Steel giant ArcelorMittal already makes an estimated 40 percent of the steel that is used by U.S. automakers, and will soon take over a plant that was designed to supply the growing number of auto factories in the south.
An analyst estimates the global steelmaker, which has extensive operations in Northwest Indiana, could increase its automotive market share by 5 percent to 8 percent after teaming up with Nippon Steel and Sumitomo Metal Corp. to buy a ThyssenKrupp steel finishing plant in Alabama for $1.55 billion.
The deal should benefit the entire domestic steel industry – including competitor U.S. Steel – because ArcelorMittal has incentive to protect its many North American mills and likely would not flood the market with unwanted metal, said Christopher Plummer, managing director of Metal Strategies, a West Chester, Penn.-based consulting firm.
"The plant was going to be purchased by someone, and the question had been who was going buy it," Plummer said. "I would say this is probably a good outcome in terms of the discipline ArcelorMittal brings to the market. It will be careful because it has operations here in the United States."
Overcapacity has been a nagging issue in the steel industry, and has been cited as a reason for recent closures of steel service centers in Joliet and Chicago Heights. The domestic steel industry has operated at about 77.1 percent capacity so far this year, according to the American Iron and Steel Institute.
ThyssenKrupp had only been running the plant at about 60 percent capacity, because demand was not strong enough to absorb all the tonnage it could produce, Plummer said. The facility in Calvert, Ala., which opened in 2010, can produce up to 5.3 million tons a year of steel for cars, tubes, pipes and construction materials.
About a third of steel made at the Alabama plant ends up in cars and pickup trucks. The acquisition will give ArcelorMittal a big enough slice of the automotive market that the U.S. Department of Justice's Antitrust Division will have to review it, Plummer said.
"The Justice Department has been very lenient about higher market shares in the steel industry because of all the financial difficulties over the last 15 to 20 years," he said. "There's been a lot of consolidation."
ArcelorMittal's purchase ultimately should benefit the entire domestic industry because the steelmaker would not want to undercut prices by producing more steel than the market can absorb, Plummer said. Steel prices have been depressed since the downturn started in 2008 because of the anemic demand.
"One would assume ArcelorMittal will operate in a manner that is least disruptive to the domestic industry," he said. "It has a vested interested in other plants and will not hurt its own operations."
The steelmaker plans to furnish the Alabama facility at least partly with steel slab from its other North American mills, which include facilities in East Chicago and Burns Harbor. ArcelorMittal also already has two joint ventures with Nippon Steel and Sumitomo Metal Corp. in New Carlisle in St. Joseph County.