COMMISSION OF THE EUROPEAN COMMUNITIES 
C0M(94) 466 final 
Brussels, 25.10.1994 
COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 
AND THE EUROPEAN PARLIAMENT 
RESTRUCTURING THE COMMUNITY STEEL INDUSTRY: 
FINAL ASSESSMENT AND CONCLUSIONS 
RESTRUCTURING THE COMMUNITY STEEL INDUSTRY: 
FINAL ASSESSMENT AND CONCLUSIONS 
A. BACKGROUND 
The dire financial situation of the vast majority of steel undertakings since the end of 
1991 in the wake of the economic recession which gave rise to significant production 
overcapacity the likelihood of which had already been forecast in the General Objectives 
for Steel drawn up in 1990 prompted all the Community steelmakers to ask the 
Commission to take the necessary measures to deal with the sector's difficulties. 
In the autumn of 1992 the Commission updated the scenarios for 1995 drawn up in 1990 
and made the diagnosis, after consulting first the industry and then Member States' 
experts, that the foreseeable production overcapacity for 1995 would be between 19 and 
26 million tonnes per annum (MT/a) of hot-rolled products. 
This resulted in the adoption by the Commission, the Council and the Community steel 
industry between November 1992 and February 1993 of a restructuring programme based 
on two cornerstones: 
(i) the presentation by the industry before 30 September 1993 of a sufficient and 
credible programme of capacity reductions representing between 19 and 26 MT/a 
of hot-rolled products for the period 1993-95; these capacity reductions were to 
be notified to Mr Braun, an independent expert whom the Commission and the 
Council asked to carry out an exploratory mission in November 1992; 
(ii) the adoption by the Commission and/or the Council of a package of flanking 
measures to facilitate the restructuring process, namely: 
• new social measures with an allocation of ECU 240 million over three years 
to offset part of the social costs involved in the closures; 
• financial arrangements (under Article 53(a) of the ECSC Treaty) to enable 
the undertakings to help cover part of the costs of closures; 
• production and delivery guidelines (under Article 46 of the ECSC Treaty) to 
help maintain the stability of the internal market; 
• external measures to ward off imports from certain third countries. 
On 25 February 1993 the Cou: 1 endorsed this approach and encouraged the 
Commission to continue with its efforts, stressing that the implementation of the flanking 
measures was dependent on the establishment by the industry of a credible programme to 
reduce capacity by at least 19 MT/a of hot-rolled products. 
B. PROGRESS MADE 
I. CAPACITY REDUCTIONS 
* 1993: Impact of State aid 
In 1993 the non-subsidized undertakings did not identify any more capacity reductions 
than the 5.8 MT/a of hot-rolled products notified to Mr Braun in 1993; their main 
argument was that the restructuring efforts of the undertakings receiving State aid were as 
yet unknown. These undertakings (CSI, Sidenor, Ilva, Freital, EKO-Stahl and Siderurgia 
Nacional) had requested State aid to improve their situation and in return had to offer 
adequate capacity reductions, while also taking into account the serious market situation 
which was adversely affecting the vast majority of Community steel undertakings. 
It was not until 17 December 1993 that the Council gave its assent to the six State aid 
cases in question, thus postponing the date for the presentation of the closure programme 
until 21 March 1994. 
* 1994: Still insufficient progress 
At the Industry Council meeting on 22 April 1994, the report submitted by the 
Commission on the progress with the restructuring of the steel industry showed that only 
11.2 MT/a (5.4 MT/a of closures concerning undertakings which had requested the 
application of Article 95 of the ECSC Treaty for the authorization of public aid, and 
5.8 MT/a notified to Mr Braun) had been identified, compared with the minimum closure 
target of 19 MT/a. 
Meanwhile, the withdrawal in May 1994 of the Italian partner originally envisaged as a 
purchaser in the context of the privatization authorized in December 1993 for EKO-Stahl 
resulted in the reopening of negotiations to find a new buyer. These were stepped up at 
the end of the summer: the solution envisaged in the new EKO-Stahl dossier would not 
make any significant changes to the overall capacity reductions as compared with the 
figures quoted above. 
An opportunity for making significant progress towards the objective emerged last 
spring: an additional reduction of some 5 MT/a of production capacity of private-sector 
Italian steelmakers funded by national closure aid. 
