ThyssenKrupp Mill Sale Elicits Sense of Sadness

Upon learning of ThyssenKrupp's agreement to sell its troubled mill in Alabama, I did a quick search of the archives to see what MCN had reported back in the fall of 2010 after our trip to Calvert. Rereading the article, Undeterred by the Downturn, Thyssen Tackles the U.S. Market, I felt a sense of melancholy. I find little joy in failure, my own or anyone else’s.

On the surface, ThyssenKrupp's plan seemed so sensible and its executives' comments so confident as they described their slab-importing strategy. True to the stereotype, the Germans were meticulous in their planning and execution of a mill that incorporates all the latest technology and innovation in steelmaking. It was the factors beyond their control that thwarted the enterprise. Conceived during the boom time, but constructed during the bust, the company could not have anticipated the depth and scope of the Great Recession and what it would do to demand and steel prices. Nor could it predict the shift in currency values that would flip the economics of producing slabs in Brazil and rolling them in the U.S.
 
As is the nature of business, one company’s loss is another's gain. Earlier this month, ArcelorMittal and Nippon Steel and Sumitomo Metal Corp. announced they had formed a 50-50 joint venture to acquire the mill, just up river from Mobile. The $1.55 billion deal ends an 18-month effort by the German giant to find a suitor and stem its losses at the unprofitable operation. The buyers got a bargain, say the experts, considering the ultra-modern mill cost ThyssenKrupp over $4.2 billion to build. The transaction includes a six-year agreement for the joint venture to purchase 2.2 million tons of slabs annually from ThyssenKrupp’s integrated mill in Rio de Janeiro, which it was unable to divest.

In this case, ThyssenKrupp's loss may also prove to be the market's gain. By returning the facility to viability, it preserves a valuable source of high-quality supply for service centers and OEMs in the South. With two of the world's largest steelmakers at the helm, they will be able to coordinate the output of this and all their other operations, bringing some additional discipline to the market’s supply/demand balance. Some analysts reportedly predict the deal could help boost flat-rolled steel pricing as early as the first quarter next year.

This investment in the U.S. by two such global powerhouses must reflect their confidence in the ongoing recovery of the North American market. Other companies are placing their bets on the U.S. economy, as well. In its regular analysis of metals industry M&A, PricewaterhouseCoopers reports that 20 transactions took place in the metals segment in the first three quarters of the year, totaling over $10 billion.

Of course, ThyssenKrupp remains a major player on the global metals stage, so don't count them out. Like my coach used to say, you haven’t failed until you quit trying.
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Friday, August 26, 2016