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Wednesday, June 9, 1999 Published at 11:17 GMT 12:17 UK

Business: The Company File

Europe's core of steel

The steel industry has transformed itself

The transformation of Europe's steel industry is highly symbolic, as the BBC's Rodney Smith explains.

The organisation of 350 million people, 15 countries, and potentially the most powerful economy in the world that we now know as the European Union began as a plan to organise the European coal and steel industries within a protective ring, owned and subsidised by governments.

Europe's coal and steel industries first grew through the 1950s and 1960s exporting all over the world, before advances in communications and transport turned the tables on them, producing fierce competition mainly from the developing new producers of the Far East.

Soon the Europeans were swamped. Governments which had used subsidy and selective ordering to support their coal and steel industries soon found they were fighting a rearguard action against technically superior opponents which were also able to produce at far lower costs than the Europeans.

Coal mines and steel plants were huge employers, representing massive investment and shaping the social fabric of whole regions. Plants were large; closing them was unthinkable.

Restructuring plan

Spurred to action, the European Economic Commission through the French politician Viscount Etienne d'Avignon, attempted to develop a plan which would rationalise what had become a bloated and inefficient industry.

He failed; steel was rescued partly by an upturn in its notoriously slow and pendulous business cycle.

By the next substantial downturn, a new Commissioner, Karel Van Miert, was trying to do what he could.

He had slightly better success than Viscount d'Avignon before the cycle turned again and the steel producers were reprieved.

UK leads the way

But there were fewer of them by then, and the subsidies on which they had survived for so long were shrinking and disappearing. Change was already happening - pushed by what had been happening in the United Kingdom.

The most visible change was the struggle for dominance between the British miners unions and Margaret Thatcher; and the socially wrenching restructuring and privatisation of British Steel by the Scottish American industrialist Ian McGregor.

The industrious Dutch had recognised what was happening to world markets, particularly steel, and were already adjusting.

The result was the development of one of the most efficient steel groups anywhere, the Hoogovens operation, now in private hands with only a token 12% held by the state, and a leader in the latest technology, the small and efficient mini-mill.

Efficient merger

This is the company which is merging with British Steel. Post-Ian McGregor, British Steel was for a short while enviably efficient - though it has slipped in recent years.

The merger with the innovative Hoogovens is a marriage made in heaven for both. Hoogovens offers world beating low cost output - but without an international presence to take advantage of what it has achieved.

British Steel gains Hoogovens' innovation, and access to the euro market. Sterling profits have been squeezed by the strength of the currency.

Seasoned steel industry observers like Philip Tomlinson, director of the Steel Business Unit at CRU International, the commodities analysts, point to the changes which are happening among all the Europeans.

The combined British Steel/Hoogovens operation, apparently to be called BSKH, will be the third biggest in the world after the Korean Posco Group and Nippon Steel of Japan.

But right behind the newcomer are the transformed German Krupp-Thyssen group, privatised Usinor Sacilor of France, Riva of Italy, and Arbed. A rapidly developing, highly competitive group of probably five European steel producers is emerging.

Of course, there is a moral to this tale.

The first European Community was the Coal and Steel Community. The modern European Union is built upon it. The Coal and Steel Community almost died -- but it didn't. It survived, remodelled itself -- and now it challenges the best in the world.

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