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ArcelorMittal or JSW - who will be Ilva’s new owner?
With the closure of the formal bidding process for Ilva, the troubled Italian steelmaker, it is only a matter of months before the market knows who between the two consortia led by ArcelorMittal and JSW will take over one of the most strategic assets in the European steel industry.
As reported, ArcelorMittal has partnered with Marcegaglia in a jointventure called AM Investco, while the Indian JSW is the main shareholder in a consortium called Acciaitalia including Arvedi and a number of Italian investors.
Last week rumours circulated that the AM Investco bid was some 20% above the bid of Acciaitalia; while sources in the market said this was plausible, they were surprised to hear that both bids could be well above the €1 billion mark.
Nevertheless, ArcelorMittal made clear in recent communications that the Ilva asset is very important strategically for their market view involving further consolidation and even more attention to high-grade products. In a video posted by the steelmaker, the company said that Ilva was an underdeveloped company regarding high-grade steels, adding that ArcelorMittal and Marcegaglia with their know-how will work effectively on this aspect.
A decision in favour of the AM Ivestco join-venture will definitely increase the pricing power of all local European mills going forward. It will also allow ArcelorMittal and Marcegaglia to take a strong leading position in their fields in Italy, the second largest steel market in the continent. This second issue has raised not a few eyebrows among market participants in Italy and Europe.
On the other hand, the selection of the Acciaitalia bid as the winner will create a new European player, slightly delaying the much needed consolidation in the market. It is worth noting that Indian company JSW is currently among the few import suppliers in Europe of coils, following the recent investigations on China, Russia and a number of other sources. The Indian mill will undoubtedly have to change its commercial approach in the case of taking over Ilva, re-directing the current volumes sold in Europe to other markets. Or, at the very least, making sure they do not compete fiercely with domestic offers from the Italian plant.
Whoever the winner of this bidding race is, Ilva will produce more finished products in 2018. ArcelorMittal said it targets an output of 9.5 million tonnes, bringing in some slabs to re-roller at the company’s plants, while JSW earlier mentioned the volume of 12 million tonnes/year.
The effect of the duties and investigations in Europe is already visible in the market as crude steel production locally has gone up by 1.6% y-o-y during the first two months of the year. A senior trader commented that giving a clear outlook of what the market will look like after the solution for Ilva is found remains difficult. He noted nevertheless that whoever takes over the mill will take a commercial approach towards giving to the mill more pricing power. He added that the increased output promised (and needed to keep Ilva profitable) might have an un-expected impact on the European market prices, battling against global overcapacity issues.
Italian Crude Steel Production
thousands/tonnes
Feb 2016 1949
Feb 2017 1973
% Change ‘16/’17 +1.2%
2016 (2 months) 3769
2017 3798
% Change +0.8%
Source: World Steel Association
Source: Kallanish.com