European steel market crisis hits global operations of Indian firms like Tata Steel, ArcelorMittal
29 Jan, 2016,
KOLKATA: The crisis in the European steel market seems to be taking a toll on the global ambitions of Indian producers.
Poor demand conditions coupled with rising imports of steel from China seem to have added to the woes of steelmakers in Europe and the US, including Indian-owned ones. Tata Steel has had to shut down or find buyers for some of its European plants that supply steel to the construction and railway sector. Essar Steel is reportedly looking for buyers for Algoma Steel in Canada. The news of ArcelorMittal deciding to mothball one of its plants in Spain due to adverse market conditions adds to this growing list. Some, like Tata Steel in Canada, have also had to scale down mining plans.
"In Europe and US there is little growth in demand. Companies operating there are suffering badly and Indian-owned assets have also been impacted. Moreover, high labour costs make it less competitive. On top of it, cheaper steel imports from China have compounded the problem. The situation is complex and there seems to be no immediate respite," said Goutam Chakraborty, metals analyst at Emkay Global.
Earlier this week, ArcelorMittal said it has decided to idle one of its plants at Sestao in Spain indefinitely. A spokesperson for the world's largest steel company, which produces nearly 5-6% of global steel output said its operations are facing "such challenging market conditions that keeping the plant open in the current economic environment is not viable."
The LN Mittal-run company has been a beacon for Indian steelmakers looking to expand their horizons abroad. Similarly, Tata Steel, which bought Anglo-Dutch steel major Corus in 2007 for $13.7 billion, making it one of the largest acquisitions in the industry, is facing adverse demand conditions and cheap imports from China. In December 2015, it announced that investment group Greybull Capital had agreed to buy its long products business. This month it confirmed plans to cut 1,050 jobs in the UK, including 750 at Port Talbot, the UK's biggest steelworks.
In October 2015, it had announced 1,200 jobs losses at Scunthorpe. The same month, Swraj Paul's Caparo Group also called in the administrators to restructure its business before the Liberty group stepped in to buy some of its companies.
"The situation is tough in the manufacturing space abroad and an Indian company would definitely look twice as hard before acquiring any new global asset. I think the present situation will force buyers to focus strictly on good strategic buys like mining properties in coal and iron ore," said R Muralidharan, senior director, Deloitte India.
The situation is vastly different from that in 2007 when Essar Steel bought Algoma Steel in Canada's Sault Ste. Marie for $1.6 billion and Minnesota Steel for $100 million. Essar Algoma Steel laid off 100 people in October last year, facing a high interest burden and later filed for bankruptcy protection. It's now looking for a major investor or buyer for Algoma.
The Algoma story is part of an industry crisis that has led to a major shutdown of mills across North America and Europe. It's sparked a clamour for tariffs on imports from China that have led to a sharp 40% fall in benchmark steel prices from 2014 levels.