Out­look rosier as prices, M&As hot up

New Straits Times - - Business -

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

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