German steelmaker ThyssenKrupp mulls options for Steel Americas

26 Oct 2013

German steelmaker ThyssenKrupp is considering holding on to its steel facility in Brazil and divest its steel operations in the US, after failing to find a buyer for its Steel Americas business, The Wall Street Journal yesterday reported, citing people familiar with the matter.

After failing to negotiate a deal for its loss-making Steel Americas business, ThyssenKrupp, Germany's largest steelmaker, is reviewing a new plan to find a partner to build a steel processing plant in Brazil, while retaining its stake in a steel making plant there, the report said.

A spokesperson for the company told the paper that although the steelmaker is still ''in advanced talks with one leading bidder for its Brazilian and US plants, people familiar with the matter said it will more likely sell only its steel mill in the US.

ThyssenKrupp holds a 73.13-per cent stake in the Brazilian plant known as CSA, while the remaining 26.87-per cent is held by Brazilian mining giant Vale SA.

Since the past eight months, Essen-based ThyssenKrupp has been in talks to sell its Brazilian steel mill to Companhia Siderurgica Nacional (CSN) after the Brazilian steelmaker emerged as the lead bidder for CSA.

Under the talks, which include Vale and the Brazilian government, ThyssenKrupp plans to sell its entire 73-per cent stake to CSN for around $3 billion, while another option would be for ThyssenKrupp to retain a 33-per cent stake and sell the remaining to CSN.

But the talks have led nowhere after Brazilian media reported that Vale was seeking $144.8 million in compensation from ThyssenKrupp for mismanaging their steel joint venture and CSN wanted the Alabama plant to be included in the deal.

With those talks floundering, a joint venture between ArcelorMittal and Nippon Steel & Sumitomo Metal Corp remain a serious bidder for ThyssenKrupp's Alabama plant.

The paper said that ThyssenKrupp is still negotiating for CSN to buy up to three million tons of steel slabs from its plant in Brazil for five years so that it ensures an acceptable plant utilisation thereby giving it time to build a processing plant.

But both companies have yet to come to a settlement on the price of the slabs as well as the five-year off-take agreement.

ThyssenKrupp started operating its CSA steel-slabs plant in 2010, which has a capacity to produce five million tonnes of steel annually.

The construction of the plant in Alabama was one of the company's biggest ever foreign investments in the US. It spent $5 billion in 2010 in the overall complex, including $3.6 billion on the carbon flat steel facilities and $1.4 billion on the stainless area.

Due to cost overruns, the overall cost of building the plants in Brazil and Alabama at €10 billion exceeded the company's original estimates of €8.3 billion.

The company took a €2.9-billion ($3.7 billion) impairment charge in the Q4 fiscal of 2011 attributable to both mills when it reported a loss.

In 2007, the steelmaker had developed a strategy for Steel Americas based on two basic premises - slabs were to be produced in low-cost in Brazil and shipped with cost advantages to the US. After processing they would then be sold in the North American market.

Global steelmakers have recently come under pressure to cut costs with demand slowing faster than expected, especially in Europe and China.