Thyssenkrupp: looking for ways to save the steel business

Thyssenkrupp Steel has recently announced plans to restructure, and the company continues to discuss a joint venture with Czech EPCG

In November, the steel division of the German industrial group Thyssenkrupp presented plans for its future industrial strategy. They include a reduction in employees and capacity, but the company’s large green project in Duisburg remains in place. The restructuring is supposed to prepare the steel division for the long term future.

This is not the first time in the last five years that the company has tried to transform its steel business by looking for partners.

Merger with Tata Steel

In 2018-2019, two major players in the steel industry – Thyssenkrupp and Tata Steel – tried to solve the problems of overcapacity, employment maintenance and value chains by creating a joint venture that would become the second largest steel producer in Europe after ArcelorMittal.

The companies signed a final agreement to combine their European steelmaking operations into a 50/50 joint venture between Thyssenkrupp and Tata Steel in June 2018. The proposed new company was to be positioned as a leading pan-European producer of high-quality flat products with a focus on productivity and technological leadership. The JV was to be managed as a single integrated business through a holding company headquartered in the Netherlands.

The transaction was subject to merger control in several jurisdictions, including the EU. The announced merger was the subject of an in-depth competition investigation by the European Commission launched in the fall of 2018.

In May 2019, Thyssenkrupp and Tata abandoned their plans due to strong opposition to the joint venture from European competition authorities.

In June 2019, the European Commission officially blocked the deal. A number of commitments offered by the companies, and even their willingness to make certain concessions, could not overcome concerns that the merger of their European steel assets would result in greater control over market supply and prices.

In 2022, the companies lost their fight to overcome the EU antitrust veto in the Luxembourg General Court. In October 2024, the European Court of Justice, the highest court in the bloc, finally sided with the European Commission, completely rejecting the German conglomerate’s appeal against the joint venture.

In addition, in 2021, the takeover of Thyssenkrupp’s steel division by British rival Liberty Steel failed due to disagreements over corporate value and the structure of the deal.

A steel “anchor”

For four of the last five years, Thyssenkrupp’s steel division, Thyssenkrupp Steel Europe (TKSE), has suffered operating losses amid the crisis in the steel industry, fierce competition from Asian producers, high electricity prices and weakness in the German industry.

In particular, over the past two fiscal years, the German concern has twice reduced the book value of its steel division – by €2.1 billion in FY2022/2023 and by another €1 billion in FY2023/2024. The last time, the company cited the deteriorating outlook for the sector due to weak demand and Asian competitors, which hindered the competitiveness of the German industry.

In FY2023/2024, Thyssenkrupp Steel Europe’s order intake fell by 14% year-on-year. One of the reasons was the decline in demand from the automotive sector, which is also currently experiencing a crisis. The value of these orders was lower than in the previous financial period due to a drop in spot market prices. In the period under review, the steelmaking division reduced steel product shipments by 5% y/y – to 9 million tons.

Over the past six financial years, the company’s steel production (including shipments to and from Hüttenwerke Krupp Mannesmann) has remained relatively stable at around 10-11 million tons.

*financial year (October 1-September 30)

Future strategy

Shortly after announcing its financial and operating results for the past fiscal year, Thyssenkrupp Steel Europe presented plans for its future industrial strategy.

These included, among other things, a reduction in

• production capacity from 11.5 to 8.7-9 million tons
• 11,000 jobs (about 5,000 by 2030 due to adjustments to the industrial network and rationalization of administration, another 6,000 due to the transfer of functions to external service providers or reduction through the sale of assets),
• personnel costs in the coming years by an average of 10%.

The announced program caused outrage among trade unions. The German IG Metall called the announced plan a disaster and promised to resist these changes. Later, German Chancellor Olaf Scholz called on Thyssenkrupp to reconsider its job cuts, promising to continue the government’s efforts to limit grid tariffs for energy-intensive companies. However, this is unlikely to receive parliamentary approval before the February snap elections in the country.

Plans and disagreements

The steel business of the conglomerate would undergo a major reorganization, as early as the beginning of the year, Sigmar Gabriel, chairman of the supervisory board of the steel division, warned that it would be subject to a major reorganization. In an interview with the Westdeutsche Allgemeine Zeitung, he said that the company has plants designed to produce almost 12 million tons of steel annually, but only about 9 million tons are sold at the time.

At the end of August this year, Sigmar Gabriel and several other members of TKSE’s supervisory board, the steel division’s CEO Bernhard Osburg and other top managers decided to resign. This happened amid tensions with the parent company over the future of the steel business. The dispute was over how much capacity and jobs should be cut at Thyssenkrupp Steel Europe to improve profitability and how much financial injection the group needed to restructure. The business plan proposed by the unit in early August was deemed insufficient by Thyssenkrupp CEO Miguel Lopez.

In a statement following the changes, the group said it would continue to push forward with the reorganization of the steel division. In particular, Siegfried Russwurm, Chairman of the Supervisory Board of Thyssenkrupp, noted that over the past five years, the division has spent more than €3 billion, failed to achieve its goals several times and has incurred billions of euros in write-downs due to poor investments.

