Tata, ThyssenKrupp merger 'will raise EU flat steel prices, promote stability'
Merging the European flat steel divisions of ThyssenKrupp and Tata Steel will raise prices in the EU markets but will also promote price stability, analysts and market sources told Metal Bulletin this week.
The companies signed a memorandum of understanding (MoU) on Wednesday September 20 to join forces and form Europe’s second-largest steel producer, which will be named ThyssenKrupp Tata Steel.
“At the end of the day, Europe will be controlled by two mills – ArcelorMittal and ThyssenKrupp Tata Steel. They will try to push prices up – they are not stupid,” one Southern European trader said on September 20.
“It is always positive when there are fewer companies in the market,” one European tube trader said. “When there are fewer [market participants], prices will be more stable.”
As well as having the potential to raise spot market prices, the new joint venture could have increased leverage through contracts.
“The group would have a better position when negotiating longer-term contract agreements with big customers, such as the automotive industry, which consumes 24% of strip-mill products in Europe,” Marina Maliushkina, senior analyst at Metal Bulletin Research, said on Thursday.
ThyssenKrupp Tata Steel will boast combined annual revenues of around €15 billion ($18 billion) and will ship around 21 million tpy of steel.
Effects of consolidation
The MoU between the companies represents the second significant move toward consolidation in the European steel markets this year, after Italian authorities accepted ArcelorMittal’s bid to take over Italian steelmaker Ilva on June 6, although this is still awaiting approval from EU anti-trust authorities.
Nevertheless, since the deal was agreed, Ilva has demonstrated a change in pricing strategy and has been helping to raise hot rolled coil (HRC) prices in Italy. It would previously price its flat steel products at the bottom of the market, sources have told Metal Bulletin.
The premium for Metal Bulletin’s price assessment for Northern European domestic HRC over Southern European HRC was €30 per tonne on June 7. On September 20, the prices in both regions were equal at €520-540 per tonne ex-works.
“The Italians had the lowest prices [but] there’s the influence of ArcelorMittal and no imports, so the Italians have had to raise their prices,” the tube trader said.
ArcelorMittal will have a 38% market share in Europe’s flat steel sector when it finalises the Ilva purchase, while ThyssenKrupp Tata Steel will have a combined market share of 25%, according to investment bank Jefferies.