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HIPH - polish steel industry
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Polish Steel Industry 2024
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PPS 2024
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Dear Readers,
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Writing these words to you a few months after the end of 2023, I hoped that the economic situation in the EU and Poland, especially in the steel sector, would show signs of greater improvement compared to last year's production results, which turned out to be record low in Poland ? only 6.4 million tonnes! It is not at all comforting that crude steel production in the EU in 2023 fell, for the second year in a row, by 7% compared to 2022, to 126 million tonnes, which is below the crisis years of 2009 and 2020. The EU market has been a net importer of steel and steel products in general for a decade, unfortunately Poland has already held this infamous title for 20 years!
The past year ended not only with a dramatic decline in production and prices of steel products - a similar trend also applies to the production of individual finished metallurgical products. The utilization of domestic production capacity fell to an alarming level. The optimal point is 85% capacity utilization, while in 2023 only 60% of the available capacity was used.
The last five years have been a time of volatility and change in the global steel industry. We have all survived the global pandemic and the significant disruption it has caused to supply chains and our businesses. Many countries have experienced high inflation or are in the midst of recessions, and much of the world is facing political instability, armed conflicts, and humanitarian crises. And now our industry has yet to deal with billion-worth decarbonization as countries and companies alike look for ways to respond to the climate crisis. Even though the list of challenges is long and sometimes seems too difficult, our industry continues to grow and innovate ? and continues to find a way to drive results. The fact is that the global economy will still need steel ? and the steel industry has great opportunities here ? the energy transition will need even more steel (3-10 times as much in the case of renewable energy sources as traditional energy!).
The downward trend in the share of domestic steel production on the Polish market is due, among other things, to the fact that energy and gas prices in Poland are still about 2 times higher than in 2015-2019, but are also among the highest prices in Europe among industrial countries. The steel industry urgently needs tools to support its further functioning.
After 40 years of the dominant doctrine among economists and politicians of "minimal government interference," industrial policy is back on the agenda. The aftermath of the pandemic, combined with the new geopolitical system, means that the global economy is currently in a situation where large amounts of money need to be invested not only in the energy transition, but also in other structural factors.Energy independence, national security and securing basic technologies are currently at the center of discussions among (mainly Western) governments. For example, EU governments need to allocate at least 1-2% of GDP to military spending to build the capabilities needed to meet the demand for military equipment.
Limiting globalization and nearshoring have become a priority (vide the United States and its CHIPS or IRA programs). In the absence of an American-style climate policy, the EU is introducing other measures. In October 2023, the CBAM (Border Climate Change Adjustment Mechanism) entered into force: this is part of a larger review of the EU ETS, including the phasing out of free allowances. The CBAM aims to prevent carbon leakage, i.e. the relocation of energy-intensive industries to countries with lower carbon costs, but no fees will be levied on importers until the end of 2025.
The implementation of ambitious climate goals results in stricter policies and measures related to, m.in the functioning of the ETS system. Such activities translate into an increase in electricity costs and the associated additional regulatory and tax burdens or the costs of adapting to the requirements of increasing energy efficiency. At the same time, the steel industry competes on the global market with entities from third countries, which often do not incur the additional costs of an ambitious climate policy. An excessive burden on the sector may lead to a reduction in production and its relocation to third countries (not only carbon leakage, but also income and job leakage!).
The European Union is the most open market for steel products in the world. With zero tariffs, a market of 450 million people and a powerful processing industry, the European Union has traditionally been a favourite destination for third-country industry, which does not have to endure the regulatory constraints faced by European industry, not to mention the environmental and social constraints of European industrial production.
It was not until former President Donald Trump imposed tariffs on steel imports under Section 232 that the North American market (traditionally the steel import market) closed and steel trade flows risked reaching the European market. For this reason, the Commission, with the agreement of the Member States, has imposed safeguard measures in the form of duty-free TRQs (safeguards) and an additional tariff of 25% in case of exceeding these quotas. These measures are under review, which should be completed in June 2024, with a view to extending them until 2026, which the Association and its Members are working hard to achieve.
In recent decades, Europe has not cared about its industry. Political and social leaders advocated ending industrial society and replacing it with a service society, no doubt seeing it as a process of modernization. In Europe, many policies have been developed without proper assessment of their impact on the industrial fabric, leading to the outsourcing and destruction of much of European industry. The EU has not met its target of a 20% industrial share of total GDP by 2020, and over the past two decades Europe has lost 3.5 percentage points of industrial GDP and millions of industrial jobs.
Therefore, ensuring that the EU remains strong and competitive requires a framework of open strategic autonomy, as detailed in the Antwerp Declaration (NB: the Association was one of its first signatories in February 2024). This means maintaining and investing in basic industries, such as steel metallurgy. Without a clear plan to support our industry, Europe's vulnerability to external factors will increase and the autonomy of critical sectors will be threatened, including the process of achieving our decarbonisation goals. This is a risky situation and we must take appropriate and vigorous action.
I wish each of you success in your efforts to make our products innovative, competitive and sustainable, and the sector resilient. Green economies of the 21st century around the globe will be built primarily of steel. The world is aware that the stage of using high-emission steel products is coming to an end. Moving to this next stage will require time, money and commitment, including the right government policy on public procurement, but I am convinced that our industry is able to rise to the occasion and cope with all these challenges.
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Mirosław Motyka
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President of the Board |
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Polish Steel Association
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