ArcelorMittal is exploring a joint venture spinoff of its stainless steel business, worth an estimated $3bn (£1.82bn), in a sign that the biggest steelmaker is contemplating scaling back.
Driven on by Lakshmi Mittal, chairman and main owner, the group has expanded on the back of acquisitions including the €26.9bn (£23.2bn) purchase of Arcelor of Luxembourg in 2006.
Mr Mittal is weighing up whether the expansion might have gone too far in the light of a downturn that is likely to leave the steel industry with overcapacity for years.
ArcelorMittal was evaluating “various options” related to its stainless steel division but had “no intention” of disposing of the business completely.
One company with which Mr Mittal has discussed a possible joint venture is Posco of South Korea, the sixth-biggest steel company, which has a large stainless steel division.
While the talks with Posco have not gone far, another candidate could be Outokumpu of Finland, one of Europe’s leading stainless steel companies.
Posco was “not reviewing” ArcelorMittal’s stainless steel operations “at this stage”.
Outokumpu did not comment.
ArcelorMittal’s stainless steel business employs 11,000 people and is likely to suffer a loss this year.
Almost all of ArcelorMittal’s stainless steel business, with plants in France, Belgium and Brazil, came as part of Arcelor.
The unit had sales of $8bn last year and its earnings before interest, taxation, depreciation and amortisation were $900m.
As part of any deal, some cuts in production in ArcelorMittal’s output in this part of its business would almost certainly be required.
The most likely outcome would be job cuts in Belgium and France.
Stainless is a relatively high-cost form of steel that is used in precision engineering, kitchen goods and car exhausts. The stainless part of the industry is regarded as being in a difficult position due to a high degree of overcapacity.
Matthias Hellstern, an analyst at Moody’s, the rating agency, said: “There will be some kind of recovery in the steel industry this year, and in 2010, but it will be quite weak.
“It . . . seems to me inevitable that steel producers will be looking at the idea of reducing overall capacities.”