STEEL
Trouble at Taranto
July 2019
Citing “cyclical market conditions”, ArcelorMittal has said that it will be temporarily laying off 1,400 workers from its recently-purchased Taranto steelworks in Italy. The 11.5Mtpa crude-steel capacity facility has had a long and troubled history, both with its ability to produce efficiently and its environmental management plans. Far from remaining a powerhouse of the European steel market, the site has largely fallen from grace, producing less than 6Mtpa of steel over 2016.

Purchasing Italy’s largest steelworks was always a relatively risky prospect for ArcelorMittal. The ageing plant has operated on thin margins, struggled against many logistical and operational faults, and requires significant investment if it is to be turned around—both in terms of production and environmental compliance. If the site’s full production capacity and potential could be reached, it could benefit hugely from economies of scale and reshape the European steel market—but the prospect is currently on shaky grounds.

 

 

ArcelorMittal purchased Taranto after years of administration by the Italian government due to repeated failure to company with environmental regulations. The US$2.1bn sale was hoped to be a turning point for the site, but 2019’s downturn of the European steel market has disrupted plans.

The European steel market is not currently in a strong place. The continent’s overall economy is facing a slowdown due to an increasingly slow economic situation, with demand and exports weakening. The automotive sector is currently slowing by 10%, and the Purchasing Managers Index (PMI) fell to 47.4 in March 2019—going below 50 for the sixth consecutive month and reaching the lowest level since mid-2013.

Stocks of steel are rising and demand is dropping, pushing prices lower and disrupting the plans of many steelmakers—several of which have cut production and idled significant capacity, planning to wait out the current market dip. For its part, Taranto management has said that the EU’s urging to overhaul the site and bring its emissions in line with broader guidelines are badly timed and currently economically unfeasible. Steel prices are low, energy prices are rising, and the cost of raw materials has jumped up in recent months—particularly iron ore.

In 2018, even before the current downturn in steel prospects, the site had a rough net loss of EUR25-30m per month, and long-running environmental concerns have led to government parties campaigning on the site’s closure or overhaul. Widely seen as a strong component of the Italian economy, however, these plans have not come to fruition.

ArcelorMittal Italia has said that it will commit to upgrading the site, implementing both industrial and environmental upgrades that are necessary for the site’s future. However, its parent company ArcelorMittal has reduced production in Europe; this, combined with the 13-week-long layoff of more than one thousand Italian employees, does not bode well for the short-to-medium term outlook for the company. Taranto will continue operations during the layoffs, although it will be operating at a much-reduced capacity of 5Mtpa. 

The site holds significant potential for ArcelorMittal, however. In addition to being one of the largest individual steel-producing sites in Europe, the plant operates its own port capable of supplying about 20Mt of raw materials per year, or loading 85% of finished products made by the production plants, giving the plant an advantage on transport costs. The location allows flexibility in the sourcing of steelmaking raw materials. Taranto’s size, geographic and market position provide the site with significant potential and influence over Southern European and Mediterranean markets.

Regardless of staffing or ability, the site will not be allowed to raise production above 6Mtpa—by re-starting currently idled steel and ironmaking furnaces—due to environmental protection orders placed by the Italian government. Work required to bring the site’s facilities in line with standards and regulations include:

  • A major reline of Blast Furnace #5, which was scheduled for March 2015 but never began
  • Significant upgrades of gas cleaning and dedusting systems for all operational blast furnaces
  • Sinter plants to install waste gas cleaning plant to minimise dioxin emissions
  • The construction of a coke ovens by-products plant