Outlook rosier as prices, M&As hot up
LONDON: In late 2015, the steel industry — a gauge of the world’s economic health — was on the ropes. Record Chinese exports, excess global capacity and shrinking demand had pushed prices to decade lows, forcing closures, layoffs and bankruptcies.
The picture couldn’t look more different today. Thanks to China’s decision to dramatically cut capacity while boosting infrastructure spending, added to the improved outlook for global growth and increased protectionism, prices have surged some 45 per cent since December 2015.
A boom in mergers and acquisitions (M&As) has followed, with investors competing to fork out billions for steel companies once considered nigh on worthless.
Germany’s Thyssenkrupp struck a deal in February to sell money-losing Brazilian steel mill CSA to Ternium SA for US$1.3 billion (RM5.60 billion). India’s Tata Steel, which threatened to shut its loss-making United Kingdom assets last April, is now in talks to merge its UK and European plants with those of Thyssenkrupp.
But perhaps the starkest example of the turnaround is in the bidding war for Ilva, in Taranto, southeast Italy.
Europe’s largest and most troubled steel plant, Ilva has racked up hundreds of millions of euros worth of losses since coming under government stewardship in 2013.
The plant has been dogged by charges of corruption and environmental crime for years.
Yet two consortiums — one including ArcelorMittal, the world’s top steelmaker, and the other involving Indian steelmaker JSW — are now vying to spend around €4 billion (RM18.9 billion) buying, upgrading and cleaning the plant, betting that imports into Europe will decline just as the economy picks up. Reuters