aluminum sheet mill
Photo provided by Dreamstime.

Analysis: Governments scramble to consider future of GFG metals assets

Some Liberty, Alvance and InfraBuild plants likely have solid futures; should the rest receive support?

Subscribe
March 24, 2021

[Editor’s note: This article was written before GFG Alliance asked for a $230 million loan from the government of the United Kingdom. The loan request was rejected.]

Throughout March, as reports have pointed to the finances of the United Kingdom-based GFG Alliance being deeply interwoven with those of the now in receivership Greensill Capital, elected officials have started to consider the future of GFG’s steel and aluminum mills and smelters.

Based on media reports from different parts of the world, appealing to workers who vote is playing a role in some jurisdictions, but avoiding a large bailout funded by taxpayers (who also vote) will be a factor in some of those same places.

A media group that focuses on recycling may certainly have a bias, but some of the GFG assets with a direct attachment to scrap recycling and recycled-content metals production seem to have the clearest path to future viability.

Of the three GFG metals production divisions (Liberty Steel, Alvance and InfraBuild), InfraBuild in Australia is the one to receive a public unconditional vote of confidence from a GFG executive. Ray Horsburgh, an Australian who sits on the Liberty Steel board, reportedly told the Australian Financial Review that InfraBuild is largely free of Greensill-related woes and is a “jewel” in the GFG portfolio.

InfraBuild operates two electric arc furnace (EAF) steel mills and a network of 22 scrap yards in Australia. Each of those industry sectors hosts numerous profitable companies around the world, engaged in activities that have required minimal government support.

The future of Liberty Steel EAF assets is not as clear, however. In the United States, the melt shop of a Liberty EAF mill in South Carolina has been idle for several months. The firm’s decades-old EAF facility in Peoria, Illinois, has continued to produce steel wire, but a local media report indicated “several dozen” workers were laid off there in January 2020 when employees were told the mill was having difficulty obtaining melt shop electrodes and zinc additives.

GFG Chair Sanjeev Gupta reportedly considered initial public offerings (IPOs) for both the Australian and the U.S. assets, but steel industry observers see that as more viable for the Australian holdings.

In France, the Ascoval EAF rail mill owned by GFG has reportedly already received a €20 million ($23.8 million) loan to fund ongoing operations. News websites have quoted French Minister of the Economy Bruno Le Maire as stating, “I will release a loan of €20 million, which will be available on Monday [March 22] for Ascoval, in order to pay the salaries, the supplies necessary to run the plant and ensure that there is no disruption of activity.”

Sounding very much like a politician wishing to bolster his party’s standing, Le Maire reportedly said to his audience of workers, “We will never let you down.”

The rail mill supplies the French national railroad sector, giving it something in common with many of GFG’s primary production assets—a “national interest” argument.

In the U.K., a Financial Times analysis says for that nation’s government, “one option [is] to use public funds to maintain production similar to how the Treasury supported British Steel in 2019 at a cost to taxpayers of nearly £600 million ($829 million).”

Despite the lofty price tag, both major political parties in the U.K. have largely been supportive of steel bailouts, with a BBC analysis indicating most Liberty Steel mills reside in competitive voting districts.

The U.K. assets include an EAF rebar mill in Rotherham, England, but also blast furnace/basic oxygen furnace (BOF) mills in other parts of the U.K.

Additionally, on the primary production side Liberty Steel owns a BOF mill in Whyalla, Australia, that had been slated to receive EAF equipment. Alvance owns a primary aluminum smelter in Dunkerque, France, and had been in negotiations to purchase another primary smelter in Spain. Those talks have been put on hold by the Spanish government after it was unable to receive requested documentation from GFG.

The same national interest argument made for the French steel rail mill has been made for the primary smelters in Spain and in Dunkerque, since each smelter supplies the automotive, aerospace and defense sectors in those nations.

The smelter in Spain is currently owned and operated by a national government entity, after U.S.-based Alcoa announced it intended to close the facility. It is a fate that can be found in the histories of some of the other primary metals production assets already in the GFG portfolio.

The once distressed British Steel mills referred to by the Financial Times were eventually purchased by China-based Jingye Steel. That same Chinese firm had offered to buy the GFG French rail mill now being supported with a government loan, but was denied on national security grounds.

Similar national security or national interest cases might be made for additional mills. A Bloomberg analysis says of Liberty Steel BOF mills in the Czech Republic and Romania that “finding buyers for these assets may prove difficult, given the potential level of debt attached, and as [they] struggled to consistently deliver profits when [they were] run by ArcelorMittal.”

The sustainability and circular economy movements are poised to continue supporting the production of recycled-content metals, especially in scrap surplus Organization for Economic Cooperation and Development (OECD) nations such as the U.K., France, Spain and Australia.

To GFG’s credit, the company has sought alternative energy sources to lower the carbon footprints of some of its primary facilities.

Regarding many of the older mills and smelters, though, the question arises: To what extent should governments in these nations subsidize historically energy- and emissions-intensive facilities that rely on mined materials? Should any such subsidization include guarantees of a lower carbon emissions future?

It is a line of questioning that, unfortunately, might be avoided by politicians who are seeking not honest answers, but instead votes in competitive jurisdictions.