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Energy

Steel becomes next battleground in Thyssenkrupp dismantling

FRANKFURT/DUESSELDORF (Reuters) - Sanjeev Gupta's non-binding offer for Thyssenkrupp's TKAG.DE loss-making steel unit is the latest in a wave of consolidation moves across Europe's metals sector, which is blighted by overcapacity and in need of investment to make it more eco-friendy.

FILE PHOTO: A crane operator lifts up a finished steel coil at the storage and distribution facility of German steel maker ThyssenKrupp in Duisburg, Germany, January 30, 2020. REUTERS/Wolfgang Rattay

WHAT IS GUPTA’S PLAN?

Gupta has been on a tear to acquire steel assets across Europe. If successful in his takeover of the Thyssenkrupp unit, Gupta's Liberty Steel will become the continent's No.2 steelmaker with an estimated 14% market share, behind ArcelorMittal's MT.LU 25%.

In less than a decade, the 49-year old has built a global steel empire. His greatest coup in Europe so far has been the 740 million euro ($877 million) purchase here of plants ArcelorMittal had to sell to gain approval for its takeover of Italy's Ilva.

“Combining our assets will boost utilisation, especially in Duisburg,” Gupta said last week.

Thyssenkrupp’s strength in upstream, or basic steel production, would cut Liberty Steel’s reliance on the up to 3 million tonnes of slab and hot rolled coil it needs to buy each year to feed its manufacturing lines.

WHAT ABOUT ANTITRUST RISKS?

Brussels will certainly take a closer look should the bid go ahead. The European Commission last year blocked a proposed tie-up between Thyssenkrupp and India's Tata Steel TISC.NS, whose European business is only slightly bigger than Liberty Steel's.

But overlap between Gupta’s business and Thyssenkrupp is considered lower, particularly in the automotive and packaging segments, which were the big antitrust sticking points in the planned Tata deal, Jefferies analysts say.

WHY IS CONSOLIDATION NECESSARY?

Europe’s steel sector is suffering from overcapacity, making consolidation necessary to battle cheap Chinese imports and high raw material prices.

Production capacity stands at roughly 210 million tonnes across the continent while demand is only 155 million tonnes, says McKinsey partner Benedikt Zeumer.

“That’s why we’re in a situation in which the industry needs to change. Otherwise structures are being maintained that are no longer needed.”

WILL THERE BE A BIDDING WAR?

Currently, it doesn’t look that way.

Sweden's SSAB SSABa.ST and Tata Steel are still sitting on the fence, while Baoshan Iron & Steel 600019.SS is too wary of anti-China sentiment in Germany, sources say. Russia's Severstal CHMF.MM said it is not interested in European consolidation.

Salzgitter SZGG.DE has so far played hard to get in merger attempts by Thyssenkrupp, but some hope this might change under new Chief Executive Gunnar Groebler, who takes over next year.

WHAT REMAINS OF THYSSENKRUPP?

Selling steel would come shortly after the divestment of Thyssenkrupp’s elevator division, and leave the group with automotive assets, shipbuilding activities and materials trading, some of which may also be sold in the mid-term.

“One has the impression that Thyssenkrupp is already in the middle of being wound down,” said Marc Tuengler of DSW, which represents Thyssenkrupp’s private shareholders.

($1 = 0.8439 euros)

Additional reporting by Edward Taylor, Anastasia Lyrchikova and Min Zhang; Editing by Jan Harvey

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