Merger and acquisition (M&A) activity in the European steel sector is set to increase further to accelerate consolidation and reduce production costs. This will however fail to address overcapacity issues, Moody’s says in its latest report monitored by Kallanish.

Gianmarco Migliavacca, vice president and senior credit officer at Moody’s, says that the acquisition of Ilva by ArcelorMittal and the merger of thyssenkrupp and Tata Steel will accelerate M&A activity overall. "Smaller steelmakers will likely look to acquire rivals if the bigger deals go through in an effort to scale up their operations to better compete with these two larger groups. We also see the scope for niche M&A deals in specialty steel," he explains.

Despite an acceleration in the concentration process, steelmaking overcapacity is not expected to be reduced, at least initially. “However, ongoing excess capacity in Europe may become a source of vulnerability in a downturn. In such a scenario, larger groups like ArcelorMittal and Tata-thyssenkrupp would be better positioned given their economies of scale,” the report concludes.