Moody’s: M&As in European steel industry fail to address overcapacity

Tuesday, 19 June 2018 15:52:43 (GMT+3)   |   Istanbul

International credit rating agency Moody’s has stated in a report that the surge of mergers and acquisitions (M&A) in the European steel industry will consolidate the sector and lower costs through synergies, but fail to reduce overcapacity issues as a result of takeover terms.

According to Moody’s, global steel giant ArcelorMittal's acquisition of Italy's largest steelmaker Ilva, and the planned merger of German steelmaker ThyssenKrupp’s and Indian steelmaker Tata Steel Ltd's European steel operations into a new joint venture will further increase the market concentration in carbon steel.

However, the credit rating agency stated that the announced mergers and acquisitions will not reduce steelmaking overcapacity because of the terms of the deals, which have been hashed out against the current backdrop of more stable sector fundamentals and will preserve steel capacity and jobs, at least initially. Moody’s warned that ongoing excess capacity in Europe may become a source of vulnerability in a downturn. In such a scenario, larger groups like ArcelorMittal and Tata-ThyssenKrupp would be better positioned given their economies of scale, according to Moody’s. The increased consolidation should benefit the industry by bringing higher economies of scale and making the largest European groups more competitive in terms of cost and this should make them more resilient in the next downturn, which could exacerbate the problem of overcapacity in Europe, Moody’s added.

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