ArcelorMittal eyes $3 bln stainless spin-off

Posted on 28 July 2009

Source: Reuters, July 27, 2009

ArcelorMittal, the world's largest steelmaker is looking into a possible joint venture spin-off of its stainless steel business, worth around $3 billion, the Financial Times reported on Monday.


ArcelorMittal, which is striving to bring down its debt, was evaluating various options for the stainless business, but was not planning to dispose of it completely, the newspaper said.


ArcelorMittal said in a statement that consolidation was needed in the stainless sector. A company spokesman declined to say whether contributing assets to a joint venture was an option.


"ArcelorMittal continues to evaluate various options as it has done in the past. While no assurance can be given that such options will lead to consolidation, ArcelorMittal has no intention to dispose of its stainless business," the company said.


ArcelorMittal is in a quiet period ahead of second-quarter results on Wednesday.


At 1107 GMT, The company's shares were up 2.3 percent at 26.65 euros compared with a 1.4 percent gain of the DJ Stoxx European basic resources index .SXPP.


The FT said that ArcelorMittal had discussed a possible joint venture with South Korea's POSCO, although the talks had not gone far. Finnish stainless steel maker Outokumpu was another possible partner, the paper said.


Both POSCO and Outokumpu declined to comment. Outokumpu, of which Finland owns 31 percent, has previously said it is ready to be an active player in the consolidation of the industry.


ArcelorMittal's Stainless Steel unit shipped 1.96 million tonnes last year, had sales of $8.3 billion and employed 12,415 workers at plants in Belgium, Brazil and France.


As part of any joint venture deal, there would probably be output cuts in parts of the business, most likely in Belgium and France, the Financial Times said.


Stainless steel, best known in the form of cutlery, has suffered along with the rest of the steel sector from the economic downturn, with output down as far as 50 percent of capacity.


Oddo Securities analyst Luc Pez said that a tie-up with the likes of Outokumpu in a fragmented sector -- with the top five producers only accounting for 37 pct of the market -- would make sense.


Overcapacity and a lack of market discipline meant there was a need for consolidation of the stainless steel industry.


ArcelorMittal also lacked a critical mass, with stainless representing only 4 percent of EBITDA (earnings before interest, tax, depreciation and amortisation).


The company's stainless steel activities are almost came with the 2006 takeover by then Mittal Steel of Arcelor.


"Stainless has always been marginal in the portfolio. The key question is whether you end up acquiring or bringing assets to another player," Pez said.


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