France vs Mittal

The battles of globalisation are being fought again

A war of words has broken out between the Socialist Party government of France and ArcelorMittal after the steel maker announced on October 1 that it would shut two blast furnaces at Florange because these had become uncompetitive. It had agreed to the French government’s request that it would like to find a buyer for these furnaces by the end of this month, probably because 629 jobs were at stake. ArcelorMittal had added a coke plant to the sale, though it was not being closed. This Monday, Arnaud Montebaurg, France’s minister for industrial renewal, threatened to nationalise the entire Florange plant (not just the two blast furnaces) and said the group was no longer welcome in France. He later watered down his comments, but accused Lakshmi Niwas Mittal, who is the chairman and CEO of ArcelorMittal, of “non-respect of its commitments, blackmail and threats”. Mr Mittal retaliated that nationalisation of the Florange facilities will threaten the viability of the group’s entire business in France: ArcelorMittal runs over 50 industrial activities there across 150 operations and employs close to 20,000 people.

The episode raises many questions. To begin with, is the French government right in questioning Mr Mittal’s motives in what seems a purely commercial decision? Did Mr Mittal have good enough reasons to mothball the two furnaces? It seems so. The steel cycle is down. ArcelorMittal reported a loss of $709 million in the third quarter this year, compared to a profit of $659 million in the same period last year. Its Flat Carbon Europe segment, of which Florange is a part, is bleeding profusely. Demand for steel remains weak in Europe, thanks to the austerity measures put in place by various governments and record unemployment. In ArcelorMittal’s estimate, the demand in the European Union is 28 per cent below 2007 levels. The two blast furnaces that have been shut were small and had resulted in high production costs. Also, these were inland furnaces, 400 km from the nearest harbour. The high cost of transporting iron ore added to the losses. So, ArcelorMittal decided to shut these and feed its rolling mills in Florange with slabs it makes in its furnaces at Dunkerque.

The fate of the Florange facility will disclose President Francois Hollande’s plan to revive the struggling economy of his country, improve the competitiveness of French industry and create jobs. Nationalisation will send out a stern signal to the world: they cannot downsize in France even if that means incurring bigger and bigger losses. For some strange reason, across the world there is great nationalist pride associated with the steel industry. Countries seldom look positively at the acquisition of their steel factories by overseas businessmen. That leads to the second question: had a company in some other sector axed 629 jobs, would it become such a big issue? Or, had the shut blast furnaces been owned by a local businessman and not an outsider like Mr Mittal, would Messrs Hollande and Montebaurg have reacted with the same indignation? Two large French companies, Peugeot Citroen and Sanofi, have downsized their workforce by 8,000 and 900, respectively. There was unhappiness at the job loss, but not the extreme reactions Mr Mittal has evoked. The message is that the buy-in on globalisation is not yet universal.