Rumors of European steel merger, facing the Covid-19 crisis

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By: Claire Fages Follow

The European steel industry is in crisis, the coronavirus epidemic having brought a halt to the steel consuming sectors, like the automobile. It is in this context that the German Thyssenkrupp is discussing mergers with its competitors.

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Rumors of a merger are rife in European steel, faced with the Covid-19 crisis. An unprecedented crisis, says Eurofer, the European association of the sector.

Government containment measures have de facto stopped the production of steel and its use in the consuming industries, foremost among which is the automobile, the second outlet for European steel, behind construction.

Automobile collapse, second outlet

However, vehicle sales fell by more than 25% in the first quarter, by 55% in March alone. The use of steel capacity is even lower than during the 2008-2009 crisis, with thousands of workers on short-time work.

The restart could take place from July, but the global economic crisis and the loss of income of unemployed consumers is likely to limit the rebound in European steel.

An industry already weakened in 2019

Covid-19 disease hit an industry that was already fragile. The European steel industry was already suffering in 2019 from the slowdown in manufacturing activity and the US trade conflicts with its economic partners, which had caused massive imports of steel, penalizing European production.

Last year the German Thyssenkrupp had already tried an alliance with his competitor Tata Steel. But the European Commission had refused the merger, which disproportionately concentrated certain activities. To deleverage, the German giant therefore ended up selling its most profitable division, that of elevators, in February. An insufficient sacrifice now given the shock of Covid-19 disease.

Closure of blast furnaces difficult to envisage

So reconciliations are again on the agenda. Discussions are resuming with Tata Steel, but also with the Swedish SSAB and the Chinese Baosteel. But given the massive public financial support from European states, it is hard to imagine that these mergers will lead to the closure of excess production capacity in the blast furnaces, while the more flexible electric steelworks have already made adjustments.

Perhaps there will be action exchanges between these heavyweights upon arrival. In the meantime, small consolation, rumors of a merger have allowed a rebound in the stock market shares of Thyssenkrupp and, by contagion, of ArcelorMittal.

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