Europe’s Steel Sector Is Suffering. These Charts Show Why

(Bloomberg) -- From the collapse of British Steel to a 50% plunge in ArcelorMittal shares in the past year, the European steel industry has lurched back into turmoil.

Steel, a business notoriously sensitive to changing winds of economic growth, has been battered by weaker demand, a knock-on effect of lower car sales in Germany. At the same time, costs are rising as a result of surging prices for iron ore and the market is awash with supplies of low-cost steel from Turkey and Russia.

For the second time this month, ArcelorMittal announced it would cut production to help balance the market. The world’s biggest steelmaker said it will scale back output in Germany, France and Spain this year until market conditions improve. The shares fell the most in two years and other steelmakers like Thyssenkrupp AG, Voestalpine AG and Kloeckner & Co. also retreated.

British Steel is facing a different situation. The company was hit by the fallout from Brexit, with some European customers concerned about possible tariffs on their orders. The weak pound also made importing ingredients more expensive.

The future of Tata Steel Ltd.’s two giant European plants has been thrown into doubt after a long-proposed venture with German rival Thyssenkrupp AG looked at risk of collapsing. The shares slid the most in two years.

Here are four charts that explain current downturn:

Fewer Buyers

After a few years of stronger growth, the steel industry is now going in reverse. Weaker economies in Europe and increased trade tensions are biting into sales.

Car Slump

Carmakers, which buy high-performance steel to make auto bodies and parts, are usually some of the best customers for steelmakers. But European car sales have fallen for eight months due to declines in the U.K. and Germany, leading to a drop in steel demand.

Imports

European steel demand has also been stifled by low-cost imports coming from places like Turkey and Russia.

Steel imports were supposed to decrease after the regulators approved a series of quotas and tariffs, known as "safeguard measures." But instead, supply remains high. Production outside the EU rose in April, according to the World Steel Association, signaling more price pressure. The EU has said it will review the curbs later this year.

Prices

One quirk of the current slump -- European steel is now priced below than China.

That’s unusual because China is the biggest producer and exporter, so the metal is usually cheaper there. The relationship has been reversed because of stronger Chinese demand as a result of recent economic stimulus. ArcelorMittal has said it expects prices will eventually flip back to normal.

To contact the reporters on this story: Elena Mazneva in London at emazneva@bloomberg.net;Thomas Biesheuvel in London at tbiesheuvel@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Dylan Griffiths

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