Next year could be crucial for the composition and health of the European steel coil market, as beleaguered producers look to consolidation to combat tough conditions and provide a foundation for investment in costly carbon-intensive assets.
The sector clearly requires further rationalisation. But in reality there are not that many producing companies, rather too many loss-making and unsustainable production assets in need of huge investment or closure.
Steel is an intensely political industry, meaning governments have fought to save uncompetitive plants, exacerbating the continent's own overcapacity issue. In 2018, consultancy McKinsey said European crude steel overcapacity was 31mn t/yr, and this figure has increased slightly since, towards 35 mn t last year, according to Argus estimates. Overcapacity keeps a lid on utilisation rates, which obviously affects the profitability of producers.
There are several potential deals on the table. Liberty Steel recently submitted a well-publicised non-binding indicative bid for ThyssenKrupp Steel Europe. Liberty's parent, GFG Alliance, recently hired ex-ThyssenKrupp Steel Europe executive chairman Premal Desai as its new chief operating officer.
But market sources doubt this deal will come to fruition, with ThyssenKrupp — and many stakeholders, including unions — preferring a tie-up with a more established industry name. Some suggest that ThyssenKrupp wants a joint venture with domestic counterpart Salzgitter; its current chief executive, Heinz Joerg Fuhrmann, has long pushed back against this idea, but he will be replaced next year by Gunnar Groebler, who currently heads up Vattenfall's wind business area. Groebler may be more amenable to such talks, they suggest.
A Salzgitter spokesperson suggests the change of chief executive will not lead to a change of view over a potential deal with ThyssenKrupp, pointing to a statement by chairman of the supervisory board Heinz-Gerhard Wente. "Over the 25 years during which he will then have served on the executive board of our group, Prof Fuhrmann has stood for solidity and innovation, along with social and economic responsibility. The strategy pursued in this context is to be continued."
Some have noted that Vattenfall, Groebler's current employer, is a partner of SSAB in Hybrit, alongside mining firm LKAB. SSAB and Salzgitter is an easier cultural fit to imagine than Liberty and ThyssenKrupp. Both have an emphasis on higher-grade materials, a strong contractual focus and would benefit from the economies of scale such a merger would bring. One issue for comparatively smaller blast furnace-based producers is reacting to weaker demand without running at low utilisation rates that render profitability difficult.
SSAB has reportedly said it would be interested in combining with Tata Steel Europe. Tata Steel's Ijmuiden plant is the lowest-cost slab plant in western Europe, sitting below all of its competitors in the first quartile of the cost curve. But its Port Talbot site, in south Wales, is much higher-cost and has been consistently loss-making in recent years. Tata is in talks with the government as it looks to restructure the site and make it more sustainable. Tata Steel has said for years that it does not want the European arm to rely on cash infusions from India. This has somewhat strained relations between the European and UK arms of the businesses, especially since the company engaged in talks with the UK government.
