4H COMMISSION OF THE EUROPEAN COMMUNITIES 
COM(94) 125 final 
Brussels, 13.04.1994 
COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 
AND THE EUROPEAN PARLIAMENT 
INTERMEDIATE REPORT ON THE 
RESTRUCTURING OF THE STEEL INDUSTRY 
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4ÏI 
INTERMEDIATE REPORT ON THE 
RESTRUCTURING OF THE STEEL INDUSTRY 
COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 
AND THE EUROPEAN PARLIAMENT 
1. INTRODUCTION 
This communication presents an intermediate report on the restructuring of the steel 
industry and makes suggestions for the consolidation of this process, in the spirit of the 
conclusions reached by the Council (Industry) at its meeting on 25 February 1993. 
Although the Council originally asked the Commission to present a sufficiently extensive 
capacity reduction plan by 30 September 1993, it was not really possible to start work on 
such a plan until the end of 1993 when the Council itself reached unanimous decisions 
concerning the restructuring measures of certain assisted companies. Steel companies 
should therefore identify as soon as possible the measures needed to accomplish a 
sustainable restructuring of the industry. In view of the serious situation and rather 
discouraging prospects for the Community steel market, such measures are still urgently 
needed. 
In this context, and in view of their conditional nature, the flanking measures must be 
evaluated and a decision reached on the appropriateness and the modalities of their 
continued application, where appropriate. 
2. NEED FOR RESTRUCTURING 
2.1. Market developments 
2.1.1. Internal demand 
Since the presentation of the communication of 23 November 1992,1 the situation on 
the Community steel market has deteriorated seriously: domestic consumption, for 
which the figures then available went up to mid-1992, continued to fall by an 
estimated 7% in 1993 (compared with 1992), reaching a low point in the first half of 
1993, when consumption of hot-rolled products was down by some 13%. 
While 1993 was marked by a general recession (GDP down by 0.5%), the 
Commission's current economic growth forecasts for 1994 and 1995 (GDP is 
expected to grow by 1.2% in 1994 and by 2% in 1995) are too weak to hold out any 
Towards greater competitiveness in the steel industry: the need for further restructuring 
(SEC(92)2160). 
1 
hope of demand for steel recovering beyond the 1992 level; indeed, this level will be 
reached in 1995 only if the Community's economic recovery speeds up in the second 
half of 1994. 
2.1.2. Trade with third countries 
External demand has been relatively firm since the end of 1992, buoyed up in 
particular by the strength of the Chinese and American markets, while imports have 
fallen as a result of weak internal demand and partly also as a result of the external 
measures applied since 1993. The balance of trade with third countries accordingly 
showed a marked improvement in the first half of 1993, thanks in particular to exports 
of hot-rolled wide strip, long products and semi-products to China and also, from the 
second half of 1993, to North America, and a fall in imports of semi-products and 
hot-rolled wide strip from the Central and Eastern European countries and the CIS. 
As this improvement is based on exceptional factors, it would appear unlikely that the 
balance of trade with third countries can be sustained at the 1993 level, but a more 
limited improvement of some 2 million tonnes compared with the 8.2 million tonnes 
achieved in 1992 is a plausible scenario for 1995. 
2.1.3. Price Trends 
After having reached an abnormally low level in the first quarter of 1993 the 
downward trend in the price of steel products, uninterrupted since 1991, has been 
reverted. 
The upturn which has been observed up to the present time, as a result of a better 
adaptation of supply to demand (as well as the effect of the guidelines of the 
Commission, see point 3.4 below) and of export demand, remains however, in 
general, insufficient to support the costs related to the restructuring and thus to ensure 
the long term competitivity of the Companies. 
2.1.4. The specific problem of the ferrous scraj 
The price of scrap has risen in several stages from US$ 83 a tonne in October 1992 to 
more than US$ 135 a tonne in February 1994, and this has had a major impact on the 
economic situation of electric steel producers and processors. The Commission has 
responded by introducing permanent surveillance of the scrap market, in cooperation 
with the steel industry, and by initiating a long-term structural study. 
This price increase follows strong growth (about 10%) in world demand for scrap in 
1993, mainly due to the following three factors: 
- an acceleration of the trend to replace the integrated production process with the 
electric process; 
- strong demand growth in China and other countries in southern and south-western 
Asia; 
- strong demand growth in the United States during the second half of 1993. 
