Consortium terminates Teesside steel slab offtake agreement with Corus [UPDATE 2]

Marcegaglia, Dongkuk, Duferco and Alvory have terminated their ten-year offtake agreement with Corus for slab produced at the Anglo-Dutch steelmaker’s Teesside Cast Products (TCP) plant in the UK.

Marcegaglia, Dongkuk, Duferco and Alvory have terminated their ten-year offtake agreement with Corus for slab produced at the Anglo-Dutch steelmaker’s Teesside Cast Products (TCP) plant in the UK.

Following the termination, Corus has been forced to open consultations that might result in a decision to mothball the TCP plant, it said.

Corus, which is owned by India’s Tata Steel, said it is using all legal means to ensure that the terms of the ten-year agreement are fully enforced and “that the four consortium members live up to their contractual obligations”.

“I am extremely disappointed that the consortium members have seen fit to take this irresponsible action,” said Corus ceo Kirby Adams. “Their unilateral termination of a legally binding ten year contract could bring an end to a fine heritage of steelmaking at Teesside.”

“We regret the distress this will cause TCP’s dedicated employees, who have worked steadfastly in the interests of the consortium,” he added. Any decision to mothball the TCP plant is likely to lead to a significant number of redundancies, Corus said.

In 2004 the signatories to the agreement agreed to buy just under 78% of Teesside’s production over ten years at cash cost.

“Over the duration of the contract so far the consortium members have benefited tremendously,” Corus said. “Despite this, last month the consortium unilaterally and unreasonably initiated moves to terminate the contract, thereby making the TCP operation unviable.”

Bruno Bolfo, the president of Switzerland-based Duferco, defended the consortium’s decision to pull out of the agreement.

“Our position is simple — we are using the clauses in the contract,” he told MB, saying that the contract for the agreement allowed the consortium members to exit the agreement under certain circumstances, although he would not elaborate.

Merchant market slab prices have fallen by as much as 73% since last year, with CIS export prices falling from highs of $1,055-1,115 per tonne fob Black Sea in September to their latest level of $290-330.

In February this year two members of the consortium, Marcegaglia and Dongkuk, signed a Memorandum of Understanding (MoU) that would lead to the two steelmakers taking a majority stake in the 4.7 million tpy slabmaking operation.

Under the terms of the MoU Marcegaglia would hold a 56% stake in TCP, Dongkuk would take a 24% share and Corus would retain a share of 20%. (MB February 2)

Two weeks ago Corus told MB that it was unaware of any change in Marcegaglia’s intention to continue with the deal, following a Financial Times report which claimed that Marcegaglia was planning to scrap the deal, worth $450 million ($676.78 million).

“Negotiations on the sale of Teesside Cast Products (TCP) to Marcegaglia and Dongkuk were formalised in January with the signing of a non-binding Memorandum of Understanding,” a spokesman told MB at the time.

“Due diligence has been proceeding since then against a backdrop of difficult market conditions. Corus has had no communication from either Marcegaglia or Dongkuk to say that they wish to discontinue these negotiations,” he said.

It remained unclear at the time of writing whether the cancellation of the ten year offtake agreement or the potential mothballing of the plant would affect these negotiations.

“My feeling is that the Marcegaglia deal is dead,” a well-placed source told MB.

Corus will also explore alternative options that might secure a viable future for TCP and its employees.

Published

May 08, 2009

11:23 GMT

London