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"Steel, an alloy of iron and carbon, is both stable and elastic, extremely resistant and a permanent item of our everyday life. Today there are over 2,500 standard steel types, with new grades and applications emerging all the time. Each steel type is therefore especially made for its specific purpose. It is subject to stringent quality standards to ensure that it optimally withstands the specific loads". "A standard can be defined as a document, established by consensus and approved by a recognized body, which provides, for common and repeated use, rules, guidelines or characteristics for activities or their results, aimed at the achievement of the optimum degree of order in a given context". "In July 2007, the new steel inclusion rating standard EN 10 247 has been introduced in Europe. In connection with the European standardization of steel specifications, there was an urgent requirement to define a new standard method for steel inclusion rating. The European Committee for Iron and Steel Standardization ECISS resolved the elaboration of the new EN 10 247 as long ago as 1988, and it was published as a preview standard in 1998. The valid standard was finally published in July 2007". It is an interesting question to know if these standards do really have an effect on the competitiveness of the industry. Many of those standards are dictated by requirements for important downstream industries such as automotive, packaging and construction. The reason for the high-quality steel products European steel companies are producing is mainly determined by this standardisation. As such, the sector has an advantage over lower-cost producers, specifically for European industry which appears to prefer local made steel due to these higher quality standards. Steel standards are coded with EN while Chinese standards are coded in GB. The translation of one standard to another is sometimes very difficult, only specialists are able to make comparative tables.
18.104.22.168. Justification of the assessment
Although many of the previously mentioned factors were not as positive for the European steel industry, we can state that standards are actually one of the minimal advantages of Europe compared to China. Thanks to the process of standardisation in Europe, European steel is worldwide considered as superior quality and reliability. Chinese steel manufacturers are rapidly catching up and are having implemented standards which are considered to be at equal quality then the European ones. The fact that BMW is already producing their high quality cars like the 3 series and 5 series in China with Chinese steel means that their steel products meet the requirements of high-end users.
22.214.171.124. Indication of the trend
Even though European steel is worldwide considered as one of the better quality deliverers, developing countries are expected to catch up quickly and deliver similar quality. The competitive advantage of European standards is therefore expected to be less significant in the near future. Standards will remain important for end consumers like car manufacturers, construction companies and packaging firms. The standards are necessary for the consumers in order to define if the quality is sufficient enough for their specific use.
126.96.36.199. Assessment of the importance
The European standards are developed and set by the European Committee for Iron and Steel Standardization (ECISS) and are having a direct influence on important downstream industries like automotive, packaging and construction. The EU steel industry has managed to maintain some of the highest quality levels - in part due to standardisation. That's why the European industry has an advantage compared to lower-cost producers such as China. European companies which have to respond to those standards are more likely to consume European steel because they are sure that the quality meets the required standards. On the scale of importance, researchers of ECORYS are giving this issue a 7 on 10.
However, not everyone is convinced that these European standards are of such an importance to the competitiveness of the European steel industry. Buttiens: "In the end, it is always the client who decides what kind of steel he/she needs, no matter the standard". The client asks for a certain thickness, towing ability, ductility, etc. On basis of these specifications, the steel standard is determined. So standards are actually working in both directions. At one side, there is the client who asks for a certain type of steel and on the other side, there is the steel manufacturer who produces what is demanded. Everything what is produced should be tested and during this stage one determines the standard.
Concerning the importance of standards on the international plan, Buttiens states that high quality steel is in general not imported. The main export product is hot rolled coil, which is an intermediate steel product. The standards for this hot rolled coil are not that important so as a conclusion we can state that standards are important but that the difference between the regions is minimal. Buttiens should therefore give a 5 on the scale of importance.
5.4.3. Consumer standards (health and safety)
Consumer standards are documents describing acceptable characteristics or usage for products, materials and services used by individual consumers. They may specify dimensional, performance or safety requirements for household products. Virtually every consumer product - from children's toys to refrigerators and cars - is regulated for safety. The European Union has established EU laws on the safety of food and other products, on consumers' rights and on the protection of people's health. Consumer standards are not playing a major role in the steel industry. The reason is very simple: almost all steel products are intermediate products used in the production of final goods. These consumer standards are therefore captured in industry-specific standards or in key directives for the downstream industries.
188.8.131.52. Justification of the assessment
Although consumer standards are not having a direct effect on the steel industry, they are transferred to the industry-specific standards for the downstream industries. That means that there is indirectly a link between both. It is maybe not of the greatest importance but the effect is not negligible and that is the reason why it is decided to put it in the list with factors influencing the steel industry.
