ThyssenKrupp Puts Carbon Mills on the Market > Metal Center News

ThyssenKrupp Puts Carbon Mills on the Market

May 16, 2012

Germany’s ThyssenKrupp has acknowledged it is seeking a buyer for its new carbon steel plants in the United States and Brazil. Company officials reported that they are “examining strategic options” for their Steel Americas plants in Rio de Janeiro and Mobile, Ala.

Calling Steel Americas the company’s “biggest challenge,” Heinrich Hiesinger, executive board chairman for ThyssenKrupp AG, said: “We continue to believe that both plants will hold leading positions in their respective markets in terms of technology and conversion costs. But since the plans for the project were made, the economic parameters in both Brazil and the USA have changed from our original assumptions. There are clear reasons that now call this strategy into question. We therefore have to examine whether it still makes sense strategically to operate the two plants in a common integrated network.”

ThyssenKrupp’s strategy in 2007 was to build state-of-the-art plants in Brazil and America’s South. Low-cost slabs would be produced in Brazil and shipped to the U.S., where they would be processed and sold at a premium to the NAFTA market. The timing was unfortunate, however, as the U.S. economy plunged into recession a year later, and its recovery continues to lag. Brazil, in the meantime, has seen strong economic growth, and along with it corresponding increases in the cost of labor, inflation, currency and steelmaking raw materials.

“Due to slow demand, it will probably only be possible to achieve the price premiums on the U.S. market both now and in the medium term with specific steel grades and in specific sectors [such as automotive],” Hiesinger said. “But for the products manufactured for other sectors and distributed through service centers, intense competition leaves virtually no scope for differentiation.”

“The viability of an integrated strategy with slab production in Brazil and high-margin marketing in the USA is therefore exposed to considerable risks. That is why the executive board has decided to investigate strategic options in all directions for both plants,” he said, including partnerships or individual sales.

Speculating on potential suitors in her Steel Market Intelligence newsletter, analyst Michelle Applebaum noted that a slab-making operation in Brazil might make good economic sense for the Chinese. Nucor is another logical buyer or joint-venture partner for the Alabama mill. Likewise, U.S. Steel is an excellent fit, she said, though the company currently may not have the cash to invest in their own upstream operations to provide the semifinished steel that the TK mill needs.

Meanwhile, ThyssenKrupp will push ahead with the ramp up of the two plants, which it expects to complete by year’s end. The Brazil plant produced about 1.7 million tons of high-quality slabs in the first half of the current fiscal year, while the Mobile plant shipped 1.4 million tons to steel customers. But the company reportedly suffered an operating loss of about $659 million in first-half 2012.

Earlier this year, ThyssenKrupp sold its stainless steel operation to Outokumpu of Finland for $3.6 billion. The stainless business, now called Inoxum, operates part of the company’s steel mill in Mobile.