Steel Mills

ThyssenKrupp Calvert Mill Sold: An Analysis

Written by John Packard

ArcelorMittal (AM) and their 50/50 joint venture partner Nippon Steel & Sumitomo Metal Corporation (NSSMC) reached an agreement with ThyssenKrupp AG to acquire the ThyssenKrupp Steel USA steel mill located in Calvert, Alabama. The purchase was valued at $1.55 billion for the 4.3 million tons of flat rolling capacity along with 1 million tons of stainless tolling capacity.

The Calvert mill consists of a hot strip rolling mill, pickling facilities, cold rolling facilities including a continuous anneal cold rolled mill and three coating lines capable of producing galvanized, galvannealed, aluminized and Galvalume products.

Included in the transaction is a six year slab purchase agreement for two million metric tons (2.2 million net tons) from the ThyssenKrupp CSA mill in Brazil. The first three years of the agreement calls for a “market-based price formula” with TK having a three year option to extend the slab agreement at more favorable terms to the joint venture compared to the initial time period. According to ArcelorMittal the formula will be based on Midwest hot rolled pricing.

ArcelorMittal advised that the rest of the slabs needed would be sourced from AM plants in the U.S., Brazil and Mexico. The price AM will receive for its slabs will be determined by the volume, price and cost performance of the joint venture. ArcelorMittal is also responsible for marketing the products coming off the Calvert mill.

“ArcelorMittal was the only possible buyer,” said steel analyst Charles Bradford of Bradford Research he told us in a phone conversation with SMU. Mr. Bradford told us that ArcelorMittal was the only mill that had the excess slab supply needed to feed the Alabama facility. AM said it would save $60 million by selling its slabs to Calvert instead of to Asian markets.

Mr. Bradford told us, “You can’t justify a $1.5 billion purchase price based on $60 million worth of savings.”

AM did not provide any further justification for the purchase of the facility but the market impression has been that they would eliminate one of the lowest priced competitors through this purchase and their subsequent commercial control of the sales from the Calvert operation.

This is the first ArcelorMittal mill in the south and will significantly strengthen AM position as a core automotive supplier. The acquisition will also expand AM position in the NAFTA energy markets (pipe & tube).

ArcelorMittal and Nippon Steel already have a relationship in their I/N Tek and I/N Kote joint ventures located in New Carlisle, Indiana.

Next Steps

According to the ArcelorMittal conference call with reporters held Sunday, the purchase of the TK USA facility will close during the 2nd Quarter (April-June) 2014. However, first the purchase must be approved by the U.S. Justice Department and Federal Trade Commission to make certain that it does not violate anti-trust guidelines.

Mr. Bradford told SMU that the purchase would fall under the “Hart Scott Rodino Act” which is automatically triggered in cases like this. “It’s an interesting issue from an anti-trust standpoint,” he said. “This will be a complex issue and could take longer than 30 days to come to a conclusion.”

When asked his opinion regarding how the Justice Department may rule Mr. Bradford said, “The Justice Department has to seek something. I would not be surprised if ArcelorMittal has to give up some of its production in the United States.” He went on to say one of the interesting issues could then be what other mill has the interest or capacity to buy (for example) a Cleveland or Indiana Harbor automotive mill. “I don’t know who would buy it,” he told us.

However, on their conference call this morning Mittal sounded as though they were not overly concerned with anti-trust issues. Perhaps the company has already held preliminary discussions with the Department of Justice. It is interesting that within the past ten days, President Obama visited the ArcelorMittal facility in Cleveland.

Mr. Bradford also told us that with both ArcelorMittal and NSSMC being foreign companies the sale may come under the foreign buyer regulations and review.

The ball is now in the U.S. Government hands. The same hands which last ruled on a steel purchase (also involving ArcelorMittal) that the Sparrows Point facility had to be sold due to anti-trust issues dealing with tin plate supply. We all know how that ultimately turned out…


The Steel Americas project was supposed to be a bright spot for ThyssenKrupp when it was announced back in December 2004. The 2003-2004 fiscal year had been extremely profitable for ThyssenKrupp with sales up 17 percent and order intake increasing by 24 percent. Although the TK’s steel mills were working at capacity it was not enough to fill customer demand.

Chairman & CEO Ekkehard Shulz announced plans on December 1, 2004 to build a steelmaking base in the low-cost location of Brazil that would increase ThyssenKrupps’ crude steel capacity to 20 million tons by the end of the decade. Feasibility studies continued in the 2004-2005 fiscal year with hopes of starting operation in mid-2008.

Construction on the €3 billion plant (CSA) commenced in 2006 with production scheduled to start in early 2009. During this time, ThyssenKrupp was actively pursuing a takeover of Dofasco Steel in Canada and considering as an alternative a location in the US for its steel and stainless segments.

