By Stuart Burns
Upon ArcelorMittal (NYSE:MT) and Nippon-Sumitomo’s (OTCPK:NSSMY) purchase of ThyssenKrupp’s (OTCPK:TYEKF) Alabama plant (read the nitty-gritty of the deal here), it’s looking like the U.S. market could have done worse.
ArcelorMittal has a big market share – a bit under 40% in the market for North American automotive steel – so it has considerable influence over supply and pricing, and no interest in undermining the market. Likewise, Nippon-Sumitomo already operates a 225-employee, 2.9 million-ton-per-year finishing plant in Indiana that supplies Detroit as well as Midwestern appliance makers.
(Nippon Steel & Sumitomo Metal became the world’s second-biggest steelmaker after it was created out of the merger of Nippon Steel Corp. and Sumitomo Metal Corp. in late 2012.)
The two firms should be good stewards of the new facility and well placed to exploit an automotive market in the NAFTA region, expected to grow 15% over the next decade, and a booming energy sector requiring tubular products across the U.S.
U.S. Slab Import Reduction
Nor will the new owners be as hamstrung as ThyssenKrupp by high-cost raw materials. Although they have undertaken to take 2 million tons per year of slab from CSA as part of the deal, ArcleorMittal says it will take the balance of its raw material. Calvert can process up to 5.3m tons per year, according to an FT article, from ArcelorMittal’s U.S. and Mexican operations, reducing US slab imports.
Investors: Mixed Bag
ThyssenKrupp, meanwhile, is still left with a 73% stake in its slab mill and scant interest from anyone in taking it off the company’s hands. Thyssen is said to have poured $15bn into the combined Steel Americas group and secured just $2bn back following the sale of the Calvert operation. Losses mount in Brazil and the firm is having to raise capital with a new share issue to bolster its balance sheet.
Fortunately, the firm does have profitable and less cyclical businesses in elevators, submarines and factory components, but the position of the steel division is not helping calls from some investors for the group to be broken.
No dividends will be paid again this year, yet amazingly, the share price has been making a modest recovery since the spring, underlining the resilience of the firm’s long-term German investors.