Independent distributors nervous of mill consolidation

Mergers and acquisitions in the European steel-producing industry could have important consequences downstream, with independent service centers increasingly nervous that they could be squeezed out of the market.

The potential ArcelorMittal/Ilva and ThyssenKrupp/Tata Steel mergers would see an estimated 65% of total coil market supply in the European Union centered around just two players. While for years the industry has acknowledged the need for consolidation, the presence of those steelmakers in the downstream sector means independent businesses competing with those companies are nervous.

“The situation is not good for downstream independent operations. ThyssenKrupp, Tata Steel and ArcelorMittal have their own downstream operations which make up almost 40% of the market,” a service center source in Iberia said.

The source said mills would show favor to their own service centers, while the reduction of import options means it will be increasingly difficult for independents to source material and compete. “We are very worried with these anti-dumping sanctions coming, it means the sourcing opportunities are less and less. At the moment more or less we’ve been able to survive, but I’m afraid that with more AD it could affect us.”

Some expect the European Commission to act and force parts of the newly formed steel giants to cut off their distribution arms.

“I expect ThyssenKrupp to have to sell off the distribution [unit]. When you look at ThyssenKrupp and Tata, the materials they can supply to their subsidiaries it means a number of service centers belong to both, particularly in Germany. So they will have to do that – either merge them together or offload them to Klöckner. So a number of sites will close which will be a good thing,” a service center source in the Benelux said.

A source at another major independent downstream player was bullish however, noting that anything that pushes steel prices upwards can only be good for them. But generally the reaction in the downstream sector is one of concern.

“If they support their own service centers that could be a big threat to the privately-owned companies. It could be a big threat and the steel mills could get even more control of the market than they have today,” another source concluded.

Peter Brennan, PLATTS