At the same time, the recovery and collection rates achieved in 1993 are equal to or 
better than those of the boom years 1989 and 1990. With exports of more than 10 
million tonnes in 1993, the Community has become the world's leading steel supplier. 
2.2. Foreseeable overcapacity 
The conjunction of the optimistic hypotheses described at 2.1 above permits the retention 
in 1995 of the minimal level of overcapacity of 19 million tonnes of hot-rolled products, 
estimated in November 1992 and recently confirmed by the Community steel industry. 
Likewise, the foreseeable obstacles to a recovery in 1995 of domestic consumption to the 
1992 level and the possibility of the balance of trade returning to the 1992 level also 
confirm that there will be an overcapacity for hot-rolled products of the order of 26 
million tonnes, at the top end of the range estimated in November 1992. Any measures 
taken by Community steel companies to eliminate this overcapacity will permit better 
utilization of the remaining capacity and make it less vulnerable to a less favourable 
demand trend or to the effect of any new capacities on market equilibrium. 
2.3. Capacity reductions: progress to date 
Total capacity reductions of the order of 11 million tonnes of hot-rolled products have 
already been achieved or are currently regarded as probable, with a fifty-fifty breakdown 
between assisted and non-assisted companies. 
2t3ilt Private closures 
These closures, individual or resulting from synergies, correspond to the plans 
communicated to Mr Braun since the end of 1992. They total more than 11 million 
tonnes of crude steel and nearly 6 million tonnes of hot-rolled products. Many of 
these closures are confirmed either in applications for social measures or in 
notifications made pursuant to Decision 3010/91/ECSC on (dis)investments. 
2.3.2. Closures pursuant to Article 95 (ECSQ 
These closures follow the restructuring or privatization of Freital, EKO-Stahl, IL VA, 
Sidenor, CSI and Siderurgia Nacional under arrangements to which the Council gave 
its assent on 22 December 1993 pursuant to Article 95 of the ECSC Treaty. 
In accordance with the assent, given unanimously by the Council, the authorizations 
which the Commission has subsequently notified to the Member States concerned 
impose obligations corresponding to net capacity reductions of at least 2 million 
tonnes of crude steel and a maximum of 5.4 million tonnes of hot-rolled products.2 
3. IMPLEMENTATION OF THE COUNCIL'S CONCLUSIONS OF 25.2.1993 
The measures taken are listed below with reference to the catalogue of actions set out in 
the Council's conclusions of 25 February 1993. 
3.1. Financial measures 
3tl«l, Social measures 
For the period 1993-1995, an indicative total of ECU 240 million is available to 
finance social measures for the steel industry, the arrangements for which were 
described in the Commission's information note of 28 April 1993 (COM(93)178 
final). 
ECU 60 million of the ECU 80,8 million deemed necessary to satisfy eligible 
applications for social aid measures were committed in 1993 following applications 
from the national authorities. These applications cover part of social programmes 
which correspond to closures totalling nearly 8 million tonnes of rolled products and 
6 million tonnes of crude steel. A total of 23 873 workers will benefit from the aid 
applications approved in 1993. 
In 1994, ECU 86 million has been entered in the ECSC operating budget, of which 
ECU 20,8 million is earmarked for applications approved in 1993.3 
3,1,2, Structural Funds 
The Commission's package of new Community initiatives includes a programme for 
the conversion of steel regions by means of developing new activities (RESIDER 2) 
based on the same fundamental criteria as the first programme. It will apply in 
Objectives 1, 2 and 5b regions where the total of stated and foreseen job losses 
reaches a certain level. 
Disregarding the possible construction of a wide strip mill at Sestâo and an increase in the 
capacity of EKO-Stahl above 0.9 million tonnes after mid-1999. 
The eventual additional resources will be attributed to the social measures in the context of the 
steel restructuring with a view to reach ECU 120 million. 
It will apply for the period 1994-1997, with a proposed budget of ECU 500 million. It 
will finance measures concerning site environment, the modernization of economic 
and social infrastructure, alternative economic activities and pilot installations and 
will facilitate improved access to capital and services. 
The consultations of the other institutions and the Member States are in progress, and 
the final Commission decision will probably be taken in June or thereabouts. 
Furthermore the Commission supports reconversion by granting loans according to 
article 56 2a ECSC. 
