ThyssenKrupp Back in Profit

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Ferrous Metals

ThyssenKrupp had a torrid 2009 but the last quarter showed an improving trend by posting a small net profit pre-tax of $323m. Those group figures however mask a worldwide stainless division loss of $80m and a steel North America loss of $5m.

2008/2009 2009/2010
Q1 Q2 Q3 Q4 Q5
Steel Europe -483 -153 -235 -372 142
Steel Americas -104 -30 -26 -135 -5
Stainless Global -331 -419 -213 -94 -80
Material Services 41 -145 -175 -26 42

Source: ThyssenKrupp 1st Quarter Results

Europe however managed to produce an adjusted surplus of $142m, a highly credible result considering the state of the European steel market and the performance in the prevailing four quarters. Material services is the metals distribution business. Although global, most of the revenue comes from Europe where in line with most distributors the business lost money in 2008/9 but came back into profit October to December on the back of rising metal prices if not strongly rising volumes.

Thyssen’s first quarter figures although well ahead of expectations should not been seen as a trend line upwards for 2010 the company said. Sales are expected to remain flat for much of 2010 trending upwards only towards the end of the year. Only hindsight will show whether Thyssen’s two most ambitious capital projects were timed well or not. Certainly in 2009 the company must have been wishing it wasn’t saddled with both a new slab mill in Brazil and a new steel and stainless mill at Calvert in Alabama. Even though both projects were scaled back in terms of completion dates by slowing the pace of work they still managed to suck up half of Thyssen’s US$1bn capital expenditure last year. In the long run, one would find it hard to argue against the logic of a low cost slab mill in Brazil and a high quality steel and stainless mill close to its buyers in North America but with sales and revenue collapsing last year the timing was unfortunate. Calvert is scheduled to produce a reduced output this year of some 200-300,000 tons but its questionable it if can make money as the slabs are being shipped in from Germany. Full production of some 500,000 tons will only be desirable once the Brazilian mill is on stream in 2011. In the meantime, capital spending, depreciation, interest and operating expenses from the two projects will continue to act as a drag on the firm’s results to the tune of some $680m per year.

–Stuart Burns

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