ThyssenKrupp Close to Finally Biting the Bullet – Part 1

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ThyssenKrupp, the German steelmaker, looks close to finally off-loading its troubled Steel Americas group, according to a Reuters article.

The new service quotes a spokesman as saying Thyssen aims to reach a deal in the near future and is currently in intense negotiations – principally, it would seem, with front runner Cia. Siderurgica Nacional, or CSN, a Brazilian steelmaker.

The article quotes sources saying CSN has offered $3.8 billion for ThyssenKrupp’s Steel Americas, which comprises a slab processing plant in the US state of Alabama and a 73% stake in Brazilian slab-making mill CSA, the balance 23% being owned by Vale.

If correct, it would bring closure to a brave but ultimately costly venture for ThyssenKrupp which, according to the WSJ, has cost the German group some US$15 billion in losses since 2010.

The two plants opened in 2010 and each with a planned capacity of some 5 million tons per year. Quoting the WSJ, their output has been significantly below capacity, however, with Alabama producing 2.6 million tons and Brazil producing 3.4 million tons in fiscal 2012.

The Alabama plant was the largest built in the US in four decades and sought to leverage low-cost energy and raw material in Brazil to feed cheap slab into the high-end automotive and quality steels market in the US. Economic volatility upended ThyssenKrupp’s plans.

today's metal prices - MetalMiner IndXThe WSJ reports Brazil’s booming economy triggered wage increases and increased the value of the Brazilian real, which ate up the planned cost advantages. The slow US economic recovery eroded steel demand and prices, while design flaws and technical problems, particularly at the Brazilian plant, caused cost overruns, which, in turn, amassed debt.

Continued in Part Two.

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