26 EYLÜL 2016
The Changing Face Of Europe’s Flat Steel Industry
As China looks set to create the world’s second largest steelmaking company through the merging of Baosteel and Wuhan I&S, Europe’s steel industry is on the brink of a pair of mergers that would genuinely transform the region’s industry.

Assuming Tata Steel and ThyssenKrupp combine, and ArcelorMittal is successful in its pursuit of Ilva, what would the newly consolidated European flat steel industry look like?

Unlike the US steel market, Europe’s industry is far more segregated, meaning pricing power is spread far more thinly and easier to undermine. There has traditionally been a premium between northern and southern European prices of around €20/mt for hot and cold rolled coil, while the increased presence of non-European imports into Spain and Italy has acted as a further drag on regional prices. ArcelorMittal’s proposed acquisition of Italian producer Ilva, combined with a spate of anti-dumping duties, could plug the industry’s leaky bottom.

ArcelorMittal is the biggest player in Europe’s estimated 170 million metric ton/year coil market. But with Salzgitter, Tata Steel, ThyssenKrupp, SSAB and Voestalpine to compete with in the north of the continent, and Arvedi, Marcegalia, Ilva, US Steel, Smederevo, Dunaferr and others  to compete with elsewhere, they are far from having significant regional pricing control. As a result, time and again in recent years announcements of price increases have failed to spark an uplift in the market.

The world’s largest steelmaker has been looking to cut capacity in Europe and scale down its $14 billion group debt. Located in Taranto, in southern Italy, Ilva would thus represent everything ArcelorMittal is looking to avoid. A debt ridden company accused of causing cancer in the local community, controversially rescued from bankruptcy by the Italian government, with previous owners adjudged to be on the wrong side of the law.

Ilva’s debt is huge and it requires massive capital expenditure to bring its assets up to environmental standards. But with crude steel capacity of around 11 million metric tons/year it’s the biggest steel production site in Europe, and as the biggest employer in the local town of Taranto, it is unlikely the Italian government will let it die.

An investigation into whether or not hot rolled coil has been dumped by sources from China, Iran, Brazil, Russia, Ukraine and Serbia, should also limit non-EU competition, and domestic mills will be hoping they see similar benefits to those US companies enjoyed from more stringent measures. These sources primarily affect Italy and Spain where China, Russia and Iran have been significant suppliers for the region’s independent pipe mills.

These circumstances all make Ilva a more interesting proposition to ArcelorMittal as long as it can be acquired on the cheap and any European Union state aid rule complications are avoided. Should the tie up satisfy the monopoly commission, the move could see the end of the north/south pricing divide. We should find out if ArcelorMittal has been successful by the end of the year.


The other major consolidation would be the potential merger between Tata Steel and ThyssenKrupp. Talks are ongoing and on the surface the move would make a lot of sense with TK keen to integrate with Tata’s prize asset in Ijmuiden, one of the most efficient steel production hubs in Europe.

India’s Tata is keen to cut its losses in the UK where its Port Talbot hub has in the recent past made losses of around £1 million a day, while ThyssenKrupp has long been in talks with regional steelmakers regarding consolidation amid speculation the steel division could be extricated from the more profitable engineering business: a move that would likely please shareholders.

Common sense would assume that any Tata/TK merger would involve closures: most likely the end of crude steel production in south Wales and possibly a blast furnace closure in Duisburg, Germany. All of which makes the move more difficult to get past stakeholders, with unions and governments desperate to prevent job losses and deindustrialization. Sources close to the matter have told S&P Global Platts of the German government’s desire to avoid the potential loss of ThyssenKrupp to foreign ownership, including interventions to broker alternatives.

Another German producer, Salzgitter, has long rebuffed ideas of becoming a junior partner in a tie up with TK, and the Lower Saxon government (a significant shareholder in the group) is unlikely to permit any venture that may put jobs in its region at stake. But the German government at this stage looks willing to explore other alternatives, while the UK government is desperate to prevent the closure of the South Wales operation.

Implications Downstream

Assuming these major changes to the European landscape occur, the impact on service centers, stockholders and end users will be stark. Independent fabricators are already up in arms over the restriction on imports, with many claiming they are being squeezed out by mills who do not want the competition for their own SSCs. A reduction in the number of mills will narrow the options further.

Steel prices have strengthened after the summer holiday period as numerous disruptions to domestic production have tightened supply and stretched mill lead times. SSCs are struggling to pass on higher replacement costs to their customers while those who anticipated a Q4 downturn and held low stocks now have to pay full whack to get their hands on certain products, particularly CRC and HDG.

But with whispers that mills will be settling their annual automotive contracts €80-100/mt higher than for 2015, mills will not be in any rush to lower the prices of their spot allocation any time soon.

Soruce: S&P Global Platts