ThyssenKrupp Forecasts ‘Negative’ Earnings in Brazil, U.S.

ThyssenKrupp AG (TKA), Germany’s largest steelmaker, forecast “significantly negative” earnings in Brazil and the U.S. following project delays and cost overruns.

The Steel Americas division has “technical problems” that are yet to be resolved, weighing on first-half profit this fiscal year, Chief Executive Officer Heinrich Hiesinger said today at the company’s annual general meeting in Bochum. While results may improve in the second half, the CEO said he doesn’t expect a short-term recovery in the global steel market.

Delays at ThyssenKrupp’s CSA steel-slabs plant in Rio de Janeiro state contributed to impairment charges of 2.9 billion euros ($3.7 billion) in the last fiscal year, when it reported a loss. Rising raw-material costs and falling steel use have hobbled producers’ efforts to emerge from the industry’s worst slump in 60 years after the recession eroded demand.

“Our customers continued to draw down inventories,” slowing Thyssenkrupp’s shipments and depressing prices, the CEO said. First-quarter earnings before interest and tax will be “significantly lower” than a year earlier, even with signs that European spot prices are starting to recover, he said.

ThyssenKrupp (TKA) closed at 21.165 euros in Frankfurt trading, up 1 percent, after earlier falling as much as 4.5 percent.

Margins Narrow

The company’s global peers have reported dwindling earnings as higher costs for iron ore and coal squeeze profit margins. India’s JSW Steel Ltd. posted a 56 percent drop in third-quarter profit today, missing analyst estimates, and South Korea’s Posco reported a 13 percent decline in annual profit on Jan. 17. Thyssenkrupp is due to publish full-year results on Feb. 14.

ThyssenKrupp rose to a 10-week high yesterday after Manager Magazin reported the company may sell its assets in Brazil and Alabama. Hiesinger is studying selling its Brazilian plant this year, possibly to local miner Vale SA (VALE3), according to the report.

Every ThyssenKrupp business is reviewed every year, Hiesinger said today. “On the basis of this evaluation we will then decide,” he said, declining to comment further.

Vale, the world’s largest iron-ore producer, owns a 27 percent stake in the company’s Brazilian steel plant and supplies ore to the site. ThyssenKrupp built the Brazilian facility, with a capacity of 5 million metric tons a year, to supply an estimated 3 million tons of steel slabs a year to its mills in Calvert near Mobile, Alabama, and the rest to Germany.

‘Great Prospects’

“The Americas market has great prospects,” Hiesinger said at the AGM. While the Steel Americas’ new coke mill is scheduled to ramp up in the fourth quarter, it won’t operate at an “optimum cost structure,” he said. Expenses at Steel Americas are likely to fall in the second half, he said.

ThyssenKrupp isn’t likely to sell the American units before completing the ramp-up, Neil Sampat, a London-based analyst at Nomura Holdings Inc., said by telephone. “It would be very difficult to find a buyer before that,” according to Sampat, who has a “buy” rating on the stock.

ThyssenKrupp started its CSA Brazilian plant in 2010. The company controls 73.1 percent of the venture, and Rio-based Vale owns the rest. ThyssenKrupp’s steel mill in Alabama also opened that year.

Former CEO Ekkehard Schulz has said he erred on the Brazilian investment, Handelsblatt reported today, citing an interview. Schulz rejected claims that he misled the supervisory board with regard to the plant’s costs, the newspaper said.

The company’s executive board and supervisory board are proposing a dividend of 45 euro cents a share, the same as it paid last year, according Hiesinger.

To contact the reporters on this story: Stefan Nicola in Berlin at snicola2@bloomberg.net; Firat Kayakiran in London at fkayakiran@bloomberg.net.

To contact the editors responsible for this story: John Viljoen at jviljoen@bloomberg.net; Reed Landberg at landberg@bloomberg.net.

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