ArcelorMittal – a reminder of the woes of Italy’s politics and economy

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Italy’s government and the factory’s foreign operator, the steel giant ArcelorMittal, are engaged in a high-stakes fight over the plant’s future.

The plant’s closing could have ramifications for the stability of Italy’s government and the country’s entire economy. That has made the struggle over the steel works an emblem for what ails Italy — declining industry, haphazard regulation and volatile politics.

The New YorkTimes reminds us that Italy does not want for symbols of political mismanagement and a stuck economy. There is the perennially hobbled Alitalia national airline, the stalled infrastructure projects, the banks that need bailing out.

Earlier last year, Stefano Patuanelli, minister for economic development, said in an interview with the Financial Times that Italy was prepared to intervene if necessary in its Ilva steel works with funds that would be likely to place Rome under further scrutiny from Brussels over possible illegal state aid to Italian companies.

Last year the EU competition commission opened an investigation into whether Italy’s loans to Alitalia, the national airline, were in breach of state aid rules but has not yet ruled on the issue.

Together Alitalia and Ilva employ more than 22,000 people and Italy’s coalition government has struggled to balance its desire to protect these jobs with its need to allow for a restructuring that would attract reluctant foreign investment into the two struggling companies.

Last year Rome approved an injection of a further €400m into Alitalia after no private sector bidders emerged to take over the airline. The Ilva crisis has inflicted political damage on Rome’s delicate coalition government made up of the once bitter rivals of the Five Star Movement and the centre-left Democratic party, with both parties suffering in opinion polls as they grapple with the issue.

But the closing of the steelworks — still known by its former name, ILVA — would be worth about 1.4 percent of Italy’s entire economic output, according to a recent study, published by Il Sole 24.

A sprawling, 15 kilometre plant, it is the largest factory in the country’s economically depressed south.

If it closes, more than 10,500 workers could lose their jobs in a region that already suffers from dizzying unemployment, especially among the young. Businesspeople fear that foreign investors would steer clear of Italy. And the country could be saddled with a toxic ghost town, with pollutants seeping into the ground and surrounding sea.

Lakshmi Mital has grown his company, ArcelorMittal, the world’s biggest steelmaker, through a series of deals across the world. Some, like the mega-merger in 2006 with Arcelor, then Europe’s largest steel producer, were tough. Perhaps none has given Mr Mittal as much grief as the takeover of a massive steel mill in Taranto, in southern Italy. The bureaucratic and legal troubles, combined with a horrible market for steel, last month led Mr Mittal to walk away from the deal he struck with the Italian government a year ago.

The Taranto public prosecutor ordered the shutdown of BF 2 in July, but on 20 September ArcelorMittal was granted a 90-day extension. This meant it had until 19 December to improve the safety of the furnace, but some expected this to be delayed further, as the steelmaker worked with the government to draft an improved industrial plan: however, after Italy removed the legal immunity of ArcelorMittal managers, making them prosecutable for issues under Ilva’s previous ownership, the company notified authorities of its intended exit from the investment on 4 November, giving Italy 30 days to take over the plant.

The steelmaker has faced multiple challenges in Italy, including the aforementioned BF 2 shutdown and stripping of the penal shield, amid declining steel prices and a weakening of demand for flat steel products across Europe. As such, it was no longer economically viable, but many saw the announcement as a bargaining tool to reduce employee levels.

Many no longer see the mill as a market maker despite its output being among the highest in Europe, as many buyers prefer to not take on risk over deliveries in the coming months. It is uncertain who, if anyone, will operate Ilva. Some customers had covered first-quarter needs with bookings from competitively priced imports over the October-November period.

Read more New York Times

Additional background – Financial Times / Euronews

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