ThyssenKrupp in talks with CSN on Brazilian steel plant: report
04 May 2013
German steelmaker ThyssenKrupp AG is in talks with Cia Siderúrgica Nacional (CSN) after the Brazilian steelmaker emerged as the lead bidder for its steel Americas business (CSA), The Wall Street Journal yesterday reported, citing two people familiar with the matter.
ThyssenKrupp, Germany's largest steel maker, could close a deal with CSN in coming weeks, said the report.
ThyssenKrupp yesterday said that it is in ''intense negotiations'' for CSA, which comprises of a steel-slab plant in Rio de Janeiro, where Brazilian mining giant Vale SA holds 26.9-per cent stake, and a fully-owned modern steel mill in Alabama in the US.
Under the talks, which include Vale and the Brazilian government, ThyssenKrupp plans to sell its entire 73-per cent stake to CSN for around $3 billion, while another option would be for ThyssenKrupp to keep a 33 per cent stake and sell the remaining to CSN.
ThyssenKrupp, CSN and Vale are in talks with Brazilian state-run development bank BNDES to finance up to $800 million needed to make the Brazilian plant more economically viable.
While CSN is the most likely buyer of the Brazilian plant, a consortium comprising of ArcelorMittal and Nippon Steel & Sumitomo Metal, who have bid around $2 billion for the Alabama plant, are in contention for the US part of the business, the report added.
ThyssenKrupp started operating its CSA steel-slabs plant in Rio de Janeiro in 2010, which has a capacity to produce five million tonnes of steel annually.
The construction of the plant in Alabama was one of the Essen-based company's biggest ever foreign investments in the US. It spent $5 billion in 2010 in the overall complex, including $3.6 billion on the carbon flat steel facilities and $1.4 billion on the stainless area.
Due to cost overruns, the overall cost of building the plants in Brazil and Alabama was nearly €10 billion, much above its original estimates of €8.3 billion.
The company took a €2.9 billion ($3.7 billion) impairment charge in the Q4 fiscal of 2011 attributable to both mills when it reported a loss.
In 2007, the steelmaker had developed a strategy for Steel Americas based on two basic premises: slabs were to be produced at low cost in Brazil and shipped with cost advantages to the US. After processing they would then be sold in the North American market.
While the US economy is showing no major momentum, Brazil is showing strong growth, but having corresponding effects on the cost and demand situation in the two countries due to different growth rates in the two regions.
But production costs in Brazil are rising due to increasing labour costs, inflation, and the appreciation of the Brazilian currency.
Global steelmakers have recently been under pressure to cut costs with steel demand slowing faster than expected, especially in Europe and China.
ArcelorMittal has temporarily shut several plants in Europe since last year and idled many more, citing structural over-capacity in Northern Europe amid a difficult European market.
