Steely Silence

ArcelorMittal cuts more in Europe

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What's going on?

The global steel industry circled the drain again on Wednesday as ArcelorMittal – the world’s largest steelmaker – announced production cuts across Europe for the second time this month.

What does this mean?

In early May, ArcelorMittal said it’d cease activity at its Polish plant and scale back in Spain, as rising energy prices and record steel imports from outside Europe hampered its profit. But still-weak demand, partly from troubled automakers, and the rising cost of iron ore used to make steel have forced further measures. Rather than risk bankruptcy like British Steel, ArcelorMittal hopes that these “temporary” production cuts will help it weather the storm.

US tariffs on imported steel since last year have led Americans to buy less from abroad, reducing demand for steel from the world’s biggest exporter, China. But other buyers have been quick to snap up China’s cheap supply, partly at the expense of producers in Europe (tweet this).

Why should I care?

For markets: Looking for the winners.

US steel companies say they’ve added 12,800 new jobs thanks to American steel tariffs. But some economists estimate that higher steel prices cost the country $900,000 per protected steel industry job, not to mention the cost of retaliatory tariffs. In 2018, the increase in domestically produced US steel offset the decline in imports, but just barely. This year may see producers able to crank up their output further, to the US’s benefit, and perhaps to the chagrin of investors in the rest of the world’s steelmakers.

The bigger picture: China flips the chessboard.

Reports on Wednesday that China is considering cutting its exports of important rare earth metals – crucial in electronics from smartphones to electric vehicles – sent shares of Chinese rare earth producers higher. China provides 80% of the US’s rare earth metal imports: its potential response to American tariffs may have led investors to anticipate bumper demand if buyers start to stockpile these metals to insure against any supply curtailment.

Originally posted as part of the Finimize daily email.

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