An interesting article in the Financial Times explores ThyssenKrupp's (OTCPK:TKAMY) quandary as both steelmaker and industrial conglomerate.
On the one hand, as a steelmaker, it is exploring the possibility to merge its European steel operations with those of Tata Steel. The European steel market desperately needs consolidation, but no one is willing to bear the brunt - politically or economically - of closing multiple plants and laying off thousands of workers.
One attraction of a merger could be that ThyssenKrupp and Tata might keep open their German and Dutch facilities, but try to close or scale down Tata's Port Talbot operations in South Wales. After Brexit, Britain - and maybe all of what's presently the U.K. - will no longer be of much concern to the rest of Europe. Regardless, the article's main focus is on protectionism. The E.U. is in the process of applying historically high duties to Chinese steel; some as high as 73.7% for heavy-plate and 22.6% for hot-rolled, levels said by the Chinese to represent "reckless trade protectionism."
Protected Bubbles in a Global Marketplace
That sours the air between Europe and China on the question of open trade relations. ThyssenKrupp, one would think, would benefit, though. Of its six divisions - Steel Europe, Steel Americas, Components Technology, Elevator Technology, Industrial Solutions and Materials Services - the steel divisions represent 30% of its revenue but only turned a modest profit in Q2 not least of which because prices were depressed in part by China's low-priced imports.
In microcosm, ThyssenKrupp is an example of a wider issue, the article suggests. You can't adopt selective punitive tariffs on some products and not expect some form of retaliation or more willing adoption of reciprocal tariffs on other products or services areas by those affected importers. Steel generates just 2% of Thyssen's profits, so 98% come from its much more promising elevator and industrial products divisions… divisions that benefit most from a free and open global marketplace.
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