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TK Calvert plant deal seen boon to US market

Keywords: Tags  ThyssenKrupp, ArcelorMittal, NSSMC, CSA, flat-rolled steel, steel prices, automotive, Calvert Alabama

NEW YORK — ThyssenKrupp AG’s deal to sell its Calvert, Ala., facility to ArcelorMittal SA and Nippon Steel & Sumitomo Metal Corp. (NSSMC) for $1.55 billion should have a positive impact on flat-rolled pricing, steel market analysts largely agreed.

"In the short term, we believe the consolidation should create better pricing discipline for the U.S. flat-rolled industry, particularly in the southern United States," analysts at Cleveland-based KeyBanc Capital Markets Inc. wrote in a research note, adding that hot-rolled tags could peak above $700 per ton ($35 per hundredweight) in the first quarter of 2014 as a result.

The deal, which remains subject to regulatory approval in certain markets, was announced late Nov. 29 (, Dec. 1). Sources have previously speculated that the deal could boost flat-rolled prices (, Oct. 29).

While the facility has an annual capacity of 5.3 million tonnes, 1 million tonnes is committed to a tolling arrangement with Espoo, Finland-based Outokumpu Oyj for stainless slabs, leaving 4.3 million tonnes for the joint venture, according to the KeyBanc analysts.

The deal "is probably one of the most attractive transactions the (Arcelor)Mittal group has done. In particular, the fit of (Arcelor)Mittal’s U.S. operations with Calvert will provide enormous opportunities for (the company) to improve customer reach and costs," Michelle Applebaum, managing partner of Chicago-based Steel Market Intelligence, told AMM via e-mail.

It includes a six-year agreement to buy 2 million tonnes of slab annually from ThyssenKrupp’s Cia. Siderúrgica do Atlântico Ltda. (CSA) in Brazil, which was noted as a positive for the Calvert plant’s new owners. ThyssenKrupp has the option to extend the agreement for another three years at terms that are more favorable to the joint venture than in the initial period.

"We’re very excited about the slab piece of the transaction, where Arcelor(Mittal) has negotiated to link their slab purchase price to hot-rolled coil, which creates a ‘tolling’ kind of opportunity for Arcelor(Mittal) and insulates the facility from the biggest problem that Thyssen(Krupp) had to begin with, which was the volatility of slab supply and costs," Applebaum said.

"We have unutilized slab in the Americas and the extent that we can increase production to supply the joint venture is a clear positive to ArcelorMittal," Lakshmi Mittal, chairman and chief executive officer of the Luxembourg-based steelmaker, said during a conference call.

The range of slab supply options from ArcelorMittal’s plants in the United States, Brazil and Mexico to Calvert following the deal are expected to significantly improve the plant’s financial performance, Mittal said.

ArcelorMittal isn’t looking to acquire CSA, as it has sufficient slab supply, he added.

Meanwhile, ArcelorMittal and NSSMC’s reach in the automotive market are also expected to improve the outlook for the facility once the sale is finalized.

"The inability to break into NSSMC’s and ArcelorMittal’s automotive customer chains is what killed the plant for ThyssenKrupp," a Japanese analyst recently told AMM sister publication Steel First.

Auto sales in the North American Free Trade Agreement region are expected to grow 15 percent over the next decade, Mittal said.

The energy market will also be an important market for the facility.

"Increasingly, the pipe makers are demanding high-strength coils with outstanding surface properties, exactly what Calvert is designed and able to produce," Mittal said during the call.

Overall, demand in the U.S. steel market is almost back to "pre-crisis" levels, he said.

ArcelorMittal doesn’t see significant regulatory hurdles to the deal, which is expected to close in the second quarter of 2014, Mittal said.

While the deal was viewed positively in the United States, European analysts following ThyssenKrupp were less enthusiastic.

"The $1.55-billion sales price for the Alabama plant was at the lower end of our expectation and retaining CSA means retaining the operational risk," analysts at London’s HSBC Bank Plc wrote in a note downgrading ThyssenKrupp’s outlook to hold from buy.

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