Saturday, April 13, 2013

‘Euro Steel’ gets a brand new spin

Leading European steel players have announced that they are hiving off their stainless steel units. Considering how these units have been performing, it makes perfect sense

Finnish stainless steel maker Outokumpu holds around 23% share in European stainless steel market and is currently a loss making enterprise with an operating loss of around €169 million for the quarter ending June 2011. To focus more intently on its core business of stainless steel, it has announced plans to sell off its 4.3% stake in miner Talvivaara to the Finnish state as part of the deal to cut its debt and boost its finances. In another development, Outokumpu confirmed that it would be selling off its fabricated copper products business as well to become the world’s number one in terms of profitability and quality of stainless steel products.

In the context of two well reported and debated announcements by its peers in Europe, Outokumpu clearly stands out. The first one was by ArcelorMittal, which spun off its stainless steel business to form a new unit Aperam in January this year. According to the company’s announcements, the stainless steel business had been showing signs of deceleration and pulling down the growth of the group. The unit employs around 11,000 people and is around 4% of the group’s total workforce. In 2009, the unit accounted for around 7% of the group’s revenues amounting to $4.2 billion; with ArcelorMittal holding upto 22% market share in the European market. As a separate entity, Lakshmi Mittal feels that the company will get valued at a premium, be able to attract more funds and also set its growth agenda.

The second major announcement was from ThyssenKrupp AG, which has the largest market share (31%) by capacity in Europe and is the largest producer of steel in Germany. ThyssenKrupp announced in May that it will spin off its stainless steel business that is valued at $8.7 billion to cut debt and focus on its core expertise in engineering. New CEO Hienrich Hiesinger plans to cut the group’s dependence on steel as iron ore and coking coal prices skyrocket. The spin off will ease the debt burden that ThyssenKrupp had incurred due to investments in building steel plants in Brazil and Alabama to reach US clients and source iron ore from Rio de Janeiro-based Vale SA.

It is widely speculated that this is the beginning of consolidation in the stainless steel industry in Europe. The moves have been aggravated by the continuous rise in material costs such as coking coal and nickel prices that are driving companies towards possible M&As, ultimately leading them to cut costs of production. In 2010, the stainless steel market was observing declining growth mainly due to decreased investment in infrastructure projects marred by the after effects of the global downturn. But 2010 onwards, the production has increased manifolds, leading the stainless steel units to an overcapacity, which could be as high as around 2.5 million tonnes in Europe.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
 
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