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MarketScreener Homepage  >  Equities  >  NASDAQ OMX HELSINKI LTD.  >  Outokumpu Oyj    OUT1V   FI0009002422


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Return of fourth player shakes EU stainless steel recovery hopes

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12/11/2013 | 01:52pm EDT
A steel slap is seen at a hot-rolled production at ThyssenKrupp Steel Europe AG in Duisburg

LONDON/DUESSELDORF (Reuters) - Just as long-awaited consolidation in Europe's stainless steel sector seemed to offer hope of recovery in prices and profits, Finnish producer Outokumpu's surprise sale of two plants back to ThyssenKrupp threatens to undo such gains.

Outokumpu (>> Outokumpu Oyj) last month announced the sale of large Italian stainless steel mill Acciai Speciali Terni and of specialty high-performance alloy unit VDM to ThyssenKrupp (>> ThyssenKrupp AG), their previous owner.

The deal, part of a package of measures dictated mostly by Outokumpu's financial needs, partially reverses its acquisition of Thyssenkrupp's stainless steel business Inoxum in 2012, a move that gave a fillip to all major European producers' shares.

It raises the number of major European players in the loss-making industry back to four from three, which is likely to create an even tougher market environment for them as they face low prices, heavy overcapacity and competition from determined Asian exporters.

While a big player like Outokumpu can cut capacity or mothball the least efficient of several operations, ThyssenKrupp, with only two plants in the stainless sector, is likely to make use of them to keep its foothold in the market.

"Competition in Europe has increased now. It's getting crowded. So many players with overcapacity means pressure on prices," said an industry expert.

"Thyssen will pump up production so it's bad news for the market."

Global stainless steel prices have fallen by 30 percent from their 2011 peak and are 50 percent below their 2007 levels, according to the CRU stainless steel index.

All three major stainless steelmakers in Europe - Acerinox (>> Acerinox SA), Aperam <APAM.LU> and Outokumpu - were in the red in 2012, incurring net losses of $25 million, $109 million and $739 million respectively.

ThyssenKrupp's surprise comeback to stainless steel is expected to be short-lived.

The German steelmaker said it was forced to take back the plants, valued at 969 million euros, in exchange for cancellation of a loan note it granted to Outokumpu in 2012 but its strategy does not contemplate stainless steel in the long-term.

"It's correct that taking back these plants is not a strategic move for us because we still want to move out of stainless...," said a Thyssenkrupp spokesman. "We want to try to improve these assets and see if we can capitalise on them."

Market players expect that Terni and VDM will be up for sale again within 1 to 3 years and the resultant lack of a long-term strategy and stability of ownership worries the plants' 5,000 workers.

The fate of Terni, by far the largest but also the less profitable of the two mills is particularly uncertain.

Terni, which can produce up to 1.7 million tonnes of steel a year, is expected to post a loss of more than 100 million euros ($137.71 million) this year.

"I am appalled by this deal. It's like the game of Monopoly: we are back at "Go". Terni is in a very dangerous limbo now," said Antonio Gozzi, the leader of Italian steel association Federacciai.

"Terni has been a stray dog for over a year and it's in a very uncertain situation since Thyssen wants to get out of stainless. Steel businesses waste away quickly without an owner and without investment and Thyssen will do just enough to keep it going."


The Terni plant, which the EU competition watchdog forced Outokumpu to sell, had among its suitors a consortium led by Outokumpu's competitor Aperam.

Some bet Aperam could make another offer once the plant is back on the market and this could eventually offer scope for some reduction in stainless steel capacity.

"When people were looking at Aperam taking on Terni at least there was scope there for some consolidation, including the phasing out of some ageing melting capacity. Harder to see where that consolidation comes from now that Terni goes back to Thyssen," said CRU senior analyst Mark Beveridge.

In the meanwhile, prospects for trimming capacity are limited.

Overcapacity in Europe has increased in the last few years and now stands at around 25-30 percent, analysts said.

The figure should come down to 15-20 percent once Outokumpu completes the shutdown of meltshops at Bochum and Krefeld, two sites it bought in the Inoxum acquisition.

More discipline is needed to boost price and help producers return to profit but these could be the last shutdowns for a while now.

"It's a big gamble for any of the producers: who is brave enough to take capacity off and lose market share?" said Meps consultant Bryan Hall.

($1 = 0.7261 euros)

(Additional reporting by Maria Sheahan in Frankfurt; Editing by Anthony Barker)

By Silvia Antonioli, Maytaal Angel and Tom Käckenhoff

Stocks treated in this article : Acerinox SA, ThyssenKrupp AG, Outokumpu Oyj
Stocks mentioned in the article
ChangeLast1st jan.
ACERINOX S.A. -2.58% 5.822 End-of-day quote.-42.04%
OUTOKUMPU OYJ -0.50% 2.194 Delayed Quote.-21.42%
THYSSENKRUPP AG -0.39% 4.635 Delayed Quote.-61.50%
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Sales 2020 5 899 M
EBIT 2020 121 M
Net income 2020 1,06 M
Debt 2020 1 195 M
Yield 2020 3,55%
P/E ratio 2020 -47,5x
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Average target price 2,99  €
Last Close Price 2,19  €
Spread / Highest target 119%
Spread / Average Target 36,2%
Spread / Lowest Target -59,0%
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