversing the trend”, which requires “more investment in new clean steel projects to make Europe competitive again in the steel landscape in the coming years”.
It’s not easy. European steelmakers are under pressure from Brussels and its green push for decarbonize, but to produce clean steel “could worsen its already rickety global competitive position.” says the Financial Times in January. In principle, the environmental tariff, the Border Carbon Adjustment Mechanism, is gradually being rolled out and will increase its restrictions on non-EU products in the coming years.
European steel mills know that they will have to pay the full cost of carbon dioxide emissions. emissions by 2034. That could add 200 euros to the cost of each metric ton of steel produced in blast furnaces, almost 30% of the current price, explains the business daily.
The steel industry is responsible for an average of 7% to 9% of total CO2 emissions. emissions generated by the burning of fossil fuels. It is estimated that steel demand will grow by up to 30% by 2050.