|Steeling For Recession and Competition|
|Subject||Short Run and Long Run Costs|
|Topic||Production and Costs|
|Key Words||Consolidation, Over-Capacity, Cyclical, Inventories, Recessions, Unions, Governmental Pressure, Job Reductions, Plant Closures, Productivity Levels, Debts, Losses, Global Market|
Three European steel companies based in France, Luxembourg, and Spain have agreed to merge to form the world's largest steel company, called NewCo for the time being. Investors hope that more consolidation will occur, reducing fragmentation and over-capacity. The industry is highly cyclical and is slow to reduce inventories in recessions. Unions and governmental pressure slow efforts to reduce costs.
It is unclear how successful NewCo will be. Although it talks of job reductions and plant closures, it has ruled out traumatic cuts, but it is being opposed by its Belgian unions. The company will still only have 6 percent of the global market.
In spite of their problems, European producers are ahead of American steel makers that are smaller and have productivity levels that are 40 percent lower, resulting in huge debts and losses.
(Updated April 1, 2001)
|Source||Carlta Vitzthum, "Mergers May Not Gird Steel Sector," The Wall Street Journal Europe, February 26, 2001.|
Return to the Production
and Costs Index
©1998-2002 South-Western. All Rights Reserved webmaster | DISCLAIMER