Steel Mills

ArcelorMittal to Expand Capacity with Ilva Acquisition

June 19, 2017

ArcelorMittal and Marcegaglia have purchased Italian steel milll Ilva in a $2 billion deal expected to close June 30. The mill’s assets will be leased by the consortium AM Investco Italy Srl for $200 million per year with payments applied to the purchase price. AM Investco will receive the steel facility free of long-term debt and liabilities, along with $1.1 billion in net working capital, according to a press release by ArcelorMittal.

Ilva has been an ongoing environmental nightmare for the Taranto region. AM Investco will spend $1.2 billion to bring the mill into compliance with environmental regulations, including upgrades for air emissions and water treatment. Part of the funding will come from $320 million seized by the government from former owner RIVA Group. The mill will be upgraded with low-carbon technologies and will use cleaner burning DRI whenever economically feasible, the company said.

Steel production will be limited to 6 million tons per year until environmental upgrades are approved by Italy’s EPA equivalent, the Integrated Environmental Authorisation (AIA). Once the mill is in compliance, the #5 blast furnace will be restarted and crude steel production will increase to 8 million metric tons per year. Finished steel shipments are targeted to increase to 9.5 million tonnes by 2023. Production will be supplemented by imported slabs and hot rolled coil to keep Ilva’s finishing facilities at maximum utilization and preserve the jobs of 10,000 employees, the company said.

AM Investco also plans to invest more than $10 million in a research and development center in Taranto.

The acquisition will give ArcelorMittal a commanding presence in a currently underserved Italian steel market. Ilva is the largest and only integrated facility in Italy and has access to deep water ports for raw materials, as well as steel finishing capacity in Taranto, Novi Ligure and Genova.

ArcelorMittal crude steel production totaled 90.8 million metric ton in 2016. The addition of Ilva’s 8 million tons will increase ArcelorMittal’s production by almost 9 percent. Currently, Italy imports 60 to 70 percent of its steel because of the severe cuts in output at Ilva due to performance and environmental issues. ArcelorMittal expects to capture $345 million in identified synergies from its acquisition of the Italian mill.

ArcelorMittal Chairman and CEO Lakshmi Mittal said of the sale, “We have a very sound understanding of what needs to be done to improve the performance of the company and, importantly, its relationship with stakeholders and local communities. Our vision is for Ilva to become a benchmark for modern integrated steelmaking, and this will be realized through the implementation of our industrial and environmental plans, backed up by significant investment. We have the capital, the technology, the commercial relationships and the management depth to bring about a positive transformation. Stakeholder engagement and transparent dialogue will also be critical in enabling Ilva to rebuild trust with its employees and communities.”

In its first-quarter 2017 earnings results, ArcelorMittal forecast apparent steel consumption to grow by 3-4 percent this year in the U.S. Demand is expected to be softer in Europe, growing at 0.5 to 1.5 percent, while demand in China is expected to be flat compared to 2016. The acquisition of Ilva will add to ArcelorMittal’s Action 2020 plan to expand capacity and increase steel shipment volumes. As the mill ramps back to full production, steel imports to Italy are likely to decrease, potentially ending up in other countries such as the U.S.

Analysts at Zacks Equity Research caution that ArcelorMittal is still exposed to steel pricing volatility. “Demand for steel remains weak in Europe and China. Moreover, cheap steel exports from China still remain a woe.”