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With a Deal to Divest Its Brazilian Mill, thyssenkrupp Exits Steelmaking in the Americas

With a Deal to Divest Its Brazilian Mill, thyssenkrupp Exits Steelmaking in the Americas
Issue Time:2017-02-23

“With the sale of (Siderúrgica do Atlântico), we are parting fully with Steel Americas. This is an important milestone in the transformation of thyssenkrupp into a strong industrial group,” said thyssenkrupp chief executive Heinrich Hiesinger in a statement. 

Over the years, thyssenkrupp has lost billions on its Americas expedition, which brought about Siderúrgica do Atlântico, also known as CSA, and another mill in Alabama, USA. The Alabama mill was sold in 2014 to a joint venture owned by Nippon Steel & Sumitomo Metal Corp. and ArcelorMittal. 

At the time the idea was conceived, the plan was to produce low-cost slabs in Brazil and process and sell them in the U.S. and Europe.

But the plan ultimately was undone by, among other things, higher-than-anticipated construction costs, which were compounded by costs associated with technical issues that arose during production ramp-up, the company said. Additionally, China upended global steel economics, and the assumptions that underlay the mill wound up being "disastrously wrong," the (London) Financial Times reported. 

The Times noted that iron ore prices were at US$30 per metric ton at the time of the Americas expansion, but Chinese demand drove them up to a peak of US$190 in 2011. Although prices are now down to about US$85 per metric ton, iron ore is still nearly three times more expensive than in 2005, the newspaper said. 

“We found that an integrated link-up of the two plants no longer made strategic sense. The economic parameters had changed too significantly. So as part of the realignment of thyssenkrupp, we drew the necessary and correct conclusions and decided to sell both plants,” Hiesinger said. 

The sale carries an enterprise value of nearly US$1.6 billion (EUR1.5 billion), and Ternium said it plans to finance the acquisition with bank debt. For its money, it is buying a deep-water harbor; a 490-megawatt, combined-cycle power plant; and, most importantly, 5 million tons of high-end steel slab production capacity.  

That’s important as the company last year had to buy 3.7 million tons of slabs from third parties to meet demand of 9.8 million tons. It currently has crude steel production capacity of 6 million tons, it said.  

"Upon completion of this transaction, Ternium is adding another state-of-the-art facility into its industrial system. This will enable us to enhance our differentiation,” Ternium chief executive Daniel Novegil said in a statement. 

“The facility's specialization in high-end steel slabs, combined with a coordinated product development and supply chain management effort with our high-end steel capacity in Mexico and Argentina, will support new integration opportunities for the manufacturing of sophisticated finished steel products for our customers. This, in turn, will strengthen our business in strategic industrial sectors across Latin America."

CSA has two blast furnaces, a BOF shop, two continuous casters and a coke plant. It also has an agreement to supply 2 million tons worth of slabs per year to the ArcelorMittal-Nippon Steel plant in Alabama. Ternium will take over the remainder of that agreement.  

The sale is expected to close this fall, and will offset thyssenkrupp’s losses on its Americas venture. But even after it’s all said and done, the company said it will have lost approximately EUR8 billion on the mills.  

“The impact is visible on the balance sheet to this day. Redressing it completely will take thyssenkrupp a few more years,” the company said in a statement. 

The deal comes as thyssenkrupp continues to negotiate a potential merger of its European strip business with Tata Steel’s remaining U.K. operations. It also has been talking to Salzgitter and ArcelorMittal, according to the German business newspaper Handelsblatt.
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