The Economist - UK (2019-06-29)

64 Business The EconomistJune 29th 2019

L

ush forests, cowbells ringing and a

fairy-tale castle make the alpine foot-

hills above Linz seem alive with “The

Sound of Music”. Down in the valley, how-

ever, the Austrian city’s skyline is dotted

with piles of coal, smoke-belching funnels

and the blackened silhouettes of blast fur-

naces, the home of Voestalpine, an Austri-

an steelmaker. High-wage, prealpine Linz

is not a cheap place to smelt steel. Yet the

firm has been adduced as proof that Eu-

rope’s steel industry has a future—even as

this future once again looks in doubt.

On June 26th steel executives gathered

in Brussels to discuss their mounting chal-

lenges. Mills around the world are enjoying

rising profits. Except in Europe. A 10% rise

in the cost of coking coal and a doubling of

iron-ore prices in the past 12 months have

crimped already thin margins. So has the

price of European emissions-trading per-

mits, triple what it was at the start of 2018.

The price of steel is going in the oppo-

site direction. Rebar is down by a fifth on

the London Metal Exchange. Blame Ameri-

can steel tariffs imposed last March. Two-

thirds of the steel imports that would once

have gone to America have flooded Europe

instead, laments Axel Eggert, director-gen-

eral of Eurofer, a trade body. The eu im-

posed a tariff of 25% on imports in Febru-

ary to try to stem the flow. Demands for

more protection and bail-outs for ailing

steel works are growing.

Not at Voestalpine. “Politics ruined this

group from the first,” says Wolfgang Eder,

its chief executive. Mr Eder’s scepticism of

state intervention is long-standing. He re-

calls how in the 1980s, shortly after he

joined the firm as a junior lawyer, politi-

cians who dominated the company’s board

refused to lay off workers made redundant

by labour-saving technologies. Idle hands

were kept busy with ill-considered forays

into shipbuilding (in a landlocked coun-

try), making weapons (that neither nato

nor the Warsaw Pact wanted) and trading

oil (which nearly bankrupted the firm in

1985). By the time Austria joined the eu in

1995, the newly privatised Voestalpine

looked in no position to compete with the

bloc’s lower-cost plants.

Compete it has. Over the past decade its

post-tax margins have topped 4%, com-

pared with 2% for ArcelorMittal, 1.8% for

Thyssenkrupp and -7.5% for Tata Steel Eu-

rope, its largest local rivals. Christian Obst

of Baader Bank, an investment bank, cred-

its Mr Eder’s push in the 2000s to focus on

quality over quantity.

That was an unorthodox move. In 2005

Aditya Mittal, now president of ArcelorMit-

tal, the world’s biggest steelmaker, mused

that companies would need to smelt at

least 100m tonnes a year to survive. Voes-

talpine was too puny to compete with the

Mittals of this world when it came to ex-

porting cheap, bog-standard steel to feed

China’s construction boom, Mr Eder rea-

soned. But it could profit from rising de-

mand for high-margin speciality steel from

Europe’s growing car and aircraft indus-

tries—and itself produce some of the even

more lucrative rail equipment, car and air-

craft components.

Some sheen has come off Voestalpine’s

performance. In October it issued its first

profit warning since February 2014. Then,

in January, it issued another. Investors fret

about potential fines relating to an anti-

cartel investigation launched by German

regulators in 2017. The company’s share

price has lost nearly 40% in the past year—

not quite as bad as ArcelorMittal and Thys-

senKrupp, but nearly.

Voestalpine’s profits could bounce back

faster than those of rivals. Last year they

were corroded by cost overruns at new

steel plants in America and problems in the

German car industry, its biggest customer.

The first was a one-off and the second may

prove temporary, thinks Ingo Schachel of

Commerzbank. And Mr Eder’s firm looks

better placed to withstand the eu’s im-

pending climate-friendly rules on carbon

emissions. These would hit bigger steel-

makers, which use more carbon-intensive

methods. This year Voestalpine plans to

open its first plant in Linz to experiment

with making the stuff with clean hydrogen

instead of dirty coking coal. Mr Eder is due

to retire on July 3rd. It is up to his successor

to ensure that the few scrapes and dents he

leaves behind do not turn to rust. 7

LINZ

It is possible to make money smelting

steel in Europe—just about

European steelmakers

Something good

Chalking up some successes

S

hape-shiftingjinn have been part

of Arab culture since before the

Koran described how Allah wrought

them from smokeless fire. They have

inspired poets and the tale of Aladdin

and his genie, popularised in the 18th

century—and now Netflix, which

started streaming “Jinn”, a supernatural

teen drama, this month. Like its other

upcoming series in Arabic, “Al Rawabi

School for Girls”, it is set in a Jordanian

high school. A third, “Paranormal”, will

be its first Egyptian show.

The streaming business in the Arab

world is small, with 1.8m paying sub-

scribers, according to ihs Markit, a

research firm. But it grew by 45% last

year. It now seems big enough for

Netflix, which has offered mostly

foreign fare in the region since 2016, to

invest in original programming. The

new shows aim to lure Arab binge-

watchers and increase its market share

from a quarter or so.

Will “Jinn” make this wish come

true? Not necessarily. A dearth of Arabic

shows is not the only reason why Net-

flix finds itself, unusually, having to

catch up with others. It has been slower

than it has elsewhere to forge deals

with broadband and mobile providers,

which market its service to customers.

starz Play Arabia, the regional leader

part-owned by Lionsgate, an American

entertainment company, has made

these left and right, as well as licensing

lots of Arabic-language shows.

Netflix is now busily buying more

local content and sealing new part-

nerships. It is testing cheaper mobile-

only packages in Egypt. But outside the

Gulf, where it competes with starz,

digital infrastructure is mostly too

shoddy, incomes too low and mobile

data too pricey for similar schemes.

The region’s prickly authorities

raise hurdles, too. Even in relatively

permissive Jordan, state-run media

reported that officials want to censor

“Jinn” for “lewd scenes” that offend

public morals. In January Netflix took

down an episode of “Patriot Act with

Hasan Minhaj”, a current-affairs com-

edy show, in Saudi Arabia after its

government accused the show of vio-

lating an anti-cybercrime law. The

episode discussed the murder in Tur-

key of a Saudi journalist by Saudi secu-

rity forces. Such constraints are unlike-

ly magically to disappear.

Magical thinking

Video-streaming

Netflix jinns up its Arabic shows