An interesting article in the Financial Times explores ThyssenKrupp’s quandary as both steelmaker and industrial conglomerate.
On the one hand, as a steelmaker, it is exploring the possibility to merge its European steel operations with those of Tata Steel. The European steel market desperately needs consolidation, but no one is willing to bear the brunt — politically or economically — of closing multiple plants and laying off thousands of workers.
One attraction of a merger could be that ThyssenKrupp and Tata might keep open its German and Dutch facilities, but try to close or scale down Tata’s Port Talbot operations in South Wales. After Brexit, Britain — and maybe all of what’s presently the U.K. — will no longer be of much concern to the rest of Europe. Regardless, the article’s main focus is on protectionism. The E.U. is in the process of applying historically high duties to Chinese steel; some as high as 73.7% for heavy-plate and 22.6% for hot-rolled, levels said by the Chinese to represent “reckless trade protectionism.”
Protected Bubbles in a Global Marketplace
That sours the air between Europe and China on the question of open trade relations. ThyssenKrupp, one would think, would benefit, though. Of its six divisions — Steel Europe, Steel Americas, Components Technology, Elevator Technology, Industrial Solutions and Materials Services — the steel divisions represent 30% of its revenue but only turned a modest profit in Q2 not least of which because prices were depressed in part by China’s low-priced imports.
In microcosm, ThyssenKrupp is an example of a wider issue, the article suggests. You can’t adopt selective punitive tariffs on some products and not expect some form of retaliation or more willing adoption of reciprocal tariffs on other products or services areas by those affected importers. Steel generates just 2% of Thyssen’s profits, so 98% come from its much more promising elevator and industrial products divisions… divisions that benefit most from a free and open global market place.
Diversified Companies, Single-Industry Tariffs
The article berates ThyssenKrupp for its capital-destroying and high loss-making forays into primary steel production in Brazil and processing operations in the U.S. that the company has since sought to extract itself from. The share price, the FT says, has made no progress in five years.
But, from our perspective, the impressive fact is that even after these massive loss-making ventures — said to total some $15 billion — the share price has still managed to maintain its level from five years ago. Other steelmakers that have not made such, in hindsight, poor investment decisions are doing no better. ArcelorMittal is much the same, if not worse. The trend has been consistently down.
What has held ThyssenKrupp up, kept the faith of its shareholders and created growth and promise for the future, is those elevator and industrial products divisions. Those divisions that rely on open, unfettered, access to world markets.
ThyssenKrupp’s European steel division may welcome the new tariffs imposed by the E.U., but the rest of the group may not share its enthusiasm.