ThyssenKrupp Expects Antitrust Inquiry After Selling Its U.S. Steel Plant

ThyssenKrupp

ThyssenKrupp expects antitrust investigators to conduct an inquiry after the company sold its troubled U.S. steel plant. Heinrich Hiesinger, ThyssenKrupp’s CEO said that their $1.55 billion tag price for their steel rolling mill in Calvert, Alabama was taken by two of the world’s largest steelmakers.

In a joint venture entered between ArcelorMittal, the world’s biggest steelmaker in terms of output and Nippon Steel & Sumitomo Metal Corp., the second biggest steel manufacturer in the world, has signified their intentions to secure ownership of ThyssenKrupp’s Alabama steel plant. Included in the contract is the obligation of the joint venture to also purchase two million metric tons of steel slabs for six years which will be sourced from ThyssenKrupp’s Brazil steel plant.

After 18 months of long and arduous sales processes which effectively ended the German industrial giant’s ambitious attempts to get a share of the U.S. steel market, the deal was finally sealed. ArcelorMittal currently controls 40 percent of the North American market for automotive steel while the Nippon Steel & Sumitomo Metal Corp. has a fully operating Indiana plant that supplies steel for the Detroit and Midwestern appliance makers. The Tokyo-based company employs 225 strong employees in the Indiana site and currently produces 2.9 million tons per year of finished steel products.

With these backgrounds, the planned acquisition by the joint venture will give them a relatively strong hold in supplying steel to American auto makers which today is considered as one of the bright spots in the world with regard to steel market.

The U.S. Justice Department has not yet issued any comments with regard to the antitrust issue ThyssenKrupp expects to be conducted with the company’s decision to sell their Calvert plant. However, a London-based spokeswoman for ArcelorMittal said that her company expects trouble-free approvals for the planned purchase and sees that the sale will be finalized by the second quarter of 2014.

ThyssenKrupp entered the U.S. market in 2007 by investing $5 billion in the construction of an efficient and modern rolling mill plant in Alabama. By 2010, the U.S. steel plant began processing raw steel imported from ThyssenKrupp’s Brazil plant. The high grade sheets are then sold to U.S. south eastern auto makers like BMW AG and Daimler AG and to other customers. The $5 billion Alabama steel plant and the $6.8 billion Brazil plant were initially meant to complement the core advantages of the two organizations. The Brazil plant provides lower energy and labor costs while its U.S. counterpart provides higher market value for the end product.

But the financial crisis of 2008 put a halt to the seamless integration of operation of the steel plants in two continents. Brazil’s once robust economy pushed wages up and slightly devalued Brazilian currency resulting in higher costs of production. Add to the Brazil plant’s predicament is the massive cost overruns affecting the amount of debt secured by the company. This fact was worsened by the slow U.S. economic recovery that lessened demand for steel affecting the price of the product being sold in the market.

But with the incoming owners of the Alabama steel plant certain advantages can be achieved. According to Lakshmi Mittal, ArcelorMittal CEO, the Calvert steel plant “is the most modern finishing facility in the world” and this plant will complement and supplement ArcelorMittal’s operation in the U.S. Aside from this, imports of raw steel in the U.S. will be lowered and instead will come from the other ArcelorMittal plants within the U.S. and Mexico. The overall effect of this is easing up on the downward pressure exerted on steel prices when raw steels are imported.

Given these scenarios, ThyssenKrupp will no longer be surprised if an antitrust inquiry will be initiated because of the sale of its U.S. steel plant to two of the world’s largest steel manufacturers in terms of output.

By Roberto I. Belda

Wall Street Journal

The Economic Times

Bloomberg

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