Return of fourth player shakes EU stainless steel recovery hopes – by Silvia Antonioli, Maytaal Angel and Tom Käckenhoff (Reuters U.S. – December 11, 2013)

http://www.reuters.com/

LONDON/DUESSELDORF, Dec 11 (Reuters) – Just as long-awaited consolidation in Europe’s stainless steel sector seemed to offer hope of recovery in prices and profits, Finnish producer Outokumpu’s surprise sale of two plants back to ThyssenKrupp threatens to undo such gains.

Outokumpu last month announced the sale of large Italian stainless steel mill Acciai Speciali Terni and of specialty high-performance alloy unit VDM to ThyssenKrupp , their previous owner.

The deal, part of a package of measures dictated mostly by Outokumpu’s financial needs, partially reverses its acquisition of Thyssenkrupp’s stainless steel business Inoxum in 2012, a move that gave a fillip to all major European producers’ shares.

It raises the number of major European players in the loss-making industry back to four from three, which is likely to create an even tougher market environment for them as they face low prices, heavy overcapacity and competition from determined Asian exporters.

While a big player like Outokumpu can cut capacity or mothball the least efficient of several operations, ThyssenKrupp, with only two plants in the stainless sector, is likely to make use of them to keep its foothold in the market.

“Competition in Europe has increased now. It’s getting crowded. So many players with overcapacity means pressure on prices,” said an industry expert.

“Thyssen will pump up production so it’s bad news for the market.”

Global stainless steel prices have fallen by 30 percent from their 2011 peak and are 50 percent below their 2007 levels, according to the CRU stainless steel index ST-CRUSTL-IDX.

All three major stainless steelmakers in Europe – Acerinox , Aperam and Outokumpu – were in the red in 2012, incurring net losses of $25 million, $109 million and $739 million respectively.

ThyssenKrupp’s surprise comeback to stainless steel is expected to be short-lived.

The German steelmaker said it was forced to take back the plants, valued at 969 million euros, in exchange for cancellation of a loan note it granted to Outokumpu in 2012 but its strategy does not contemplate stainless steel in the long-term.

“It’s correct that taking back these plants is not a strategic move for us because we still want to move out of stainless…,” said a Thyssenkrupp spokesman. “We want to try to improve these assets and see if we can capitalise on them.”

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