Aperam Expects to Gain From Consolidation After Outokumpu Deal

Aperam (APAM), the stainless-steel producer spun off by ArcelorMittal, expects to benefit from consolidation in the industry following the announcement of a planned merger of Outokumpu Oyj (OUT1V) with a unit of ThyssenKrupp AG. (TKA)

“We would welcome its implementation because we expect it will improve the attractiveness of the stainless steel industry,” Aperam said in an e-mail. “Aperam is in a strong position to benefit from consolidation in its sector.”

Outokumpu’s planned 2.7 billion euro ($3.5 billion) takeover of the Inoxum stainless steel unit will reduce some of the excess capacity in the industry that has raised costs and suppressed prices. The move, which requires regulatory approval, will create the world’s leading producer of the alloy, with 11.8 billion euros in sales, the companies said today.

“If the deal is confirmed, then Aperam will say ‘thank you very much’,” said Christian Georges, a London-based analyst at Olivetree Securities Ltd. “For Aperam, the net impact has to be that without any effort whatsoever they are a big step toward a reduction in the excess capacity in Europe, which is bound to turn into improved volumes.”

Since ArcelorMittal, the world’s biggest steelmaker, spun Luxembourg-based Aperam off in January 2011, its share price has dropped by about 50 percent in the face of weak demand. Western European stainless steel capacity exceeds requirements by more than 1 million metric tons, according to steel consultancy MEPS International Ltd.

‘Positive Step’

Lakshmi Mittal, CEO of ArcelorMittal whose family owns 41 percent of Aperam, said in May that ThyssenKrupp’s plan to separate its stainless unit was a “positive step” toward merging companies in an industry that has “always needed” consolidation.

ThyssenKrupp abandoned plans to tackle surplus capacity in 2009 after failing to achieve the price it wanted for several units. ArcelorMittal spun off Aperam after years of talks with European peers failed to bring about a merger of their stainless operations.

The company formed by the Outokumpu deal plans to cut about 1.4 million tons of steelmaking capacity by closing its Krefeld plant melt shop by the end of next year and shuttering its Bochum facility by the end of 2016. The delay in shuttering plants is “unfortunate,” according to Georges, who said the company may look at closing other plants sooner.

“Keeping the two sites open in Germany is nonsensical,” he said. “The other two sites that should start being considered for rationalization are Sheffield and Avesta in Sweden.”

The takeover may also benefit Spain’s Acerinox SA (ACX), currently the world’s largest stainless-steel producer, according to Banco Sabadell SA. The merger is “the best option” as it will reduce European capacity by 15 percent over the next four years at no cost to Acerinox, which “benefits passively,” Banco Sabadell said.

Aperam has gained 19 percent since a possible merger was first reported on Jan. 23, while Acerinox has advanced 5.7 percent.

To contact the reporter on this story: Thomas Biesheuvel in London at tbiesheuvel@bloomberg.net.

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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