Thyssenkrupp hints on further consolidation after Tata jv

Thyssenkrupp Steel Europe has hinted that there could be further consolidation following its potential merger with Tata Steel, analyst firm Jefferies said in a note Thursday, suggesting that Thyssenkrupp’s Material Services could be “combined” with Klöckner’s distribution services.

“Interestingly, TKA [Thyssenkrupp] noted additional consolidation post-Tata is possible, further improving the regional market and also admissible under antitrust rules,” the note about Thyssenkrupp’s roadshow hosted by Jefferies said. The analyst firm highlighted that according to Thyssenkrupp, neither the ArcelorMittal-Ilva nor a Thyssenkrupp-Tata Steel tie-up would lead to “immediate” capacity closures.

In addition, Thyssenkrupp’s management has emphasized that any operational measures at Thyssenkrupp are likely to be “less severe” in a merger situation, according to the note.

However, Jefferies said that the Material Services unit, including the metals distribution and Italian-based special steel maker Acciai Speciale Terni, is no longer likely to be a core division. “We believe a combination with KCO [Klöckner] could finally consolidate Euro distribution and is increasingly likely as Tata is a core supplier to KCO,” said Jefferies.

A potential merger of the German industrial firm’s steel arm and Tata Steel’s European business is getting closer to being finalized after Tata reached an agreement over its pension contributions last month. This is now pending to be signed off by the pension regulator. The likely structure will be a 50-50 jv with Thyssenkrupp possibly saving €500 million in synergies as well as seeing benefits from steel pricing.

The financial results of the German steelmaker are likely to be pressured in H2 as raw material prices take around six months to be reflected in the company’s books “and with ~50% of contracts half year or longer, H2 margin expectations were squeezed,” said Jefferies.

Laura Varriale, PLATTS