Steel Mills

ThyssenKrupp Steel Americas: A Look Back

December 1, 2013

The anticipation over the fate of ThyssenKrupp Steel Americas is finally over with the sale of the Calvert, Alabama mill to joint venture partners ArcelorMittal and Nippon Steel and Sumitomo Metal Corporation. The $1.55 billion sale gives ArcelorMittal a firm foothold in the Southeast and in the NAFTA auto market. Nippon Steel & Sumitomo Metal is already a strong supplier to Detroit with its 2.9 million ton finishing plant in Indiana. The acquisition is still subject to government regulatory approval and may stir up anti-trust concerns over the JV’s domination of the auto steel market.

ThyssenKrupp was unable to sell its 73 percent share of the TK CSA mill in Brazil but has worked a deal with the ArcelorMittal and NSSMC for CSA to supply 2 million tons of slab annually to Calvert for the next six years. The plant has a production capacity of 5 million tons of slab and the sale of 40 percent of its production to the US plant will improve its salability. ThyssenKrupp plans to focus on improving the operating performance at CSA and has already halved its operating losses by bringing the coke plant up to environmental standards and restarting the blast furnace at the mill.

The Steel Americas project was supposed to be a bright spot for ThyssenKrupp when it was announced back in December 2004. The 2003-2004 fiscal year had been extremely profitable for ThyssenKrupp with sales up 17 percent and order intake increasing by 24 percent. Although the TK’s steel mills were working at capacity it was not enough to fill customer demand.

Chairman & CEO Ekkehard Shulz announced plans on December 1, 2004 to build a steelmaking base in the low-cost location of Brazil that would increase ThyssenKrupps’ crude steel capacity to 20 million tons by the end of the decade. Feasibility studies continued in the 2004-2005 fiscal year with hopes of starting operation in mid-2008.

Construction on the €3 billion plant (CSA) commenced in 2006 with production scheduled to start in early 2009. During this time, ThyssenKrupp was actively pursuing a takeover of Dofasco Steel in Canada and considering as an alternative a location in the US for its steel and stainless segments.

By 2007, construction of the Brazil plant was making progress and work began on the Calvert, Alabama location in November. The Calvert facility completion was anticipated for 2010. Meanwhile, the economy was beginning to falter and the automotive and construction markets fell sharply in the second half of 2008.

The expenditures for ThyssenKrupp were beginning to pile up in the Steel Americas project. The €3 billion for the Brazilian plant increased to €4.5 billion as costs increased due to higher prices for construction materials, rising interest costs and a strengthening of the Brazilian currency. According to the FY report that year, “The profitability of the project in combination with the construction project in Alabama/UA and the expansion program in Europe is not jeopardized by this increase.”

The ThyssenKrupp earnings report for FY 2008-2009 reported an earnings before tax loss of €2,364 million compared to a profit of €3128 million the prior year. Workers were cut or put on short hours.

The steel segment suffered a 41 percent drop in orders and a 32 percent decline in sales for a loss of €486 million from a profit of €1,540 million the year before. Earnings were further impacted by the costs for the construction of the steel production and processing facilities in Brazil and the USA (€214 million) as well as restructuring expenses and impairment charges (€266 million).

November 30, 2010 brought words of optimism from Ekkehard Schulz, “ThyssenKrupp is on track to sustainable value creation: The new structure and the efficiency measures are taking effect, the Americas projects have successfully started operation. The Group is returning to its long-term growth path.”

A year later, on December 2, 2011, an Ad Hoc statement was released announcing impairment charges of €2.1 billion for the Steel Americas, due to cost over-runs on the Brazil plant, delayed ramp-up, weak markets, and a stronger Brazilian currency. Yet the statement included: “ThyssenKrupp remains convinced that the Americas market offers great prospects for its premium steel products and that the company can differentiate itself successfully from the competition there as in Europe.”

Net financial debt for ThyssenKrupp at the end of December 2011 was €5.9 billion, up from €5.8 billion at the end of 2010. The rise was blamed on an increase in net working capital and the ramp-up of the new carbon and stainless steel mills in Brazil and the USA.

On May 15, 2012, ThyssenKrupp announced that it no longer made “sense strategically” to keep the Steel Americas and the assets were put up for sale. The ramp-ups continued through the bidding process.

In September of 2012, ThyssenKrupp began cleaning out its executive management team. First to go was Peter Urban on the Executive board who was replaced by Andreas Goss who would take over the Steel Americas Business area. In December, Olaf Berlien, Jurgen Claassen and Edwin Eichler were removed from the Executive board for their roles in the failure of the Steel Americas project. At the same time ThyssenKrupp came under investigation for charges of corruption and cartel involvement.

By the end of FY 2012, the net loss of the whole Group came to €5.0 billion, an increase of €3.2 billion from the prior year. The losses were attributed to the discontinued operations (Steel Americas & Inoxum) and the impairment charge at Steel Americas of €3.6 billion.

Throughout 2012 and 2013 speculation ran rampant on who would win the bid for Steel Americas. The process was complicated by the 27 percent ownership of CSA by Vale, supply contracts in Brazil and problems at the Brazil plant. In December 2012 ThyssenKrupp dropped the value of Steel Americas to €3.9 billion. Bidders included U.S. Steel and Japan’s JFE Steel Corp, ArcelorMittal and NSSMC, CSN and Brazilian bank BNDES, and Posco. And, as we now know, ArcelorMittal and NSSMC have purchased the Alabama plant for $1.55 billion.

ThyssenKrupp failed to sell both plants but the six year arrangement for purchase of slabs from CSA gives TK a new opportunity to improve the operating performance of the plant and make it attractive for future sale.