10 Jun 2013

Assessment of Cumulative Cost Impact for the Steel Industry

Andrea Renda / Enrico Giannotti / Roberto Zavatta / Alessandro Fumagalli / Julian Wieczorkiewicz / Jonas Teusch / Wijnand Stoefs / Federico Infelise / Federica Mustilli / Diego Valiante / Felice Simonelli / Giacomo Luchetta / Lorna Schrefler / Andrei Marcu / Christian Egenhofer / Jacques Pelkmans / Giulia Maria Stecchi

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This study contains an assessment of the cumulative costs of EU legislation on the European steel industry, as well as an evaluation of how these costs affect the competitiveness of this industry from an international standpoint. Cumulative costs are compared to production costs and current margins of the European steel industry, as well as to the production costs of international steel competitors.

Cumulative regulatory costs represent approximately 3% of the total cost of production of EAF wire rods, and less than 2% of the total cost of producing HRCs and CRCs for BOF producers. As far as the price-raw material margin is concerned, in 2012 regulatory costs represent about 7% of this margin for EAF products and less than 5% of the margin for BOF products. For EAF producers regulatory costs represent about a quarter of their EBITDA; whereas for BOF producers, regulatory costs represent between 15% and 33% of the EBITDA.

As far as margins for the period 2002-2011 are concerned, it becomes clear that the steel industry has the typical features of a pro-cyclical industry: the significance – and thus the impact – of regulatory costs changes accordingly to the cycle. Specifically, cumulative regulatory costs over EBITDA were in the area of 7% in the boom years; while in times of crisis, regulatory costs may be even higher than EBITDA (e.g. in 2009), and more generally fall in the area of 20% to 30% of the EBITDA.