3.1.3. Article 53f first paragraph, point (a) (ECSC) arrangements 
On 22 December 1993, after consulting the Council pursuant to point (a) of the first 
paragraph of Article 53 of the ECSC Treaty, the Commission authorized three 
agreements setting up common financial arrangements in respect of closure 
programmes likely to reduce capacity for hot-rolled wide strip, reversing-mill plate 
and heavy sections by 6 million tonnes, 2 million tonnes and 2.5 million tonnes 
respectively (see OJ No L 6, 8.1.1994). The Commission provided for the possibility 
of facilitating the financing of these operations by means of ECSC loans. 
The closure programmes must be notified to the Commission within three months of 
the date of authorization. The agreements have not yet resulted in concrete decisions 
on the part of the companies concerned. 
3.2. Improvement of structures 
With a view to improving the structure and operation of the steel sector, the Commission 
authorized 29 specialization and/or merger agreements in 1993. Some of the 
arrangements might have an important potential long-term impact on production 
capacity. 
3.3. State aids 
Following the Council's unanimous consents of 22 December 1993, the Commission 
formally adopted decisions authorizing aid to the six companies concerned Monitoring 
arrangements were also adopted with a view to presenting a first report to the Council at 
the latest by 1 May 1994. 
3r4t Market stabilization 
Since the second quarter of 1993, the Commission has supplemented its six-monthly 
forward programmes for steel with quarterly forecasts, aggregated at Community level, 
of production and deliveries of a number of major categories of steel products. The 
Commission invited companies to inform it, voluntarily and in confidence, of the manner 
in which they intended to comply with the overall trend for products from their 
production ranges: this exercise won the backing of the trade and contributed to price 
recovery, apparently without damaging consumer interests. 
3.5. External measures 
The Commission set up an ex ante surveillance system based on import documents 
provided by the national authorities in order to have an idea of the probable trend of 
imports, and an ex post system of import statistics to make out-turn figures available 
more quickly than under the Comext system; the basic import prices were updated in 
April 1993. 
The Commission completed negotiations with the Czech and Slovak Republics on tariff 
quotas, which were introduced in June 1993, with a progressive increase in tonnages until 
end 1995. 
Russia and Ukraine asked for the Community quotas adopted in 1993 vis-à-vis all the 
Republics of the former USSR to be converted into bilateral agreements with themselves. 
The terms of the negotiating mandate are currently being discussed with the Member 
States; the quotas have meanwhile been extended for the first half of 1994. 
The negotiations on the Multilateral Steel Agreement (MSA) could not be concluded at 
the same time as the Uruguay Round; nevertheless, all parties concerned agreed to 
continue the negotiations in the next months. In these negotiations an important goal for 
the European Union will be to formulate to an "anti-harassment-" clause shaping the anti­
dumping procedures and to expand the Aid-Code principle to the main trading partners, 
as well as to assure the definitive suppression of tariff and non-tariff trade barriers. A first 
negotiation meeting was held between the 5 and 8 April in Geneva in order to take up 
again the question. 
4. INTERIM ASSESSMENT OF THE RESTRUCTURING PROCESS 
4.1 During high-level informal contacts with the Commission, the industry has 
confirmed the diagnosis of persistent overcapacity It accepts that the capacity 
reductions already decided upon are insufficient, but is finding it difficult to 
complete the process within the period originally laid down. Nevertheless, it 
asserts that there is considerable potential for closures (corresponding to around 
6 million tonnes of capacity) in the Italian private sector as a result of 
Decree-Law No 103 of 14 February 1994 which provides for a budget of around 
ECU 400 million to fund closures, and that specialization and merger agreements 
now under discussion also offer opportunities for capacity rationalization. 
The industry has stressed the need to continue with the restructuring process in 
the context of strict monitoring of the six undertakings considered by the Council 
in December 1993 and to maintain the accompanying measures introduced by the 
Commission following the Council meeting of 25 February 1993. It has 
undertaken not to ask the respective governments for further aid necessitating 
derogations pursuant to Article 95 of the ECSC Treaty. 
4.2 The Commission is aware that, in accordance with the Industry Council's 
conclusions, the continuation of the accompanying measures is conditional upon 
presentation of a credible capacity reduction programme which should have been 
established by 21 March at the latest, this being the deadline for the notification 
of closure programmes under the financial arrangements pursuant to Article 53(a) 
of the ECSC Treaty. 
