Steel yourself for bad news: soaring energy prices and the Russian invasion of Ukraine have both dented the European market for M&A involving steel companies. 

With costs rising and supply chains in chaos, the time is probably ripe for smaller European players to think about consolidation as a way of driving down costs in a poor environment. Stainless steel company Acerinox [BME:ACX] and peer Aperam [AMS:APAM] began the process with exploratory talks, but these soon fell apart. 

The M&A market for European steel had been booming before the war, according to Dealogic data. The year-to-date deal volume of EUR 1.5bn in 2021 set a 10-year record, although there were more deals in the same period of each year from 2010 to 2015. So far in 2022, there have been 10 deals with volumes of EUR 364m, not including the proposed Acerinox/Aperam deal.

Shutters down

A closer look at the data shows that 2021’s booming M&A market lasted right up until the end of February, when the shutters came down. One of the few exceptions since then has been Polish power generation equipment producer Rafako [WSE:RFK].  

Vienna-based MS Galleon agreed to buy a 33.32% stake in Rafako in March. The deal could lead to a full sale, as reported.

To understand the reluctance of European steelmakers to do deals, it is important to realise that the Russian invasion of Ukraine effectively acted as a triple whammy for the market.  

Russian players have been excluded from the market owing to sanctions, while Dutch-owned Ukrainian player Metinvest has had to recognise that it will fail to deliver contracts after the fall of Mariupol, where it ran giant steelworks. It has refused to do business in Russian-occupied Ukraine. 

Meanwhile, raw materials from Ukraine have also come under pressure as supply chains have run into understandable difficulties.