“Despite all the laudable efforts, Thyssenkrupp Steel’s management has not been able to provide successful responses to the structural challenges of the steel business and its economic difficulties, not only in the last few months but for many years,” he explained.

Thyssenkrupp capacity reduction

The company called the sale of its stake in Hüttenwerke Krupp Mannesmann (HKM) a key element of the capacity reduction process announced in November. Thyssenkrupp Steel owns a 50% stake, Salzgitter owns 30%, and Vallourec owns 20%. HKM is an integrated steel mill that specializes in the production of slabs and billets for pipe production. Thyssenkrupp intends to sell its shares and, if not, to discuss acceptable exit scenarios with other shareholders.

The company has also announced the closure of its processing site in Kreuztal-Aachen, which mainly produces coated sheets for household appliances. The move will affect at least 600 employees and jobs in related sectors. According to the German press, the staff doesn’t believe that the plant is unprofitable.

Earlier, in October 2024, Thyssenkrupp sold its Indian electrical steel business to an Indian-Japanese joint venture for approximately €440 million, as announced, for market and strategic reasons.

Agreement with EPCG

Alongside its reorganization plans, Thyssenkrupp continues to pursue the spin-off of its steel business. In 2022, the company froze this idea due to unsuccessful attempts to register, sell or find a merger partner, but a year later it resumed its efforts.

Eventually, a 20% stake in the steel division was sold to the energy holding EPCG (the agreement was reached in April 2024, the deal was closed in July), which is controlled by Czech billionaire Daniel Kretinsky. The ultimate goal is a 50/50 joint venture.

Thyssenkrupp sees Kretinsky’s holding as an energy partner for green transformation. EPCG operates in nine European markets and has competencies as a trader, distributor and energy supplier. In particular, the steelmaker expects EPCG to be able to supply additional volumes of natural gas, green electricity, and, in the future, hydrogen for the green steel production in Duisburg.

Currently, EPCG has an installed net electricity generation capacity of about 22 GW in Europe and is making significant investments in renewable energy. For example, in Germany alone, the company aims to expand its green capacity to more than 8 GW by 2030, focusing on wind and solar energy, as well as biomass.

However, the German conglomerate does not want to rely on the EPCG agreement alone. As Thyssenkrupp CFO Jens Schulte told Reuters, the joint venture will be clear only next year. First, a new business plan for the steel division will be drawn up, which is likely to be ready in the spring of 2025. The document will form the basis for negotiations on increasing the share of Kretinsky’s holding.

Schulte did not rule out the possibility that EPCG would stay with its current stake. But even if the group completely withdraws from the deal, Thyssenkrupp will continue to spin off the steel business, either on its own or by resuming negotiations with other industrial partners. However, the steel division needs to improve its performance, and an IPO is currently not possible for objective reasons.

Green future

Despite the upcoming restructuring, the company confirmed that it is committed to building a direct reduced iron (DRI) plant. The decision on this project was made in September 2022, and work has already begun. However, Thyssenkrupp is negotiating with stakeholders to ensure the economic viability of the investment project.

By 2030, two blast furnaces No. 8 and 9 in Duisburg are to be replaced by a DRI plant and two innovative melting furnaces with a total capacity of 2.2 million tons per year. The company does not rule out replacing the third blast furnace with a modern electric arc furnace. However, the decision will be made later, depending on future economic, technical and political conditions.

The declared total cost of the tkH2Steel project is about €3 billion. It is funded by the federal and state governments of North Rhine-Westphalia in the amount of €2 billion, with Thyssenkrupp Steel’s own investments amounting to almost €1 billion.

In July 2023, the European Commission approved a German grant of €550 million to the company for the decarbonization of steel production processes and additional payments of up to €1.45 billion to accelerate the transition to renewable hydrogen.

The DRI plant is due to be commissioned at the end of 2026. However, the company’s management already recognizes that the direct reduction iron plant may take longer than expected to run on natural gas due to the high cost of green hydrogen.

It was planned that the DRI plant would partially use hydrogen in 2028 (the demand for H2 for this period was estimated at 104 thousand tons), and in a year it would operate on it 100%. However, it is currently said that this timeframe is likely to be subject to revision.

Currently, Thyssenkrupp Steel’s intentions to purchase hydrogen have not changed, a company spokesperson told Kallanish. The announced tender is still ongoing. Only upon its completion the steelmaker will be able to familiarize itself with the supply and purchase prices for the first time. In addition, the company notes delays in the development of hydrogen infrastructure and production facilities in various locations.

Thyssenkrupp Steel is in the same position as other European steelmakers. The European steel industry is losing competitiveness on the global market and at the same time is forced to implement green transition projects. Companies are trying to find solutions to the problems, but not all of them are equally effective, even despite government support. The example of Thyssenkrupp Steel shows that the restructuring of the European steel industry is already underway, and as a result of the green transition, the list of industry participants may change significantly.