STEEL GRIPS online - Consolidation in the EU stainless steel sector is a step nearer

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Consolidation in the EU stainless steel sector is a step nearer

Jul 2, 2011

Europe's four major stainless steel producers have all been involved in significant restructuring since the beginning of 2011. It seems unlikely that this is mere coincidence. It is perhaps understandable that large companies should reorganise internally to try to improve profitability in such testing times as these. However, there is inevitable speculation that at least some of this activity has been in preparation for consolidation in the European stainless steel market.

ArcelorMittal was the first to move, spinning off the stainless division from its worldwide steel making business to form the newly-named Aperam. The Luxembourg-based producer has previously investigated merging its stainless operations with those of other companies. Germany's ThyssenKrupp has also separated its "Stainless Global" business from its carbon steel making and other industrial interests.

Finland-based Outokumpu has, since the arrival of its new CEO, undergone internal restructuring. More recently, the company has begun a process of divestment of its non-core and unprofitable business units. Outokumpu's attitude towards consolidation has appeared positive in recent times. Acerinox, of Spain, announced earlier in June that it will create a new subsidiary, Acerinox Europe, separating its operations in Spain from its interests on other continents. While the company says it supports consolidation in the European stainless steel industry, it maintains that it will not participate. Nevertheless, the timing of this move raises questions.

There is, no doubt, overcapacity in the European stainless steel sector. The surplus may be as much as 2.5 million tonnes, or 25 percent of regional crude stainless steel making capability. Cooperation between the major players would inevitably lead to rationalisation, plant closures and reduced output.

It has always been suspected that antitrust regulators would be a barrier to amalgamations between the big four European producers. However, penetration in recent years by imports, especially from China, has altered the shape of the market.

So, what are the potential combinations? ThyssenKrupp and Outokumpu would have good geographical synergy in Europe, for example. Similarly, an alliance between Aperam and Acerinox would fit well in the Americas. The other possibility to consider is a combination with a non-European, probably Asian, producer. This would allow both parties access to new "home" markets, whilst lessening the likely obstacle of EU competition law.

MEPS