More competition instead of consolidation at the EU steel market
by Dagmar Dieterle
There have recently been two important developments for the future structure of the EU steel market. The cancellation of the joint venture between Tata Steel Europe and ThyssenKrupp Steel caused many headlines. For whatever reason, the companies ultimately did not do enough to dispel the EU Commission's justified competition concerns. Shortly before, the Commission had given its final approval to the Liberty House Group's acquisition of individual sites of the market leader ArcelorMittal. A completely new player with an internationally oriented vision of the future is thus entering the European flat steel market. There, the number of suppliers is increasing instead of consolidation progressing. From the customer's point of view, it is to be welcomed that competition will be maintained in this way.
ThyssenKrupp/Tata: Too little is not enough
The fact that the joint venture between ThyssenKrupp and Tata will not come after all could not come as a surprise in the end. The competition concerns of the EU Commission that existed from the beginning were initially made smaller than they were by the companies. The sale of galvanizing lines in Spain and Belgium and of packaging sheet plants of Tatasteel Europe, which was then offered as a concession, was apparently too little for the Commission. It is expressly to be welcomed that the Commission has fulfilled its task as the guardian of competition and - unlike in some foreign trade proceedings - has not bowed to political pressure to create supposed "champions". It can be assumed that the Commission carried out the market tests to assess the effects of competition objectively, with a high level of expertise and with the involvement of the customers concerned. It cannot be denied that the market is already highly concentrated in some segments, such as packaging sheets or certain automotive grades.
Whether, as communicated by ThyssenKrupp and Tata Steel, further improvements would have really destroyed the economic logic of the joint venture remains to be seen. In any case, resistance to the sale of further parts of the company has also grown from the trade union side. Perhaps the Supervisory Board of ThyssenKrupp was no longer fully convinced of the usefulness of the venture. For whatever reason: what was offered was simply not enough.
The cancellation of the joint venture should make life easier for many customers. For strategic reasons alone, a further shrinking number of EU flat steel suppliers could not please steel purchasers. Internal company requirements for a minimum number of suppliers would hardly have been achievable if another major EU supplier had ceased to exist while import possibilities are increasingly restricted. On the other hand, from the customer's point of view, an efficient and competitive European steel industry is also necessary. The question of whether ThyssenKrupp's operating results in conjunction with TataSteel would have been better than those achieved on its own remains hypothetical. Sheer size is no guarantee of success. There is no doubt, however, that the challenges for the steel location are so numerous that a "continue like we did before" does not seem very promising. The most important problem is not the often cited "cheap steel" from China, but the lingering loss of quality advantages, which, combined with high costs and subdued demand prospects on the EU domestic market, leads to a weaker position in international competition.
Liberty House Group: New player with visions
Indian entrepreneur Sanjeev Gupta apparently sees more opportunities than risks on the EU flat steel market. Last year, he struck a blow when ArcelorMittal was ordered by the EU Commission to divest various parts of the company in the case of the purchase of the Italian supplier Ilva. The motivation for these conditions was also the maintenance of sufficient competition. The acquisition by the Liberty House Group, headquartered in London, of integrated steelworks in Romania and the Czech Republic as well as rolling mills for flat steel in Italy, Belgium, Luxembourg and Macedonia, was finally approved by the EU in April and is to be implemented by mid-year. This was also preceded by a detailed investigation. The parties had to make various concessions, mainly of a financial nature, in order to credibly ensure the long-term viability of the plants in question.
The transaction makes Liberty House number three or four in the EU steel market. The flat steel capacity of the purchased equipment is expected to be between seven and ten million tonnes. The new player will thus leave competitors such as VOEST and Salzgitter far behind. The company was founded by Gupta in 1992 as a trading company and only entered the steel business in 2009 with the acquisition of steel mills in Africa. In further steps, a steel mill was acquired in Australia in 2013 and specialty and long product manufacturers in Great Britain from 2015. With the acquisition of the seven ArcelorMittal plants, the steel share of the Group, which is also active in numerous other business areas under the umbrella of the GFG Alliance, is significantly expanded.
Company boss Gupta has announced that the various steel activities of the Group will be bundled under one roof. The internationally oriented strategy includes its own iron ore and coking coal mines and the construction of a new steel mill in Australia. The semi-finished products produced there at low cost are then to be rolled out at the other locations of the network. With a planned steel production of 20 million tons, the company aims to be among the top 10 non-Chinese steel producers.
Whether and how quickly this vision can be successfully realized remains to be seen. But the fact that there is a positive entrepreneurial vision for the EU as a steel location today is definitely beneficial. And it seems certain that this will soon give new impetus to competition. Who would have thought that one year ago?
The article was written by Andreas Schneider, StahlmarktConsult, steel market consultant from Leverkusen.
The guest commentary reflects the opinion of the author, not necessarily that of marketSTEEL's editorial staff.