At the meeting on 22 June 1994 the Commission informed the Council that there was a 
definite possibility of achieving additional capacity reductions and explained the 
conditions it thought should be imposed to ensure that the closure aid to be granted by 
the Italian Government would be compatible with the Aid Code: the vast majority of 
Member States backed the Commission's proposals provided the conditions were made 
even more stringent. In the summer the Italian Government established the legislative 
framework (Law and implementing Regulation) for granting the closure aid. The 
Commission was notified of this framework so that it could verify that it was compatible 
with the Aid Code. It was authorized on 19 October 1994. 
The Italian Government now puts the closures achievable by the Italian industry at 
5 MT/a of hot-rolled products at most. 
The Commission will examine each individual case to verify the compatibility of the aid 
to be authorized with the Code and will carry out monitoring to ensure full compliance 
with the conditions imposed during the period in which the closures are carried out. The 
exact impact on the capacity reductions will not be known until the end of November. 
II. FLANKING MEASURES 
Starting in January 1993 the Commission introduced the various flanking measures 
requested by the industry and supported by the Council, the last measure, in autumn 
1993, being the authorization of framework agreements (Article 53(a) of the ECSC 
Treaty) for the joint funding of capacity reductions in three categories of steel products. 
In the spring of 1994 the Commission established another flanking measure, namely very 
strict monitoring to periodically verify compliance with the conditions imposed by the 
Council and the Commission when authorizing the six cases of State aid in 
December 1993. 
Throughout the restructuring process the Commission has therefore endeavoured to 
create the conditions needed by the industry to work out and submit an overall 
capacity-reduction plan necessary and sufficient to bring about a lasting improvement in 
the sector. 
At the most recent Council meetings, and in particular on 28 September 1994 (see Annex 
1 for the conclusions) the Commission and the Council reminded the industry that the 
deadline for the submission of capacity-reduction plans had been extended, for the last 
time, until the November Council meeting and the fate of the flanking measures would be 
decided then. 
III. FINAL ASSESSMENT 
The industry has not yet submitted an adequate capacity-reduction programme, and the 
capacity reductions identified so far total 16.2 MT/a of hot-rolled products (see Annex 2): 
they are therefore even below the lower end of the range of 19-26 MT/a agreed at the end 
of 1992 with the industry and the Council. I lowever, the Hanking measures still apply. 
C. UPDATED ASSESSMENT OF OVERCAPACITY 
Following an improvement in the economic outlook in the spring of 1994, the opinion 
was expressed that the abovementioned overcapacity range was no longer realistic and 
that the minimum target of 19 MT/a should be abandoned. The Commission has therefore 
updated its diagnosis for 1995 and has come to the following conclusions: 
I. INTERNAL DEMAND 
Internal demand for steel in the Community in 1993 fell considerably, with apparent steel 
consumption declining by 14%. A tentative recovery began towards the end of 1993 and 
has gradually gained ground so that a definite increase can be expected in 1994 and 1995. 
The estimates for 1994 as a whole indicate an increase in consumption of around 5%. 
Even if growth is much more significant in 1995 it is unlikely that the 1992 levels will be 
attained by then: nevertheless, this possibility has been taken into consideration to 
estimate the level of internal demand for steel in 1995. 
II. EXTERNAL TRADE BALANCE 
External demand was very buoyant in 1993 and the first half of 1994. Exports of long 
products to China at the beginning of 1993 followed by exports of flat products, in 
particular to the United States, were the main features of this trend. In 1993, especially in 
the first half of the year, imports from third countries fell considerably with the result that 
the net balance of trade was exceptionally good in 1993, although it has already 
deteriorated somewhat in 1994. This phenomenon should be regarded as cyclical; 
nevertheless, in 1995 we can expect a slight improvement (1-2 MT) compared with the 
balance of 8 million tonnes recorded in 1992. 
III. OVERCAPACITY IN 1995 
The production needed to cover internal demand and the abovementioned external 
balance forecast for 1995 is therefore about 116 million tonnes, corresponding, on the 
basis of the utilization rates calculated in conjunction with the industry for each type of 
installation, to a necessary capacity of around 153.5 million tonnes. According to the last 
survey carried out in 1994, capacity in the Community in January 1993 totalled 
172.5 million tonnes. Consequently, there is a medium-term structural overcapacity of at 
least 19 MT/a of hot-rolled products, thus confirming overall the estimates made in 
November 1992 in conjunction with steel industry and Member States' experts: and this 
does not include the 11.2 MT/a of closures already identified. 
D. CONCLUSIONS 
The conclusions that can now be drawn concerning each of the two cornerstones of the 
restructuring programme for the Community steel industry can be summarized as 
follows: 
I. CAPACITY REDUCTIONS 
The target of a minimum level of capacity reductions of 19 MT/a has not been achieved, 
because the industry has failed to submit an adequate capacity-reduction programme. 
