WRAPUP-ThyssenKrupp, RG Steel may struggle to sell mills

Tue Jun 19, 2012 7:42pm EDT

By Silvia Antonioli
    NEW YORK, June 19 (Reuters) - ThyssenKrupp AG and
RG Steel LLC may struggle to attract suitors for their steel
assets while the ailing market remains mired in oversupply,
costs rise and prices fall, executives at two major steel
producers said on Tuesday.
    Dismal market conditions combined with despair about the
euro-zone's mounting debt crisis have brought the mergers and
acquisitions market to an almost standstill just as five major
assets in Brazil and the United States have been put on the
block.
    ThyssenKrupp put its 73-percent stake in CASA and its
brand-new U.S. flat-rolled carbon steel mill in Alabama up for
sale in mid-May after years of struggling with delays and cost
overruns. 
    Two weeks later, RG Steel filed for Chapter 11 bankruptcy
protection, a casualty of falling steel prices and oversupply in
the United States. As a result it has been forced to sell its
three plants, just over a year after the upstart company sealed
the deal to buy and restart the furnaces.
    Rather than growing output by picking up assets at discount
prices, ArcelorMittal, the world's largest producer, is looking
at cutting capacity, Chief Executive Lakshmi Mittal said at
AMM's Steel Success Strategies conference.
    "This is not the time to acquire more growth. We are not in
an acquisition mode. There is enough over capacity in the world
and there is enough over capacity in ArcelorMittal," he said in
a Q&A session following his presentation at the conference.     
    The Indian billionaire, who built his steel empire through a
string of acquisitions culminating with an audacious $33 billion
hostile bid for Arcelor in 2006, is mulling slashing more
capacity in Europe, he told Reuters on Tuesday. 
    The region which represented almost half of the company's
2011 output of 91.9 million tonnes is being roiled by over
capacity and weakening demand.
    And Gerdau, the largest steelmaker based in the Americas,
whose main Brazilian mill sits alongside the CSA steel slab mill
outside Rio de Janeiro, is investing in overhauling existing
production in growing markets, such as special-bar-quality
products, Chief Executive Andre Gerdau Johannpeter told Reuters
in an interview.
    "It's not so much new steel capacity, but to add value," he
told Reuters in an interview.     

    SPENDING HITS A WALL
    The wave of divestments sweeping the industry comes as
producers try to align capacity with slowing demand growth. The
global industry invested heavily in expansion projects in the
last decade betting on China's voracious appetite for raw
materials to feed its growing economy.
    But while producers in developed economies expanded at a
meteoric rate, so did China, becoming the world's largest
producer and consumer of steel. 
    That coupled with slowing global demand growth rates has
brought the industry's enthusiasm for spending to a grinding
halt. Consolidation has also left some potential buyers short of
cash.
    Gerdau and Usiminas SA have ruled themselves out
of the bidding for ThyssenKrupp's mills, although CSN 
, Brazil's second-largest producer of flat steel
products, has said it may take a look once the formal sale
process starts. 
    Mittal cautioned that collapsed RG Steel, owned by Renco
Group which is run by Ira Rennart, may struggle to find a good
buyer for its Sparrow's Point, Yorkville and Warren plants.
    Renco created the RG venture to buy the facilities from
Severstal OAO for $1.2 billion in March 2011.
    That deal raised concerns at the time that restarting idled
capacity, which had been idled by its Russian owner, would
derail the tentative recovery in prices and demand that was
taking place at the time.
    Against that backdrop, potential suitors may question how
they could make the facilities work.
    "There may be some problems for assets of RG Steel, where
investment has not been made. There could be some difficulties
to find good buyers," Mittal said.
    So dire is the current market for slab that even
state-of-the-art facilities like CSA may struggle to lure in
suitors. 
    "It's a very modern asset, just recently built, but with the
overall situation of overall oversupply in the world it is very
hard to predict," said Johannpeter.
    The latest round of divestments could be years in the making
though. It took ThyssenKrupp almost two years to offload its
loss-making stainless steel unit, selling it to Outokumpu Oyj
 in February.
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