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As China looks set to create the world’s second largest steelmaking company through the merging of Baosteel and Wuhan I&S, Europe’s steel industry is on the brink of a pair of mergers that would genuinely transform the region’s industry.

Assuming Tata Steel and ThyssenKrupp combine, and ArcelorMittal is successful in its pursuit of Ilva, what would the newly consolidated European flat steel industry look like?

Unlike the US steel market, Europe’s industry is far more segregated, meaning pricing power is spread far more thinly and easier to undermine. There has traditionally been a premium between northern and southern European prices of around €20/mt for hot and cold rolled coil, while the increased presence of non-European imports into Spain and Italy has acted as a further drag on regional prices. ArcelorMittal’s proposed acquisition of Italian producer Ilva, combined with a spate of anti-dumping duties, could plug the industry’s leaky bottom.

ArcelorMittal is the biggest player in Europe’s estimated 170 million metric ton/year coil market. But with Salzgitter, Tata Steel, ThyssenKrupp, SSAB and Voestalpine to compete with in the north of the continent, and Arvedi, Marcegalia, Ilva, US Steel, Smederevo, Dunaferr and others  to compete with elsewhere, they are far from having significant regional pricing control. As a result, time and again in recent years announcements of price increases have failed to spark an uplift in the market.

The world’s largest steelmaker has been looking to cut capacity in Europe and scale down its $14 billion group debt. Located in Taranto, in southern Italy, Ilva would thus represent everything ArcelorMittal is looking to avoid. A debt ridden company accused of causing cancer in the local community, controversially rescued from bankruptcy by the Italian government, with previous owners adjudged to be on the wrong side of the law.

Ilva’s debt is huge and it requires massive capital expenditure to bring its assets up to environmental standards. But with crude steel capacity of around 11 million metric tons/year it’s the biggest steel production site in Europe, and as the biggest employer in the local town of Taranto, it is unlikely the Italian government will let it die.

An investigation into whether or not hot rolled coil has been dumped by sources from China, Iran, Brazil, Russia, Ukraine and Serbia, should also limit non-EU competition, and domestic mills will ...