EU Covid-19 response: hope for support of European metal industry and other businesses
While the coronavirus rages on its destructive path across the world, the European metals industry is bracing for a major disruption and painful losses throughout the year. Typical high-volume consumers of metal products such as carmakers and foundries who rely on supply of ferroalloys and steel have been shutting down across Europe. The EU has been swift to respond with a proposal to the macro-economic risks posed by Covid-19.
To remedy the situation, the European Commission has adopted a framework to enable member states to take advantage of support measures under state aid rules. The objective would be to ensure sufficient liquidity remains available to businesses of all types and to preserve the continuity of economic activity during and after the Covid-19 outbreak. The main fiscal response to the coronavirus will come from member states' national budgets. EU state aid rules enable member states to take swift and effective action to support citizens and companies, in particular SMEs, facing economic difficulties due to the outbreak. The individual member states can design ample support measures in-line with existing EU rules. They may decide on measures, such as wage subsidies, suspension of payments of corporate and value added taxes or social contributions among other measures. Furthermore, the EU state aid rules enable member states to help companies cope with liquidity shortages and needing urgent rescue aid. Article 107(2)(b) TFEU enables member states to compensate companies for the damage directly caused by exceptional occurrences.
In summary, the Temporary Framework allows flexibility for five types of aid:
Direct grants, selective tax advantages and advance payments
The aid should not exceed EUR 800 000 per undertaking in the form of direct grants, repayable advances, tax or payments advantages.
State guarantees for company loans from banks
Member states can provide state guarantees to ensure banks will continue to provide loans to business customers in need. Such state guarantees will cover loans to help businesses cover immediate needs for working capital and investments.
Subsidised loans from public sources to companies
Loans will be to the scale of their business activity, by reference to their wage bill, turnover, or liquidity needs. Companies will be able to access loans with favourable interest rates to help cover needs for investments and immediate working capital.
Safeguards for banks that channel state aid to the real economy
It is planned that certain member states can build on banks' existing lending capacities to use them for support to businesses – in particular to SMEs. This form of aid is considered direct aid to a banks' customers, not to the banks.
Short-term export credit insurance
The Framework provides flexibility to enable short-term export credit insurance to be provided by the state as when needed. On 23 March, the Commission launched a public consultation to assess the availability of private short-term export-credit insurance capacity for exports to all countries listed as ´marketable risk countries´. The Framework will be in place until the end of December 2020 and will be assessed before expiry date if it needs to be extended. Altogether, the hope is that this would help businesses to weather the downturn and to prepare steps towards a sustainable recovery.
Meanwhile, the following impacts across Europe have been observed: In Germany, carmakers, such as Daimler group, Volkswagen and others have suspended production in response to the accelerated spread of the coronavirus, resulting in disrupted supply chains and an overall decline of in demand in the automotive sector.
The German steel giant Salzgitter has confirmed that it would decrease its flat steel production and take further steps depending on how the situation develops. The newest information coming from Markus Heilder, Head of the Investor Relations of Salzgitter AG is the following. ´We give top priority to the health and safety of our employees. At the same time we are committed to maintaining the business operations of our subsidiaries and shareholdings to the greatest extent possible in order to remain a reliable partner for our customers also in these difficult times. In order to achieve this, we are utilizing all available instruments with a view to minimizing the economic impact of the corona pandemic.´
Thyssenkrupp has confirmed a sharp decline in customer call-offs. As a result, the company plans to adjust its production in order to not overproduce. In addition, many of the production facilities have introduced short-time work, both for the production as well as the administration. However, the company has decided to use the time of lower production to introduce steel strategy 20-30 which has been presented in December 2019. It is a long term strategic plan that focuses on maintaining the technological lead in still production, optimization and cutting costs. The restructuring will happen immediately on the 1st of April.
Austrian steelmaker voestalpine claims that the coronavirus pandemic and its consequences are causing major economic challenges for the company. ´As a result of massive reductions in capacity and current production shutdowns in the automotive, aerospace, mechanical engineering, and oil & natural gas industries, in just a few days demand in the key voestalpine customer segments has collapsed,´ the company said, adding that in order to meet the required level of flexibility over the next weeks and to secure jobs, short-time work is being registered in around 50 European Group companies (in Austria as well as in Germany, Belgium, and France).
In Italy, following the latest government decree that is asking for a total shutdown of manufacturing processes for non-essential products, the Italian Steel Industry has taken a heavy hit. The total halt of production will have a significant impact on GDP, with Giuseppe Pasini, President of the Brescia Industrial Association, Feralpi Group and Feralpisalò confirming this. \ \ He also stresses that a strong contingency plan is required on an European level, for countries like Spain and Italy, to ensure a 'bouce-back' of the industry. One of Italy´s largest global producers of seamless steel tubes, Tenaris-Dalmine has temporarily halted its Bergamo output. With other companies following suit: Lonato is joining the earlier closures of mills owned by Riva, Duferdofin-Nucor, Alfa Acciai, Ferrosider and Valsabbia.
French carmakers appear to have stopped production and closed down most of their plants to carry out sanitisation procedures.
The French carmaker PSA has responded to the crisis by shutting down its plants in Europe while Renault shut down 12 plants in France, Spain, Slovenia, Morocco, The United Kingdom, Poland and Portugal.
ArcelorMittal will reduce production across European operations in order to protect workers and respond to declining demand in major steel markets: ´In response we are reducing production and temporary idling steelmaking and finishing assets, adapted on a country by country basis in alignment with regional demand as well as government requirements´.
In Spain, Airbus is suspending most of its production for more than a week, as it continues its efforts to address the situation. The country has been among the hardest-hit countries. The company says it is to suspend the ´majority of production´ until 9 April.\ \ Spanish seamless tube makers, Tubacex and Tubos Reunidos (TR), alongside a growing number of Spanish steel companies are stopping production due to the outbreak. In Turkey, Toyota with its largest automotive plants in Europe with a production capacity of 280,000 units/year has decided to suspend production. Moreover, Toyota has closed down all production and assembly facilities in Europe since 23rd of March.
The port of Antwerp, which is a major hub for steel imports into northern Europe anticipates remaining open to secure transport of goods and raw materials. Long delays are expected in transport, particularly by rail and road as many European countries are implementing strict border controls.