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February 18, 2014

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Greek steelworks face extinction - 85% drop in domestic demand - MUST READ


Pavlos Zafiropoulos & Nikolas Leontopoulos (PressProject) - An 85% drop in domestic demand since the beginning of the crisis has left Greek steelmakers reeling while energy costs far higher than those faced by European competitors prevent the companies from being competitive internationally. Now one of the industries last hopes, legislation intended to bring down their energy bills, has been rejected by the troika.

These days it may sound strange but Greece has traditionally punched above its weight in the production of steel, being competitive with major steel producing countries such as Germany and Britain. Yet, thanks to the crisis, in only a few years the sector has seen domestic demand fall by 85%. Now two of its top three steel companies are on the brink of closure and a third one has moved its HQ to Brussels.

Halyvourgiki S.A. (Greek: Χαλυβουργική Α.Ε.) has historically been one of the main steel producers in Greece and the second largest after Viohalco. It effectively started business in 1925 as a trading company, moving into wire production in 1932 and steel production in 1938. The years following the War were its "golden age", as a construction boom connected with the Greek economic miracle lead to a huge increase in demand for steel. Its humongous, brightly colored facilities are a landmark of the Aspropyrgos area (from Wikipedia).

But the blast furnaces at Halyvourgiki have fallen silent following the decision this week by the company to halt production and suspend 200 out of 263 workers at the plant located in the industrial area west of Athens. This means that from yesterday until March 31 the majority of employees will stay home receiving only 50% of their salaries. This comes after months of attempts by the company to cut costs: 148 employees have already left their positions through voluntary retirement schemes while salaries for those remaining have been cut by 20%. The only staff that remain are those required to trade stock, guard the plant and perform administrative tasks.

Hot on the heels of this announcement another steelmaker, Hellenic Halyvourgia, announced to worker representatives that it is seeking authorization for mass layoffs from its Aspropyrgos plant which employs a total of 120 people. (Hellenic Halyvourgiki has one plant in Aspropyrgos and another two in the city of Volos.)

All this amounts to the latest serious blow to heavy industry in the country following falling production and mass layoffs in shipyards and the chemical and fertilizer industries.

The steelmaking industry has been left reeling in part by a collapse in domestic demand as housing construction has ground to a halt. In 2007 Greece produced 2.5 million tonnes of steel, used both domestically and exported. Today there is demand of about 300,000 tonnes of steel per year or 12% of 2007 output, the lowest level of demand in 50 years.

Compounding the problem of low domestic demand is the high cost of energy which prevents the steelmaking plants from being competitive internationally. According to Imerisia Online, steelmakers in Greece pay 77 euros per MWh of high voltage electricity and 104.4 euros per MWH of medium voltage current. In Italy the equivalent prices are 30-35 euros, in Germany 35-30 euros, in France 40-46 euros and Bulgaria 46 euros per MWh.

In the face of these problems Greek steelmakers have attempted to keep blast furnaces running by operating at night when energy is cheaper and through exports sold below cost which have saddled the steel companies with over 600 million euros in losses.

The hope was that the companies would survive long enough for the government to pass a so-called ‘cut off’ measure, i.e. legislation that would allow the Independent Power Transmission Operator to sign special contracts with large electricity users under which the operator would reserve the right to cut off the users at times of high loads in exchange for electricity discounted by up to 25%.

But those hopes were dashed when the European Commission recently rejected as illegal un European law the draft legislation drawn up by the Environment Ministry as it deemed the discounts would amount to government subsidies. According to reports (link in Greek) the industry blames the Greek political leadership for the failure of the measure rather than the Europeans, and specifically Deputy Environment Minister Makis Papageorgiou who is accused of overseeing shoddy legislation and failing to take into account the legal frameworks in other member states.

The humiliating failure over the ‘cut-off’ measure appears to have been the final blow for Halyvourgiki and Hellenic Halyvourgia, with fears that other major energy consumers may follow.

It may not be dead yet however. Reportedly Mr Papageorgiou is pressing the Commission for at least temporary allowance of the measure for the 8 months it will take to draw up new legislation. Some also hope that the staff suspensions at Halyvourgiki will help Greece’s case over the ‘cut-off’ measure. According to skai.gr a high ranking official in the Development Ministry was quoted as saying, “I hope this development rattles the troika officials”.

Furthermore energypress.gr is reporting that, according to government sources, the legislation will likely be amended, but even if this fails to placate the troika it will be signed into law this week anyway in defiance of the Commision’s protests, due to the pressure caused by the plant closures.

Such a move would not be entirely without precedent: Germany has already unilaterally decided to protect its own steel makers from high energy costs in 2014 (link in Greek) by exempting them from green energy taxes worth 5.1 billion euros, despite the European Commission having launched an investigation into whether a similar move last year amounted to a government subsidy.

In other words the Germans appear to have prioritized the protection of their steel industry from high energy costs over keeping the European Commission happy, a tactic the Greeks may feel they have little choice but to emulate.

Aside from electricity, Greek steelmakers also face higher costs for natural gas than other EU countries. Greece reportedly delayed at least a year in commencing negotiations with the Russian natural gas supplier, Gazprom, compared to other European countries, ostensibly because of the planned privatization of the state-owned natural gas company - a privatization effort which collapsed. This ultimately left Greek steelmakers paying 20% more for gas than their European counterparts.


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