ThyssenKrupp in talks to sell Brazilian steel mill to CSN

German steelmaker ThyssenKrupp AG is likely to sell its Brazilian steel mill to Companhia Siderurgica Nacional (CSN), Reuters today reported, citing sources close to the negotiations.

The report added that no decision has yet been taken, but a buyer could be picked in the next two to three weeks.

Early last month,  Essen-based ThyssenKrupp, Germany's largest steelmaker, was reported to have been in talks with CSN after the Brazilian steelmaker emerged as the lead bidder for its Steel Americas business (CSA).

ThyssenKrupp later acknowledged that it was in ''intense negotiations'' for CSA, which comprises a steel-slab plant in Rio de Janeiro, where Brazilian mining giant Vale SA holds 26.87-per cent stake, and a fully-owned modern steel mill in Alabama in the US.

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 sale last week ran into complications after Brazilian media reported that Vale is seeking $144.8 million in compensation from ThyssenKrupp for mismanaging their steel joint venture.

ThyssenKrupp started operating its CSA steel-slabs plant in Rio de Janeiro 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 Essen-based 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 was nearly €10 billion, much above its 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 at low cost in Brazil and shipped with cost advantages to the US. After processing they would then be sold in the North American market.

While the US economy is showing no major momentum, Brazil is showing strong growth, but with a corresponding effects on the cost and demand situation in the two countries due to different growth rates in the two regions.

As a result production costs in Brazil are rising due to increasing labour costs, inflation, and the appreciation of the Brazilian currency.

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