The definitive capacity reductions are below the level of 19 million tonnes of 
hot-rolled products, this being the minimum level of overcapacity estimated for 
the end of 1995. Nevertheless, following recent high-level contacts with 
representatives of the industry, the Commission considers that there are promising 
signs that this level can be reached in the next few months. 
That is why, given the urgent need to continue with the restructuring process, in 
view of the undertakings given by all the parties concerned (the industry, the 
Council and the Commission) to avoid further Article 95 ECSC aid derogations, 
and bearing in mind the effects that an immediate cessation of the accompanying 
measures could have on the steel market and on this process, the Commission 
proposes to maintain these measures provisionally, subject to the guidelines set 
out below, until the evaluation to be sent by the Commission in September in 
view of the Industry Council meeting. 
4.3 Continuation of the accompanying measures 
4.3.1 Support measures 
The Commission will maintain the steel social measures for the workers affected by the 
abovementioned plant closures. 
The Commission proposes to implement the Résider 2 programme according to the 
modalities described in point 3.1.2. In the same way the propositions of the Commission 
in respect of the new Objective 4 and the Community initiative 'ADAPT' (submitted to 
examination by the appropriate committees and to a consultation of the European 
Parliament) could, in view of the projects which will be presented, give an additional 
flexibility to support the restructuring other than that of the regions 1, 2 and 5b. 
Article 53(fo arrangements: The Commission also remains prepared to authorize closure 
agreements subject to the conditions it laid down in connection with the abovementioned 
Article 53(a) ECSC agreements. 
4.3.2 Improvement of structures 
Under the ECSC Treaty's competition rules, the Commission will be extremely flexible 
when authorizing mergers or specialization agreements provided that they result in 
definitive closures of plants for products where there is overcapacity. 
43.3 Monitoring of State aid 
The Commission will strictly apply the monitoring provisions laid down for the six 
undertakings concerned by the Council Decisions of 22 December 1993. It will also 
maintain the strict surveillance of the situation of undertakings in the sector with regard 
to the Aid Code in accordance with the Council and Commission statement of 
22 December 1993. 
4.3.4 Market stabilization 
Article 46 
The Commission will continue to set quarterly guidelines under Article 46 of the ECSC 
Treaty. 
Scrap 
Given the short-term difficulties on the scrap market, the Commission has approached 
Turkey in the context of the Customs Union negotiations. It has obtained a commitment 
that the subsidies for Turkish scrap imports will gradually be stopped by 1 October 1994. 
It has also had formal discussions with Poland to get it to remove scrap export 
restrictions incompatible with the Association Agreement with the European Union. 
Likewise, it is negotiating with Romania, Bulgaria and the Czech Republic to minimize 
the impact of scrap export restrictions in existence on the entry into force of their 
Association Agreements with the European Union. 
4.3.5 External measures 
In the context of the external accompanying measures, the Commission: 
will continue with the import surveillance measures already adopted; 
will apply until 31 December 1995 the tariff quotas agreed with the Czech and 
Slovak Republics; 
will maintain the continuous monitoring of the steel restructuring nrpcess already 
begun in the various CEEC on the basis of the provisions of the ECSC Protocols 
incorporated in their respective Association Agreements with the European 
Union; 
requests the Council to expand the mandate for the negotiation of bilateral 
agreements with Russia and Ukraine with a temporary extension until the end of 
1996, with the inclusion of an ECSC Protocol similar to those agreed with the 
CEEC, to facilitate continuous and more transparent monitoring of their steel 
restructuring processes which have scarcely started; 
will intensify, in close cooperation with the Community steel undertakings, 
industrial cooperation measures vis-à-vis the CEEC and the CIS Republics, with 
the funding provided for in the Phare and Tacis technical assistance programmes 
or by supporting the funding via the EBRD or other international institutions of 
viable investment projects consistent with the restructuring processes underway in 
those countries and in the European Union; 
will work towards the finalization of a balanced MSA with a view to establishing 
strict, lasting and transparent discipline for international steel relations. 
5. CONCLUSIONS 
The Commission calls upon the Council to support these guidelines. It will reassess the 
steel restructuring process and the abovementioned accompanying measures in 
September in view of the Industry Council meeting. 
ISSN 0254-1475 
COM(94) 125 final 
DOCUMENTS 
EN 10 
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ISBN 92-77-67657-4 
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