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Steel manufacturer ArcelorMittal submitted a notice on 4
November to withdraw from the lease and conditional purchase of
Ilva S.p.A., which owns the Taranto steelworks in southern Italy.
ArcelorMittal took over the loss-making steelworks company in
November 2018.
The decision came in response to a vote in parliament in October
that removed ArcelorMittal's legal immunity from criminal liability
over potential environmental breaches. The legal protection was
meant to last for the duration of the clean-up phase at the heavily
polluting steel plant in Taranto. The removal of the legal
protection was advanced by the ruling Five Star Movement (Movimento
Cinque Stelle: M5S), which is rewarding its environmentalist base.
Ilva employs around 10,700 people in Italy, more than 8,000 of whom
work in Taranto.
Significance
The political ramifications of the winding down of the Taranto
steelworks, Europe's largest in terms of output, and the resulting
job losses in one of Italy's poorest regions indicate that it is
very likely that the government will restore ArcelorMittal's legal
protection. However, the steel corporation is likely to insist on
additional concessions, such as an agreement to lay off 5,000
workers to restore profitability.
If the government extends the deadline for ArcelorMittal to make
one of its three operational furnaces at Taranto compliant with
safety regulations, this would increase the likelihood of
ArcelorMittal reconsidering its decision. A court decision in July
annulled a previous ruling to render the furnace idle following a
fatality in 2015 and gave ArcelorMittal 90 days to implement the
overhaul, which according to the corporation was not enough
time.
The government's bargaining position would weaken further if the
US government were to decide on 13 November to impose a 25% tariff
on EU car imports, thus dampening the industry's demand for Italian
steel. If the government were to fail to reach a settlement with
ArcelorMittal, it would be likely to nationalise Ilva.
Nationalization would be driven by the need to safeguard Italy's
steel industry and protect jobs and would not be an indicator of
similar measures in other sectors.
Posted 15 November 2019 by Dijedon Imeri, Senior Analyst, Country Risk, Economics & Country Risk, IHS Markit
