UK-based steel, aluminum and renewable energy group GFG Alliance expects a "considerably better Q3" in terms of pricing and demand after "a very tough Q2," but the recovery is more a short-term rebound rather than the start of any supercycle, according to Chief Investment Officer Jay Hambro.
A supercycle would generally involve high levels of global demand and confidence and readiness of investors to support long-term projects "but I don't think we're in that place," Hambro told S&P Global Platts in an interview. "A lot of stimulus from various parts of the world is leading a short cycle rebound and some fundamentals are very exciting, in particular demand for aluminum in the automotive and the construction space is very strong."
"Demand for steel depends how much governments are willing to back this in the long term," he said. "It's going to be infrastructure drive that moves demand going forward in steel and that infrastructure drive will be led directly by government spending so it's a political decision more than an economic one, and those are much harder to forecast."
GFG Alliance has grown rapidly in recent years mainly via steel and aluminum acquisitions – it now owns Europe's largest aluminum smelter and is among the world's eighth largest steel products producers outside China.
Continued growth
GFG Alliance has continued to grow during the coronavirus pandemic and has done "two very exciting" deals during this period: purchasing both the hydro-powered TEMCO ferromanganese and silicomanganese business in Tasmania from an entity owned by South32 and Anglo American to augment its supply chain – a transaction still subject to further approvals by the Australian government -- and the Ascoval and Hayange steel assets in France, formerly owned by British Steel, which allows the group to directly implement its GREENSTEEL vision in Europe.
Further acquisitions seem inevitable in the "sustainable" industrial assets area," Hambro said.
"We have a constant pipeline of opportunities that we are reviewing," he said. "Keeping a careful eye on what we are able to do, we don't want to stretch the management or financial bandwidth of our group too far.
"I think people are strained at the moment because COVID has been a tough period and the human resources challenge is key," Hambro said, adding that further integration between subsidiaries is planned.
GFG is in talks with Alcoa to acquire its San Ciprian aluminium smelter in Spain, having already grown "an incredibly exciting low carbon European champion in aluminium," he said. And "should an opportunity arise" for the group to move forward with a business plan it drew up three or four years ago for Tata Steel Europe's Port Talbot, UK, steelmaking site, with a view to convert the existing blast furnace operation to a more environmentally friendly electric-arc furnace operation, this would also be welcomed, he added.
GFG Alliance has set 2030 as a target for its businesses to become carbon-neutral, which will involve more green clean power investments in its renewable energy subsidiary SIMEC, Hambro said.
"Our group started as a GREENSTEEL business, this is our raison d'etre," he said. "We've always had a passion to reduce carbon footprints. This is no box-ticking exercise. Some competitors may now be working towards being carbon-neutral in 2050 simply because they have no choice by law, he added.
Using hydrogen to cut emissions
GFG Alliance now has secondary steel businesses in Australia, the US and UK that involve recycling based on melting scrap for use in EAFs using renewable energy, reducing the steelmaking carbon footprint, Hambro said.
It is now also "advanced" in the use of hydrogen in blast furnace production to reduce carbon emissions in primary steelmaking, with hydrogen-based technologies being introduced at the group's Galati, Romania, and Whyalla, Australia, steelworks, he said. Use of hydrogen, currently an expensive raw material, is considered key to achieving carbon neutrality in steelmaking. However, GFG Alliance believes that green hydrogen prices will fall substantially in coming years to increase the viability of green steelmaking while carbon prices are set to continue to rise, Hambro said.
It's also "inevitable" that a carbon border tax or similar will be introduced in Europe to help level the playing field for EU steelmakers who are striving to achieve carbon-neutral targets, he said.
Essentially composed of businesses owned by the Gupta family, GFG Alliance has undergone a transformation in recent months, Hambro explained. Its subsidiary Liberty Steel Group, which has grown mainly by acquisition, has now integrated its various parts to create a global entity, introducing independent governance and auditing, and will report on at least an annual basis, with final audited numbers to be published before year-end, he said.