184.108.40.206. Indication of the trend
It is not expected that consumer standards will be increasingly important for the competiveness of the steel industry. Products which are sold in Europe are already strongly controlled and unsafe or unhealthy products are banned from European markets. A further enforcement of the consumer standards in Europe is not foreseen. In China, on the contrary, there is still room for improvement. Recent examples from the food industry (the 2008 milk scandal) show that consumer standards are sometimes insufficient.
220.127.116.11. Assessment of the importance
Since almost all steel products are intermediate products and therefore not subject to consumer standards, the researchers of ECORYS only give this issue a 5 on the scale of importance. We can therefore conclude that these consumer standards are having a minor effect on the competiveness of the European steel industry.
This thesis tried to analyse the "Practical Impact of Environmental Policies on the Competitiveness of the Steel Industry". It did focus on concrete comparative elements in between China and the EU.
Taking China and the EU as two cases of world importance for steel production is based on their economic and historical value as power houses. China, as the biggest steel nation of the world, produced about 568 million tons of crude steel in 2009 and counted for 36.25% of total global steel output. The EU 27 produced during the same year around 138 million. The economic success of China during the last three decades has also been impacting the international steel markets. With huge infrastructure and construction projects, and the rise of a growing middle-class with purchasing power, the demand for steel is outspoken in the most populated nation on earth. Despite even the hardest economic crisis the world has seen since 1929, Chinese crude steel production and consumption soared. This is also partly due to a Chinese stimulus package but it is definitely not the only reason. The European Union intervened with stimulus packages as well but the effects on the steel industry have not been felt as drastically as they did in China. It is also clear that the economic development of China is certainly not over yet.
The structure of the Chinese and European steel market has some key points of differentiation. Since Mao turned China into a communist country in 1949, he launched a number of development plans in order to become a respectable industrial superpower. One of his ideas was to install in every village a steel mill. As a consequence, steel mills appeared all over the country and crude steel output kept increasing. The steel industry has always been considered by the central government as a "strategic" and "preferred" industry. It should be said that this remains the case today. With a today's average of 60% of steel companies owned by the government and a prohibition on any foreign control stake in a Chinese steel firm, Chinese government officials are still considering steel as an essential commodity for their economic development.
In the early 80's, the European steel industry was also characterized by this strong relationship between governments and steel companies. Government officials were well positioned in the board of directors of many steel companies. During the last 30 years, global economic development reduced its unique reliance on the steel industry, and as such its "political" importance. A wave of privatizations was the result. In a next phase another phenomenon appeared which we notice in China today as well: consolidation. In Europe, we have the impression that the last steps towards consolidation are finished. The European steel industry, in a permanent search for added value, has been focusing on technical innovations and transformed itself into a high-value industry. Consolidations are occurring now on a global scale, far beyond the boundaries of Europe. The two leading European steel companies both have been integrated into worldwide conglomerates: the European Arcelor and the Indian Mittal Steel merged in 2006 and formed ArcelorMittal, the world's biggest steel producer. And in 2007 Corus has been taken over by Tata Steel, the other Indian steel giant.
Consolidations are also very common in the today's Chinese steel industry. The consolidation spree which passed through Europe during the eighties and nineties is passing through China now. A clear difference is that consolidation in Europe was driven by privatizations. In China, consolidations are more seen as the ideal way to tackle inefficiency, boost productivity AND reduce pollution. The Chinese central government decided to combine consolidation with "greenification" and to build huge state-of-the-art steel production facilities with an impressive environmental record and an incredible efficiency.
Overall this study does reveal that environmental policies do have a serious impact on the way the steel business operates.
In Europe numerous regulations and regulatory frameworks define the working principles of the steel production. The EU climate policy consists of the EU emission trading scheme (ETS), REACH, IPPC and many others. These environmental regulations, who tried to constantly reduce the carbon emissions, are seriously interfering with their business operations and are, as commented in our interviews, even harming the competitiveness of the European steel industry. It is especially in Europe that steel companies are constantly feeling increased pressure on their productivity in order to remain competitive. The real competitive issue is that the steel industry is such a globalized industry. The European steel industry is forced to make additional costs due to the mandatory nature of the ETS regulations. In many other steel producing countries these emission reductions are mostly voluntary and thus less constraining and decisive. This means that the EU producers will face a serious cost-disadvantage vis-à-vis their global competitors. A possible solution should be to implement ETS on a global scale and to do additional efforts to create an equal playing field. But it's highly unlikely that the EU diplomats are able to force a breakthrough.
