ThyssenKrupp, Bleeding Money, Faces the Music

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We all get it wrong at times, but €3.6 billion (US$4.7 billion) is an eye-wateringly big mistake.

That’s the sum ThyssenKrupp has just written down its steel plants near Rio in Brazil and Alabama in the US.

current steel prices - MetalMiner IndXThe Steel Americas assets were on Thyssen’s books at €7bn (US$9bn) prior to the write-down, but as a result of ongoing negotiations to sell the assets, the firm has been forced to face up to the fact they won’t go for anything like that figure when they are sold in 2013.

The Steel Americas write-down adds to losses in the overall group to bring the total full-year net loss to €5bn (US$6.5bn) against a loss expected  by analysts of “just” €1bn (US$1.3bn), according to a Reuters article.

The €3.6bn write-down at ThyssenKrupp’s Steel Americas unit follows a €2.1bn write-down last year, when the company reported a €1.8bn net loss.

Arguably the original concept was sound: manufacture the basic rolling slabs close to the source of iron ore in Brazil and transport the value-add slabs to Europe and the US for rolling in state-of-the-art carbon and stainless mills sited close to market.

Except, as ground was broken in 2007, the world started to unravel. Project delays and cost overruns have dogged the projects, particularly in Brazil, pushing up costs way above original estimates. Now the firm expects to receive something like half the €7bn investment ploughed into the two operations, creating the thumping great loss announced this week.

Nor will it end there. Half of ThyssenKrupp’s six executive board members will also leave the company as a result of the loss, not to mention a number of corruption and price fixing scandals.

today's metal prices - MetalMiner IndXThyssenKrupp will weather this storm — the firm still has some €40bn of sales from ongoing operations and is sitting on €6.7bn of cash and credit lines — but it won’t be paying a dividend this year and its steel operations may need to rely on the support of the more profitable technology division for some years to come.

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