UK-based GFG Alliance, the parent company of Liberty Steel and aluminum group Alvance, said March 9 it was asking all of its businesses to manage cash carefully while it proceeds with discussions to secure alternative long-term funding.
This follows the March 8 entry into administration of UK-based supply chain financier Greensill Capital, a financier of GFG businesses. The situation has heightened nervousness about potential further disruptions to steel supplies in Europe, where prices for products including hot rolled coil are at multi-year highs.
"Discussions to secure alternative long-term funding are progressing well but will take some time to organize," GFG Alliance said in an emailed statement. "While this takes place we have asked all of our businesses to manage cash carefully."
"GFG Alliance as a whole is operationally strong and we are benefiting from a thirteen year high in steel prices as well as strong markets in aluminium and iron ore. While Greensill's difficulties have created a challenging situation, we have adequate funding for our current needs. Through our global efficiency drive we've improved our operations' margins with most of our major businesses generating positive cashflows."
Materials supply concerns
Buyers from European Liberty mills contacted by S&P Global Platts March 9 were increasingly nervous that raw materials suppliers may no longer wish to risk selling to Liberty, meaning its mills could have difficulty keeping up product shipments in what is now a bullish market with tight supply. Mills have ramped up slowly following COVID-19 shutdowns last year and demand is booming amid regional stimulus packages.
"Apparent demand is back after declining in February, so now we have real and apparent demand with mills that are fully booked and are giving materials for Q3," a large stockholder told Platts." After a few bad quarters we can't afford, now that clients are back, to buy from a mill that eventually will not able to guarantee us materials.
GFG Alliance did not comment on recent market talk that Liberty had shortened product payment periods from 60 days to 30 days. Two buyers of Liberty material told Platts their payment periods have not been changed.
An Italian steel reroller said that it was hoped that the potential production issues surrounding not only Liberty but also Italian mill ArcelorMittal Italia amid "the tough shortage in the EU" would encourage the European Commission not to extend its steel import safeguards system, in order to avoid a more "dramatic" supply and demand situation develop in the second half of the year.
Liberty Steel has grown rapidly in recent years to become Europe's fourth largest manufacturer of steel products, with a 6 million mt crude steel capacity in the region. Of the group's steel rolling production capacity of around 18 million mt/year, some 10 million mt/year is in Europe.
Government contacts
Last year Liberty acquired the Ascoval and Hayange steel mills (originally part of British Steel) in France, where Finance Minister Bruno Le Maire said on TV that the French government stands ready to help any workers at steel sites if affected by the insolvency of Greensill Capital.
Talks between Liberty Steel and UK government officials reportedly took place in recent days although no information was made available on their outcome.
GFG Alliance indicated in its statement that Liberty's specialty steels businesses in Stocksbridge and Rotherham, UK, may gain special attention.
"LIBERTY Steel Group has provided significant support to the UK speciality steel business which has seen the demand for some products fall by 60% following the downturn in the aerospace sector due to Covid-19," it said. "As part of the prudent steps we are taking to manage cash, we are discussing new opportunities with customers and suppliers to improve cash flow and looking to secure additional working capital facilities to support the business. We also continue to use the furlough scheme to support employees affected by the weakness in the aerospace market."
The company is continuing to work closely with unions and employees to identify the most effective ways of supporting the business and preserving jobs, it said.
GFG Executive Chairman Sanjeev Gupta "had a productive meeting with the unions to discuss the plan to make the parts of the UK businesses facing weak market conditions more financially sustainable and address the disruption caused by the situation at Greensill," it said.
Unions on board
A statement from the National Trade Union Steel Coordinating Committee, comprising trade unions Community, Unite and GMB said that while the situation regarding Greensill's insolvency and the challenges facing Liberty were "extremely concerning," the meeting with Gupta "was positive and constructive." The unions said they supported Liberty's efforts to decarbonize the UK steel industry and to secure a refinancing of the debt to provide the business with the necessary liquidity going forward
"Given the strategic importance of Liberty's steel operations, and their fundamental importance to delivering the UK's climate objectives, we believe government must take an active role to facilitate a comprehensive solution that safeguards the future and protect jobs," the unions' statement said.
A person familiar with the matter told Platts that US life insurance company Athene may be interested in taking over some of Greensill's operating platform in the UK, but is unlikely to take over financing to GFG Alliance because steel is considered "risky" and "they only want investment-grade company" clients.
According to reports in the Financial Times, Greensill may have had about $5 billion of exposure to GFG Alliance companies.
GFG Alliance, which is also active in the energy sector, has a total of more than 200 manufacturing locations in 10 countries, employing more than 30,000.