In China environmental regulations are only in their "embryonic "phase. It is only recently, with the creation of Ministry of Environmental Protection (MEP) that a centrally governed institutional organ can focus on the law enforcement and control of the local steel industry. In the Five-year plans (FYP) of the Chinese central government, much attention has been paid to the recycling of waste water and air pollution treatment. In general, most of the environmental impact and progress has been made by the massive consolidation wave of the small steel mills in China, and the investment into major new state-of-the-art steel plants, which allow production efficiency to be combined with massive emission optimizations.
The Chinese steel industry proofs and serves as an example to other industries that economic growth and environmental efforts could go hand in hand. In order to tackle further on environmental problems, China is not as far developed as Europe yet. In the next FYP for environmental protection, much more environmental plans will be unveiled.
An interesting observation is that environmental policies could seriously impact the overall competitiveness of the steel industry and its regional players. The huge difference in 'active' endorsement of emission limitations and environmental regulations between European and Chinese steel companies seems to seriously damage the competitiveness of the European steel industry. Direct feedback from the interviews with senior management of ArcelorMittal shows their strong concern and call for action to resolve this structural imbalance.
Although "environmental regulations" seem to impact directly the competitiveness of the steel industry, it was interesting to analyse deeper some of the other core determinants of this industry sector's competitiveness in a globalized world. Some of the major factors are: labour laws and regulations - state aid, subsidies and free market principles - product specialization and intellectual property rights.
Regarding labour, we can state that there are some fundamental differences between China and EU and that these differences do have an impact on the competitiveness of their respective steel industries. When we compare the EU and China, we remark that European steel production facilities are more capital-intensive than their Chinese counterparts. This means that they need more highly-skilled labour. However, the consolidation wave in China gives rise to bigger state-of-the-art production plants and therefore more highly-skilled labour. In general, European workers are better skilled but also more expensive while Chinese workers are less skilled and therefore less expensive, although this has been changing as well. China forms great highly-skilled engineers but those people are asking for a better pay as well. European steel companies are having quite a lot of difficulties in attracting talent due to the high pressure on productivity and unattractiveness of steel in Europe. In China, it's the exact opposite: steel is flourishing and many talented people are eager on launching a career in the industry. Today, the effects of labour on the competitiveness are minimal but this is likely to change.
Regarding state aid and state subsidies, steel factories in developing nations such as those in Europe are suffering compared to some of their international counterparts. Especially governments from emerging markets like Russia, Ukraine and in our study also particularly China don't see problems in allocating direct or indirect state-aid and subsidies to industries which they consider as strategic for their economic development. The more developed countries like Japan, the US and the EU opposed more state-aid because these could distort the free market. Out of our management interviews with ArcelorMittal, it looks that the EU adheres most consequently to these free market principles. Even the Japanese and American government are historically and actually still very protectionist towards their own production factories. In a globalized industry where goods like steel can easily and quite cheaply be moved from one continent to the other, dumping practices do harm the European steel industry. Despite import quotas that have been imposed to protect the industry, the overproduction problem in China has been harmful for European steel companies. Closely related to the previously mentioned aspect are the international trade and investment regulations. In a global business where steel as a product can be easily transported, trade barriers and import tariffs are having a serious influence. So far, we have been noticing that the Chinese government is not really keen on imports. That's why they are having a quite protectionist policy. The EU is often considered as an easy client who heavily promotes free market mechanisms and as such can be considered as an easy customer for other steel producing nations. Many nations are not respecting the quotas, trade barriers or tariffs. The mechanisms which should protect European markets from dumping practices are often too slow or not working properly.
In its drive to create more and more "added value", the steel industry tries to specialize itself with high tech products. As such the protection of these "intellectual rights" becomes more and more an issue and needs closer attention. Since special steel is also getting more and more important in developing regions like China, automatically IPR and their protection should be considered. In China, IP is still not well protected. At this moment special steel is mostly produced in countries with stronger IPR rights like the EU and Japan. Competition in the steel industry is quite fierce and any major steel producer will need to innovate in order to remain competitive. So the effects of IPR issues can have their effect but are not from a major importance to the competitiveness in the steel industry.
As a general conclusion, one could state that environmental regulations do seriously impact the competitiveness of the steel industry. This factor could even be considered as the most important in our list of influential factors. It is remarkable to see the differences between the EU and China, especially the maturity and style of the regulations, regulatory organizations, plans to cope with climate change and of course the impact of these regulations on the competitiveness of the steel industry. It is quite interesting how the Chinese are combining greening and the consolidation of this industry sector. The EU remains at the forefront of tackling climate change and is doing tremendous efforts to reduce pollution and GHG emissions, often at the expense of the European steel producers. In order to develop a "sustainable" industrial activity on a global scale like the steel industry, serious questions have been raised on how this international business should be organised and how an equal playing field between regions, continents or nations should be acquired.