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German Steel Industry and Energy Crisis - Erkin Sancarbaba


Suppose the historical development of Germany is scrutinized. In that case, it will be concluded that the success of the globally competitive and import-based economic model depends on the stability of the industrial infrastructure. The preservation of the current economic model has been possible with Germany's ability to provide energy supply with stable prices and long-term guarantees, and it is undoubtedly possible to adapt this interpretation for the future of the German industry. The energy crisis, which is deeply felt and directly related to geopolitical developments, poses a threat to the global market share of the German industry and, thus, to Germany's competitiveness. It is an epicenter for German policymakers to consider the roadmaps followed by the sectors strategically important for the German economy and the pillars of the country's industrial infrastructure. The reaction of the steel industry, which has strategic importance for the German industry and is characterized as energy-intensive, to the increasing energy prices and the measures it takes will be mentioned within the scope of the article. Before assessing the current situation of German companies, the sector-wide atmosphere in Europe should be considered. Across Europe, the manufacturing contraction in the steel industry confirms that the energy crisis is evolving into a production crisis. According to the data based on the officials of the Belgian-French company Aperam, which operates on a global scale, the company continues to manufacture with only 50% production capacity since June. The production contraction seen in the overall steel industry across Europe adds to the inflation pressure on prices that have already increased in the wake of the Covid-19 pandemic. In other parts of Europe, the industry is going through a period of disruption in production. Steel producers operating in Spain, primarily ArcelorMittal and Acerinox, either preferred to reduce their production capacity or stopped production temporarily. The main reason for the decisions taken by the companies was the inevitable rise in power prices. The main obstacle faced by the German steel industry is the reduction in natural gas flow forwarded through the Nord Stream 1 pipeline since September. Interrupting production in the sector can create a domino effect that will negatively affect many areas. Similar problems are encountered in Germany as well. As for companies, Thyssenkrupp's steel division, the second largest in Europe, feels the impact of rising energy costs on production. As the company officials stated, it is very difficult to convert the production processes from natural gas to crude oil or coal in their factories. If there is a problem in accessing natural gas, production disruptions and technical damages may be encountered. Germany's second-largest steel producer, Salzgitter, has also announced that the company's melting operations at the Peine plant have been reduced. Data for the January-June period reveal that Germany's steel production decreasedby 5.5% compared to the same period of 2021–to 19.56 million tons. Based on the aforementioned situation, comments are made that Germany is losing its market dominance in the steel industry, of which it is one of the carriers on a global scale. In line with the figures for the end of 2021, the country increased its steel production by 12.3% to 40.1 million tons compared to 2020 and became the eighth largest producer in the world. The inability to maintain the global position in critical sectors due to rising energy prices jeopardizes the production-based competitiveness of the German economy. In order to slow down the deterioration, the German government has taken action and foresees the acceleration of the incentive mechanism. Under the program gas price "defense shield," the German government envisages spending 200 billion euros to protect the households and private sector from the rise in energy prices. The plan envisages that the value-added tax rate for gas and district heating will remain at 7% until spring 2024 to limit the effects of high gas prices, as well as subsidize electricity for consumers and companies.Although it is not clear how much the policies to be implemented will contribute to the steel industry in concrete terms, it is clear that the German government will not ignore the sector that is deeply connected to the industrial infrastructure of the country. The energy crisis, the impact of which is already felt, has disrupted the development goals and growth targets in many countries, and sectors that are considered strategic in terms of economies are under threat. For Germany, the steel industry is shown as endangered, and the importance of the industry for the German industrial infrastructure and the country's economic model is indisputable. Therefore, the steps of companies and the German government to reduce the effects of the production crisis in the near future should be carefully monitored to predict the course of the German economy.

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