ThyssenKrupp Examines Options for Steel Americas Plants in Brazil, U.S.
05/16/2012 - The Executive Board of ThyssenKrupp AG informed the Supervisory Board of its decision to examine strategic options for the plants of Steel Americas in Brazil and the U.S., in parallel with further technical and commercial optimization, to which the Supervisory Board assented. The options may involve a partnership or a sale to a best owner whose strategy can better utilize the plants.
The Executive Board of ThyssenKrupp AG informed the Supervisory Board of its decision to examine strategic options for the plants of Steel Americas in Brazil and the U.S., in parallel with further technical and commercial optimization, to which the Supervisory Board assented. The company says it is reevaluating its strategy because the economic parameters have changed significantly since it developed the strategy of an integrated network with the slab plant in Rio de Janeiro and the processing plant in Mobile, Ala.
The strategic options being examined by the Executive Board may involve a partnership or a sale to a best owner whose strategy can better utilize the quality and the specific market capability and competitiveness of the plants.
Dr. Heinrich Hiesinger, Executive Board Chairman of ThyssenKrupp AG, said: “We have said that we want to sustainably improve our performance and carry out regular strategic reviews of all our businesses. This also applies to our biggest challenge, Steel Americas. We continue to believe that both plants will hold leading positions in their respective markets in terms of technology and conversion costs. But since the plans for the project were made the economic parameters both in Brazil and in the USA have changed from our original assumptions. There are clear reasons that now call this strategy into question. We therefore have to examine whether it still makes sense strategically to operate the two plants in a common integrated network.”
The strategy for Steel Americas, developed in 2007, planned for slabs to be produced at low cost in Brazil and shipped with cost advantages to the U.S. After processing they would be sold on the NAFTA target market with a corresponding price premium reflecting their high quality. In addition to the general business downturn due to the financial and economic crisis, the different rates of growth in the two regions—the U.S. economy showing no major momentum, but Brazil enjoying strong growth—are calling this strategy into question, ThyssenKrupp stated.
Production costs in Brazil are rising disproportionately due to increasing labor costs, inflation effects, and in particular the appreciation of the Brazilian currency. In addition, ore prices have increased sharply and the new ore pricing model brings disadvantages to Steel Americas compared with some backwards integrated suppliers in the U.S.
The company also notes that due to slow demand, it likely will be possible to only achieve the price premiums on the U.S. market now and in the medium term with specific steel grades and in specific sectors. For example, ThyssenKrupp is confident that it will realize corresponding price premiums with automotive customers due to the quality and grades of its high-strength steels and previously largely unavailable characteristics such as larger sizes. But products manufactured for other sectors and distributed via service centers face intense competition and are difficult to differentiate in the same manner, the company stated.
Despite the strategic reevaluation, ThyssenKrupp plans to continue with the ramp-up of the two plants. The plant in Brazil produced around 1.7 million tons of high-quality slabs in the first half of the current fiscal year. In the same period, the U.S. plant shipped around 1.4 million tons of steel to customers. The start-up of coke oven battery C is proceeding to plan; operational ramp-up could be completed by the end of the current fiscal year, followed by the optimization phase.
