FRANKFURT (Reuters) - German steelmaker Salzgitter (SZGG.DE) will build a third hot-dip galvanising line to strengthen its position in the market for premium steel used in the car industry, it said on Friday.
The new line, which is scheduled to start operating in the second half of 2020, will have an annual capacity of 500,000 metric tonnes, on top of the 1.3 million tonnes Salzgitter has with its existing two lines.
Salzgitter would not say how much it would invest in the new line but similar expansions by competitors have cost hundreds of millions of dollars.
“This project represents the implementation of a key component in the group’s ‘Salzgitter AG 2021’ strategy, namely a consistent focus on the premium product range,” it said.
Jefferies analyst Seth Rosenfeld said while there was a risk a rush to boost capacity could weigh on the current high margins for galvanised steel, industry consolidation through ArcelorMittal’s (MT.AS)> acquisition of Italy’s Ilva, and Thyssenkrupp (TKAG.DE) and Tata Steel’s (TISC.NS) plans to merge their European steel operations should help.
“Salzgitter rightly believe they will be a free rider beneficiary of steel industry consolidation, and it’s understandable that carmakers may want a more diverse mix of suppliers,” he said.
Salzgitter makes about 16 percent of its sales to the automotive industry. The biggest chunk, about 20 percent, comes from trading and steel service centres.
“The investment is a renewed commitment to steel production in Germany,” said Chief Executive Heinz Joerg Fuhrmann, who has resisted attempts to forge an all-German steel merger with larger rival Thyssenkrupp.
Shares in Salzgitter were up 1.9 percent by 1345 GMT and were one of the top gainers in the German mid-cap index .MDAXI, which was up 0.3 percent.
Reporting by Georgina Prodhan; editing by Victoria Bryan and David Clarke