Innovation is the lifeblood of European manufacturing - we must all give it our conscious support to safeguard the future of manufacturing

Transcription

1 Innovation is the lifeblood of European manufacturing - we must all give it our conscious support to safeguard the future of manufacturing Robrecht Himpe, chief technology officer, ArcelorMittal and president of Eurofer Financial Times Future of European Manufacturing summit, 27 November 2014 Nine thousand kilometres away, in what was once a rather drab field in rural China, a stateof-the-art steel production plant is ramping up to its full strength. Inside, the spotless plant s machinery is dotted with familiar European names: VAI Siemens of Austria and Germany, CMI of Belgium, Miebach of Germany, - all of which are helping the plant produce up to one mile of high-strength steel every minute, for China s growing automotive industry. The plant, known as VAMA, is a joint venture between ArcelorMittal and Hunan Valin Iron & Steel Company - it s making advanced high strength steels which were invented and made in Europe, in China for the first time. In the 730 days it took to build the plant from scratch, the sounds of French, Dutch, German, Italian, Portuguese and Spanish being spoken have become familiar on site, as experts from around our plants in Europe have travelled to China to help build this huge site. How does our VAMA story relate to the future of European manufacturing? In essence, it s a great example of the demand that exists for European manufacturing skills and suppliers. It s also supplying European car makers such as Volkswagen and BMW with the steels they need to make their cars in China. So it s a good illustration of how European manufacturing continues to evolve - and survive - from one generation to the next. For me, the key point in this story is one of evolution. For decades, the future of European steelmaking and heavy industry in general has been a matter of debate, but still it survives. Thirty three years ago, just as I was beginning my career in steelmaking, I came across a book entitled: Steel, is there a future? by Tony Bird. At the time, European industry was in the doldrums and steel plants across Europe were closing. It wasn t the start to my career that I was hoping for. But 10 years later, the same author wrote another book about the steel industry, this time with a more optimistic title: Steel, planning for growth. The world was gearing up for a period of significant growth in the mid-1980s - and steel had its role to play in this. These contrasting book titles, written a decade apart, show us that the question about the future of European steelmaking - and manufacturing as a whole - is an enduringly popular topic of debate.

2 This is understandable because, as I m sure you all know, manufacturing is core to European prosperity. It started with the industrial revolution, and continues to generate jobs and wealth in Europe today. The steel industry alone employs 335,000 people directly in the EU and 1.5 million indirectly. Manufacturing as a whole accounts for around 15% of the EU s GDP. But we can t take it for granted that manufacturing will continue to be such a major part of the region s economy. The European economy is still very fragile - late last week, the European Commission announced consumer confidence had hit a nine-month low, while the EU s manufacturing PMI dropped in November. This makes the topic of today s debate - about the future of European manufacturing - even more relevant. I ve got three points I d like to focus on that, if we get them right, I think will help to cement this future. First: innovation. As the VAMA story shows, innovation will drive success, demand and growth. It is the lifeblood of manufacturing - and needs conscious support from both the public and private sectors. Apple is often relied upon as an example of the world s most innovative company - but here it provides the perfect example of the kind of innovation we need throughout the manufacturing industry. Apple s the world s most valuable company - and they innovate faster than anyone else. Indeed, they cannibalise their own products before anyone else does, constantly offering something new. Apple is also top of its game for technological differentiation - something European manufacturing must focus on to survive. Turning back to ArcelorMittal, as a company last year we spent US$270m on research and development, around a third of which was dedicated to the automotive industry, which is a major consumer of advanced steels. In terms of how we spend our R&D budget, 39% is targeted on processes, 55% on products and solutions and 6% on exploratory research. The emphasis on processes is important, because process innovation drives productivity increases. And better productivity leads to improved competitiveness (a further point I ll come onto in a few minutes). More than half of our R&D budget is spent on product research. At any one time, we have around 90 new steels under development for all kinds of industries - in fact, our head of R&D tells me steel is innovating faster than mobile phones.

3 And we have 1,300 researchers working for us, many of whom are in one of our nine R&D centres in Europe. We also innovate with our customers - for example by having resident engineers who work directly with our automotive customers to help create the cars that you and I will be driving in the future. Many of our European innovations are then taken to the US and other parts of the world - today s global manufacturing platforms means European innovations usually go global. Interestingly, the strength of steel has tripled in the last 20 years, thanks to innovation. This means lighter cars, lower CO2 emissions and more consumer choice. A good example is a very recent development in car wheels. You ll all be familiar with alloy wheels - and the fact that for a long time, they ve been more desirable than steel wheels. Thanks to the improved mechanical properties of high strength steels, wheel manufacturers are now able to offer an alternative to alloys that s visually appealing, as well as with lower fuel consumption and CO2 emissions. Our teams also work on new solutions within the company, which is the focus of my role as chief technology officer. Today, across the steel industry, carbon dioxide emissions per tonne of crude steel made, are now half what they were 40 years ago, thanks to industry innovations. And we continue to reduce this figure in Europe in particular, thanks to our team of energy experts. My second point relates to improved competitiveness, which will come from a mix of internal and external factors. Internally, we need to continue innovating to make sure we re offering the best product possible. This requires us to have the best possible employees to innovate and manufacture. We also need to ensure we can compete on cost, and have a strong value chain. This is all basic business sense. Externally, we need a healthy EU economy, to encourage spending and investment, whether it be consumers buying new cars, or governments putting major infrastructure project out to tender. Investment in infrastructure is crucial for the future of the European economy as a whole, whether it be private or state-backed infrastructure building. One example is the power sector.the prospect of blackouts in parts of Europe is getting greater because of the lack of power generation capacity. Older power plants are being closed, but new power plants aren t being built. We need a much higher level of investment in Europe s power sector to avoid power shortages - industry needs reliable access to electricity.