II. FLANKING MEASURES 
As already stated by the Commission and agreed at the Council meetings in June and 
September there is no longer any reason to maintain the bulk of the flanking measures 
decided upon at the Council meeting of 25 February 1993. In practical terms this calls for 
the following decisions and action: 
1. Measures to stabilize the internal market 
The Commission will not extend beyond the fourth quarter of 1994 the market-
stabilization measures implemented under Article 46 of the ECSC Treaty: the economic 
recovery is now such that the quarterly guidelines by product are no longer necessary and 
the steel undertakings should be capable, on the basis of the overall six-monthly 
indications of the forward programmes for steel, to decide individually their production 
and delivery strategies for the Community market. 
2. Structural measures 
The Commission concludes that the framework agreements authorized pursuant to 
Article 53(a) of the ECSC Treaty have become superfluous in the absence of firm 
proposals from the industry. 
3. Social support measures 
Subject to the budget funds available, the Commission will maintain the measures to help 
cover the social costs of the closing down of installations to take place before the end of 
1995. However, it does not propose to increase the allocation beyond the 
ECU 240 million originally earmarked. The applications submitted by the Member States 
so far amount to ECU 185 million. 
4. External measures 
The Commission will extend the system of prior surveillance established back at 
the end of the 1970s independently of the current restructuring process; 
The Commission will not extend beyond 1995 the system of rapid statistical 
surveillance (after the event) which the vast majority of Member States have been 
unable to operate effectively; 
In the light of the decisions by the Commission and the Council in July 1993, the 
Commission does not propose to extend for 1995 the tariff quotas negotiated with 
the Czech and Slovak Republics for a number of steel products; however, it 
stresses the need to keep a close watch over the trend in trade in this sector; 
In accordance with the mandates recently given by the Council, the Commission 
is negotiating with Russia, Ukraine and Kazakhstan quantitative restrictions for 
some of their steel exports in 1995 and 1996. 
5. Monitoring of State aid 
The Commission will continue its present monitoring exercise to ensure strict monitoring 
of the State aid authorized in December 1993, and it expects the Member States to 
honour their undertaking to avoid any new requests for authorization of State aid. 
It is therefore the responsibility of the Community industry to complete the adaptation of 
production structures to the trend in demand by its own means. 
Annex 
STEEL INDUSTRY - RESTRUCTURING OF THE EUROPEAN 
STEEL INDUSTRY - STATE AID 
INDUSTRY COUNCIL CONCLUSIONS 
The Council heard an oral report from Commissioner Bangemann on the current situation 
as regards the programme for reducing the production capacities of the European steel 
industry and agreed: 
to extend the Hanking measures which it had decided to implement on 
25 February 1993 (and renewed on 21 September 1993 and 22 April 1994) until 
the date of its next meeting; 
to hold a conclusive discussion of this item at its next meeting when the 
Commission should be in a position to submit a definitive report on the 
restructuring plan; 
to remind the non-subsidized industry of its responsibility in making an extra 
effort to attain the minimum closure level of 19 million tonnes; 
that if the capacity reduction programme failed, the flanking measures for the 
restructuring plan would be abolished, as provided for in the Commission's 
communication to the Council of 21 June 1994. 
Pending the Commission's second six-monthly report on the monitoring of official aid, 
the Council also heard a statement by Commissioner Van Miert reporting on the State aid 
situation and held a wide-ranging discussion of the subject. 
Annex 2 
CAPACITY REDUCTIONS: FINAL ASSESSMENT 
millions of tonnes/year 
.. . ....... 
ESTIMATED 
OVERCAPACITY 
SUBSIDIZED 
UNDERTAKINGS 
NON-SUBSIDIZED 
UNDERTAKINGS 
ITALIAN PRIVATE 
SECTOR 
TOTAL STEEL 
33.7-39.6 
2.0 
IL 2 
5.0 
18.2 HOT-ROLLED 
PRODUCTS 
19.0-26.2 
5.4 
5.8 
5.0 
16.2 COLD-ROLLED 
AND COATED 
PRODUCTS 
3.2-14.5 
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1.8 
-
1.8 
ISSN 0254-1475 
COM(94) 466 final 
DOCUMENTS 
EN 10 
Catalogue number : CB-CO-94-495-EN-C 
ISBN 92-77-81533-7 
Office for Official Publications of the European Communities 
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