[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.]
According to media reports from different parts of the world, appealing to workers who vote plays a role in some jurisdictions, but avoiding a major bailout funded by taxpayers (who also vote) will be a factor in some of those same places.
A media group that focuses on recycling can certainly have a bias, but some of GFG’s assets directly tied to scrap metal recycling and recycled content metal production appear to have the clearest path to future viability. .
Of GFG’s three metals production divisions (Liberty Steel, Alvance and InfraBuild), InfraBuild in Australia is the one that received an unqualified public vote of confidence from a GFG executive. Ray Horsburgh, an Australian who sits on Liberty Steel’s board of directors, reportedly told the Australian Financial Review that InfraBuild is largely free of Greensill issues and is a “jewel” in the GFG portfolio.
InfraBuild operates two Electric Arc Furnace (EAF) steelworks and a network of 22 scrapyards in Australia. Each of these industrial sectors is home to many profitable companies across the globe, engaged in activities that have required minimal government support.
The future of Liberty Steel EAF’s assets is not so clear, however. In the United States, the smelting workshop of a Liberty EAF plant in South Carolina has been inactive for several months. The company’s decades-old EAF plant in Peoria, Illinois continued to produce steel wire, but a local media report said ‘several dozen’ workers had been there laid off in January 2020 when employees were notified that the plant was having difficulty obtaining melt shop electrodes. and zinc additives.
GFG Chairman Sanjeev Gupta has reportedly considered initial public offerings (IPOs) for Australian and US assets, but steel industry watchers consider this more viable for Australian holdings.
In France, the Ascoval EAF railway factory owned by GFG has reportedly already received a loan of 20 million euros ($23.8 million) to finance ongoing operations. News sites quoted French Economy Minister Bruno Le Maire as saying: “I will release a loan of 20 million euros, which will be available on Monday [March 22] for Ascoval, in order to pay the salaries, the supplies necessary for the operation of the plant and to ensure that there is no disruption of activity.
Sounding a lot like a politician wishing to strengthen the position of his party, Le Maire reportedly told his audience of workers: “We will never let you down”.
The rail plant supplies the French national rail sector, giving it something in common with many of GFG’s primary production assets – a ‘national interest’ argument.
In the UK, a FinancialTimes analysis indicates that for the government of this country, “an 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 almost £600m ($829m).
Despite the high price, both main political parties in the UK have largely backed the bailouts for steel, with a BBC analysis indicating that most of Liberty Steel’s factories reside in competitive constituencies.
UK assets include an EAF rebar factory in Rotherham, England, but also blast furnace/basic oxygen furnace (BOF) factories in other parts of the UK.
Additionally, on the primary production side, Liberty Steel has a BOF plant in Whyalla, Australia, which was to receive EAF equipment. Alvance owns a primary aluminum smelter in Dunkirk, France, and was in negotiations to purchase another primary smelter in Spain. These talks were suspended by the Spanish government after it was unable to receive the documents requested by GFG.
The same national interest argument advanced for the French steelworks was advanced for the primary foundries in Spain and Dunkirk, since each foundry supplies the automotive, aerospace and defense sectors in these countries.
The smelter in Spain is currently owned and operated by a national government entity, after US company Alcoa announced plans to close the facility. It’s a fate that can be seen in the history of some of the other primary metals production assets already in GFG’s portfolio.
The once struggling British steelworks to which the FinancialTimes were eventually purchased by the Chinese company Jingye Steel. This same Chinese company had offered to buy the French railway factory GFG currently supported by a government loan, but was refused on national security grounds.
Similar cases of national security or national interest could be presented for other factories. A Bloomberg analysis indicates of the Liberty Steel BOF plants 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 generate profits consistently when [they were] managed by ArcelorMittal.
The sustainability and circular economy movements are poised to continue supporting the production of metals with recycled content, especially in Organization for Economic Co-operation and Development (OECD) surplus countries such as the UK , France, Spain and Australia.
To GFG’s credit, the company has researched alternative energy sources to reduce the carbon footprint of some of its major facilities.
When it comes to many older factories and smelters, however, the question arises: to what extent should the governments of these countries subsidize historically energy-intensive and emissions-intensive facilities that rely on mined materials? Should such a subsidy include guarantees of a low-carbon future?
It’s a line of questioning that, unfortunately, could be avoided by politicians who aren’t looking for honest answers, but rather votes in competitive jurisdictions.