Under the plan that ThyssenKrupp currently prefers, CSN would buy the operations for more than $3 billion, but well below the current book value of $5 billion.
Another option would be for ThyssenKrupp to keep a 33% stake in the Brazil plant, presumably as a potential source of slab for Thyssen’s European operations.
A third option is more of an outlier: a joint venture of ArcelorMittal and Nippon Steel & Sumitomo Metal Corp. has reportedly offered a binding bid of about $2 billion for the Alabama plant, but that would leave Thyssen with the slab mill in Brazil and CSN is probably more interested in the state of the art downstream operation that gives them access to the US market than in the slab mill at home.
Apart from the massive debt weighing on profitability, the underlying rationale of low slab prices feeding a local high-end finishing mill still faces the headwinds of currency risk and a weak US market.
It could be some time before capacity utilization and market prices move up in the US on the back of stronger demand. Meanwhile, while Brazil’s real has weakened to about two reals to the dollar from highs of 1.5 in summer 2011, it is still a fair way above the nearly 3 reals to the dollar pertaining some 10 years ago when the project was first planned.
As a high-growth, increasingly oil- and mineral-rich emerging market, Brazil’s currency has more upside than down.
It is a rather sad end to a brave investment, at least as far as ThyssenKrupp is concerned, but for CSN or whoever finally claims the jewels at a knock down price, it could prove to be a good – if still risky – investment in the long term.