It is unclear whether the potential joint venture between European steelmakers Tata Steel and ThyssenKrupp will come to fruition as the German mill is reluctant to divest assets.
By 13 May both companies will receive final decisions from the European Commission on what assets they may have to sell. It is widely believed those lines will be in the electrical, packaging and galvanised segments.
ThyssenKrupp argues that even merged with Tata Steel it would be much smaller than ArcelorMittal in Europe, and should not have to sell many assets. Tata Steel has reportedly consented to some divestments in its electrical steel and packaging businesses.
But the potential joint-venture partners suggest that divestment of higher value-added products could reduce intended synergies from the deal and therefore the rationale for completing it. Labour unions in Germany are unhappy with the likelihood of divestments and the potential uncertainty they bring.
And the ThyssenKrupp leadership team that wanted the joint venture, primarily former chief executive Heinrich Hiesinger, has left the company. The German producer has always been viewed by many as the white knight as it was not long ago, in March 2016, that Tata Steel had threatened to close the Port Talbot and Llanwern sites. That announcement sparked frantic scrabbling by the government to keep steelmaking going in south Wales — the business minister at the time, Anna Soubry, even tabled part-nationalisation.
Despite the seemingly fragmented nature of the European steel market, which has a fairly small "head" of big companies and a longer "tail" of smaller businesses, the commission has demanded divestments in recent deals. ArcelorMittal was surprised by the divestments it had to undertake to acquire Ilva.
The commission has also vetoed some consolidation in other sectors, such as the Alstom-Siemens merger, which it said would "harm competition".
European steelmakers, and some other market participants, suggest competition needs to be viewed through the wider prism of the oversaturated global marketplace. Third-country imports represented over 19pc of the EU flat products market — in which ThyssenKrupp and Tata Steel are both active — in 2017.
But end-users cite increased duties on certain products and the definitive safeguard as reducing the amount of tariff-free third-country material available. Hot-dip galvanised imports into Europe over recent years have averaged around 5mn t, but the safeguard allows for closer to 4.4mn t to be imported tariff free — a significant reduction.
A Tata Steel spokesman said: "Tata Steel and Thyssenkrupp are committed to following due process with the Directorate-General for Competition to seek approval for the proposed joint venture of their European steel businesses. It is not appropriate to comment on, or speculate on, the specifics of the regulatory approval process."
ThyssenKrupp refused to comment on its dialogue with the commission.
