CLOUDED OUTLOOK Steel Braces for Trump Threat

After two difficult years, things were looking up for the German steel industry. But leading steel firms fear that Donald Trump’s protectionism could cause the industry more pain.
A worker is examining a steel coil at the Salzgitter company, one of Germany's steel producers.

If things would only stay the way they are now for a while, the German steel industry would already feel content. After all, sector players have reason to feel upbeat: after a two year slump, prices have stabilized. Capacity is in good use, mostly thanks to increased auto industry demand. And the pressure from cheap Chinese imports has eased somewhat.

But many in the industry say there is a new worry on their horizon. “We see a major risk that protectionist tendencies will spread more widely worldwide,” Hans Jürgen Kerkhoff, the president of the German Steel Federation, said in Düsseldorf.

The risk has an all too familiar name: Donald Trump. The American president-elect has set off tremors across the German economy with his threats to put tariffs on foreign-made cars. Fears are widespread that Germany’s export-dependent industry could see itself shut out from the lucrative American market. Resurgent protectionism in Washington would inevitably impact Germany’s steel mills.

Protectionism is the wrong answer to the challenges facing the global steel industry. Hans-Jürgen Kerkhoff, President of the German Steel Federation

German steel producers export some 700,000 tons of steel directly to the United States — this amounts to one quarter of all German steel exports outside the European Union. But even more significant are indirect exports in the form of cars and machines, amounting to a further 2.5 million tons. Taking this into account, the United States is second only to Britain as an importer of German steel. Manufacturers are already gravely concerned by the British withdrawal from the European common market, probably within the next two years, as part of its exit from the European Union.

“Protectionism is the wrong answer to the challenges facing the global steel industry,” said Mr. Kerkhoff. The fact that European producers had pushed hard for the European Union to impose tariffs on cheaply-produced Chinese steel is not considered a contradiction. Anti-dumping and anti-subsidy measures are a necessary corrective within a fair market, said Mr. Kerkhoff. That was not protectionism, but a way of restoring fair competition.

The steel industry, led by ThyssenKrupp, one of the world’s largest producers, has complained for many years about cheap imports from China and India, overcapacity in the European market, climate protection measures, and downward pressure on prices. There has been substantial pressure for the European industry to consolidate and restructure. The World Steel Association estimates European overcapacity somewhere between 30 and 40 million tons.

If tariffs block Asian steel exports from the U.S. market, they could be redirected to Europe.

After much pressure from industry groups, the European Union last November imposed provisional anti-dumping duties on Chinese steel and iron products, ranging between 43 percent and 81 percent. This led to a stabilization in prices, and even some recovery. But thanks to the election of Mr. Trump, Mr. Kerkhoff says he now fears a possible redirection-effect should the Americans increase trade barriers to protect their domestic steel mills. The United States is the world’s largest foreign buyer of steel, importing some 31 million tons a year. One third originates in Asia and from members of the North American Free Trade Agreement: Canada and Mexico. If their exports can no longer easily enter the U.S. market, they could be redirected to Europe, explained Mr. Kerkhoff. This could result in  a renewed drop in prices, he added.

These new risk factors mean the European steel industry is not about to sound the all-clear following the storms of recent years. Nonetheless, not all is doom and gloom. There is some optimism that production could continue on an upward curve. German raw steel production in 2017 is estimated to climb by a percentage point to a total of 42.7 million tons, industry sources say. The total figure for last year was 42.1 million tons, down 1.4 percent on 2015.

 

Martin Wocher is an editor with Handelsblatt, focusing on the mechanical engineering and steel industries. To contact the author: [email protected]