Italy the sick man of Europe’s steel market

The phrase ‘sick man of Europe’ has been used time and again over the past century, and used against almost every individual European state at one point or another to describe a country afflicted by economic adversity or impoverishment.

During much of the 1970s the UK enjoyed the dubious honour, while in the 1990s it was Germany’s turn. With their inability to balance a government budget for more than 30 years, both France and Italy have regularly contended for the title.

Nowadays it is a hotly-disputed mantle and, depending upon which statistics are looked at, a case could be made for any number of countries. In the European steel industry, however, there is one market that stands out as suffering particular adversity. That market is Italy.

As the first port of call for many imports arriving from Asia, this should perhaps be of little surprise. Indeed, Italian imports of steel from non-EU countries rose by some 24% last year compared to 2012.

But this is a bit misleading and certainly not the whole story. Imports from other EU countries rose at an even faster rate, by about 32%.

chart1ita

In addition to increased trade competition, Italy’s steel industry is not in the best shape. In particular we refer to the problems facing the Ilva works in Taranto, the largest steelworks in Europe. The site has been hit by natural disasters, investigated by the government over corruption and breaches of environmental law, and eventually placed under government supervision over the past couple of years.

Other symptoms of a local market under pressure are also present.

Even being home to the largest steelworks in Europe, the Italian steel market is fragmented and producers suffer from increased competition, not just from EU- and non-EU imports but also from a large number of internal competitors. Where ArcelorMittal dominates Belgium, France and Spain; Tata Steel the UK; and ThyssenKrupp Germany, Ilva controls just over half of domestic flat steel production capacity.

chart2ita

The demand side does not look great either. With around 55-60% of steel consumed in Europe finding applications in the automotive and construction sectors, Italian steel demand growth has languished behind that in other European countries as of late. Since 2009, activity in both sectors is down by around 20-30% in Italy. The relatively small nature of Italy’s automotive industry – there are eight European countries that produce more cars – also deprives local steelmakers of the higher value contract business to be gained in this sector.

chart3ita

So is there any remedy for Italy’s steel sector? Recent news that a joint bid for Ilva, from Italy’s three other major producers of flat steel products – ArcelorMittal, Arvedi and Marcegaglia – may be the answer. ArcelorMittal would be better placed to coordinate internal European steel trade, while Arvedi and Marcegaglia are well-run private companies, offering local expertise and connections in a market still dominated by a large number of small buyers and sellers.

Sources: Eurostat, MBR, OICA, UN

This article was also published for Metal Bulletin Research in July 2014

 

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