4 For us as steelmakers, major infrastructure projects are good news for growth. They require large volumes of steel, and a good example of this is right here in London, with the Crossrail project. Thousands of tonnes of steel are being used to help build a new railway line to link up the city. It s generated thousands of jobs and is bringing prosperity to previously isolated parts of the capital city. In short, we need more Crossrails. The European Commission has also given positive signals, with the call earlier this month for a 300 billion package of investment to stimulate the European economy and the reindustrialisation of Europe. Investments such as this will help the manufacturing sector meet the European Union target of increasing the GDP contribution of the manufacturing sector from 15% to 20% by It s great that this target exists. But let s not underestimate the challenge, which is huge. An absolute increase of 1% of GDP means a relative increase of 15% per year - and the Commission s targeting a 5% absolute increase. What other kind of support do we need from governments, to make us competitive in today s global economy? Free, fair trade, and protection against unfair imports. The European Union is famously the world s biggest internal market. But free trade is a global issue and we need protection against unfair imports until such time when we have a global level playing field on trade. It would be crazy to drive steelmaking out of Europe through inadequate protection for homegrown industry, but we need governments to recognize this, through measures such as harmonizing the energy market in Europe and reducing the very high energy prices. To give you an idea of the current competitive disadvantage we face here in Europe, our US steel plants are around US$1 billion a year better off than our European plants because of lower energy prices in the USA. One of the causes of the economic stagnation in Europe is the fact that productivity is not increasing compared with the US where productivity is much higher, driven by cheaper energy and strong consumer demand. The bright spots in the European Union are those countries that have taken the necessary measures to re-balance their economies. Spain s economy is improving because of the measures taken to improve its competitiveness and productivity. But it remains vulnerable because of its reliance on trade with the rest of Europe.

5 France s economy is stagnating, while Italy has recorded 13 consecutive quarters of contraction and labour costs are among the highest in Europe: not a recipe for competitiveness. While the German manufacturing sector is back around pre-crisis levels, even Europe s largest economy has seen increasing headwinds and slower growth recently. The topic of competitiveness brings me onto my third point, which is the low carbon economy. The world can t support nine billion people at an acceptable standard of living, with today s consumption and emission levels, and we need to address this. The European Commission s response to this - its low carbon roadmap to sets out a goal of reducing emissions by 80% over the next 35 years. The milestones in the roadmap are highly ambitious. They are challenging the steel industry in a number of ways - some of which we welcome, and others in a way that risks making the industry entirely uncompetitive. We want to play our part in a lower carbon economy. But the European Commission s plans to achieve this goal, as set out in its draft 2030 framework for climate and energy, set unreachable emissions reduction targets that will lead to a significant decline in European industry. Why? Because it leaves the steel and other energy intensive industries with a multi-billion Euro bill to pay. Just to give you an idea of the scale of the cost of the emissions reduction targets, between 2020 and 2030, the additional costs stemming from the policy are estimated to be around 58bn, based on a carbon price of 40 per metric ton combined with the EU s planned reduction in CO2-emissions allowances and the indirect impact of high energy prices. We calculate that ArcelorMittal would have to bear 20 billion of this cost, or an average of 2 billion a year, far exceeding ArcelorMittal s European profits. This seems to contradict the European Commission s goal of increasing the contribution of Europe s industries to 20%. I don t have time to go into any more detail on this particular topic, and this isn t the forum for doing so, but I hope it gives you an idea of the scale of the challenge we re facing from the Commission s policy. It s thanks mainly to member state governments understanding the flaws in the Commission s policy, and advocating on our behalf, that we are slowly moving towards a more workable draft policy.

6 I ve already said that we want to play our part in moving to a lower carbon economy. Much of our research is focussed on lowering our carbon footprint and energy consumption. We also spend a lot of time and resources producing steels that contribute to a lower carbon economy. For example, we ve designed a steel for roofs that also generates clean energy using solar radiation. In the car industry, our advanced high strength steels mean that less steel is needed to make a car part. Our S-in motion catalogue uses lightweight steels to reduce a vehicle s CO2 emissions by 14% while our newest auto steel range called Fortiform could lead to further weight savings of 20% in vehicle parts. This is a significant weight and emissions savings - and we re proud that we re contributing to an improved environment through our research. Finally on this point, don t forget that steel is the most recycled material in the world. A third of the steel produced today is made from recycled steel. And steel consumption exceeds aluminium consumption by a factor of 21, and plastic by a factor of 7. So these are my three main ingredients for a successful European manufacturing sector: innovation, competitiveness and working towards a lower carbon economy. And linked to this, national governments and the institutions of the European Union need to help create the right environment for manufacturing to thrive. They can do this in a number of ways, whether through promoting science and engineering education for the EU s students, or ensuring fair trade policies. Support us, and our industries will support Europe. In industry s favour, the financial crisis and Eurozone recession has had one very positive consequence: many policymakers have understood the value added by making things, in other words, manufacturing brings growth and job creation. The final point I d like to make to you is about the relevance of steel today. Think about what your life would be like without steel: your car, washing machine, the tube or taxi you arrived here in, the change in your pocket, the steel beams that form the backbone of your office building. None of this would be possible without steel, which we often refer to as the fabric of modern life. As we work to bring a new generation of steels off the production line that will be used in the electric cars and solar panels of the future, I am certain that steel will also be the fabric of the future - a fabric with a home in Europe, of which I am very proud.