By 2007, construction of the Brazil plant was making progress and work began on the Calvert, Alabama location in November. The Calvert facility completion was anticipated for 2010. Meanwhile, the economy was beginning to falter and the automotive and construction markets fell sharply in the second half of 2008.

The expenditures for ThyssenKrupp were beginning to pile up in the Steel Americas project. The €3 billion for the Brazilian plant increased to €4.5 billion as costs increased due to higher prices for construction materials, rising interest costs and a strengthening of the Brazilian currency. According to the FY report that year, “The profitability of the project in combination with the construction project in Alabama/UA and the expansion program in Europe is not jeopardized by this increase.”

The ThyssenKrupp earnings report for FY 2008-2009 reported a before tax loss of €2,364 million compared to a profit of €3128 million the prior year. Workers were cut or put on short hours.

The steel segment suffered a 41 percent drop in orders and a 32 percent decline in sales for a loss of €486 million from a profit of €1,540 million the year before. Earnings were further impacted by the costs for the construction of the steel production and processing facilities in Brazil and the USA (€214 million) as well as restructuring expenses and impairment charges (€266 million).

November 30, 2010 brought words of optimism from Ekkehard Schulz, “ThyssenKrupp is on track to sustainable value creation: The new structure and the efficiency measures are taking effect, the Americas projects have successfully started operation. The Group is returning to its long-term growth path.”

A year later, on December 2, 2011, an Ad Hoc statement was released announcing impairment charges of €2.1 billion for the Steel Americas, due to cost over-runs on the Brazil plant, delayed ramp-up, weak markets, and a stronger Brazilian currency. But ThyssenKrupp remained adamant “the Americas market offers great prospects” and “that the company can differentiate itself successfully from the competition there as in Europe.”

Net financial debt for ThyssenKrupp at the end of December 2011 was €5.9 billion, up from €5.8 billion at the end of 2010. The rise was blamed on an increase in net working capital and the ramp-up of the new carbon and stainless steel mills in Brazil and the USA.

On May 15, 2012, ThyssenKrupp announced that it no longer made “sense strategically” to keep the Steel Americas and the assets were put up for sale. The ramp-ups continued through the bidding process.

In September of 2012, ThyssenKrupp began cleaning out its executive management team. First to go was Peter Urban on the Executive board who was replaced by Andreas Goss who would take over the Steel Americas Business area. In December, Olaf Berlien, Jurgen Claassen and Edwin Eichler were removed from the Executive board for their roles in the failure of the Steel Americas project. At the same time ThyssenKrupp came under investigation for charges of corruption and cartel involvement.

TK net loss of €5.0 billion at the end of FY 2012 was attributed to the discontinued operations (Steel Americas & Inoxum) and the impairment charge at Steel Americas of €3.6 billion.

Throughout 2012 and 2013 speculation ran rampant on who would win the bid for Steel Americas. The process was complicated by the 27 percent ownership of CSA by Vale, supply contracts in Brazil and problems at the Brazil plant. In December 2012 ThyssenKrupp dropped the value of Steel Americas to €3.9 billion. Bidders included U.S. Steel and Japan’s JFE Steel Corp, ArcelorMittal and NSSMC, CSN and Brazilian bank BNDES, and Posco.

SMU Publisher Opinion

The question being asked is once the sale of the ThyssenKrupp Steel USA plant in Calvert, Alabama is closed and ownership transfers to the ArcelorMittal (AM) and Nippon Steel Sumitomo Metals Corporation (NSSMC) joint venture what impact will it have on the flat rolled steel markets?

My opinion is the immediate impact will mostly be psychological in nature as buyers and sellers of steel try to read into the transaction. Initial reactions I have heard range from an expectation of an immediate price increase to at least a continued firming of the current pricing structure. Since the deal will not close until sometime during the second quarter 2014 it is perhaps a bit premature to expect conditions to immediately change at TK USA.

Longer term changes or market adjustments may have more impact on future supply and demand scenarios. This will also depend on what the DOJ and FTC decide regarding ArcelorMittal continued ownership of their existing North American facilities.

Elimination of ThyssenKrupp Steel USA and the integration into the ArcelorMittal commercial department is expected to result in a more disciplined market price structure. TK USA is well known as the lowest priced flat rolled mill due to its position as the “new guy on the block” coupled with failures to deliver due to software and other issues which plagued the mill when it first came online. The mill continues to be aggressively priced as they work to build their order book.

My expectation is ArcelorMittal will attempt to run the mill as full as possible. This may result in some interesting competitive dynamics as AM competes with Nucor and Severstal Columbus as well as USS Fairfield in the south. As one steel buyer put it to me in an email this afternoon – who is going to roll over and give market share to ArcelorMittal?

Another issue raised by a steel executive with whom I had dinner recently. He reminded me that there could be some credit line issues with existing customers of ArcelorMittal as they absorb the ThyssenKrupp exposures onto their books.

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