U.S. Steel reportedly set to sell Slovak unit within weeks

By Brian Kenety in Prague May 6, 2016

U.S. Steel chairman Mario Longhi is expected to name a potential buyer of the company’s Slovak unit when he next visits the country, local media reported on May 6, citing unnamed sources.

The claims are sure to enrage Bratislava. Company representatives had assured the Slovak government that there were no offers on the table for its Slovak unit worth pursuing, Deputy Prime Minister for Investments Peter Pellegrini said following a May 4 meeting to discuss the future of the country's largest employer.

However, sources close to the steelmaker now say Longhi could name a potential buyer in a matter of weeks when he returns for his second visit to Slovakia in less than two months, SME reports. A company spokesman declined to comment beyond saying Longhi's trip will be a “normal visit”.

Czech billionaire Tomas Chrenek, owner of Moravia Steel, held talks with U.S. Steel in December, but failed to reach an agreement on price, unnamed sources claim. The US company could welcome a deal with a private company, as it has been involved in several hot-tempered negotiations with the Slovak government in recent years. Bratislava insists the company has a responsibility in the unemployment blackspot in which it operates, especially considering the state aid that has been handed out.

U.S. Steel has been struggling to cope with a depressed steel market. Over the past five years, it has reduced its North American workforce by 2,000 and its European staff by 6,800, mostly after abandoning its distressed Serbian mill in January 2012.

On May 5, Fitch Ratings downgraded U.S. Steel's long-term issuer default rating (IDR) to B+ with a negative outlook. A month earlier, the company had announced another round of planned redundancies, which will also affect its 5mn tonne per year integrated steel operations in Slovakia, which employ around 12,000 people.

U.S. Steel Kosice swung to a profit in the last two years after cutting costs, but the government has contributed up to €15mn in incentives since 2013, when U.S. Steel began actively looking for a buyer. This year, U.S. Steel has made capital expenditures worth “hundreds of millions of euros,” a sign that the company “intends to continue their production in eastern Slovakia and remain an important employer in Kosice region," Pellegrini said earlier in the week, according to TASR.

However, steelmakers such as U.S. Steel have been fighting a losing battle to stay in the black. Demand for steel has risen in recent years, but in much of Europe that increase has been entirely absorbed by imports. Prices for some main product classes – such as hot and cold rolled coil – collapsed in the second half of 2015, in some cases by as much as 40%, according to the European Steel Association’s (Eurofer) annual report released on May 4.

The EU became a net importer of steel in 2015, to the extent of 4.5mn tonnes, and at best uncertainty over prices will continue into 2016, Eurofer said. In its effort to support the steel industry in a depressed market, Slovakia is far from the only EU country providing generous post-crisis state aid. But the sector’s health is especially vital to Slovakia, the world’s largest producer of cars per capita. The automotive industry accounts for around 40% of the economy's exports.

The plant in Kosice is seen as so important that the Slovak government has said it could buy up to a third of U.S. Steel Kosice to prevent it from suffering the same fate as the US company's Serbian operations.

“I can imagine that the government would join talks and seek a share ... to prevent a new owner buying the plant only to close it”, Economy Minister Peter Ziga said on May 4, according to Reuters. “A 34% stake would ensure a blocking mechanism so that the state can have a say,” he noted.

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