Thread by @zerodhamarkets

Jindal Steel just made a non-binding offer to buy the steel business of Germany-based Thyssenkrupp, one of the largest European steel businesses. This isn't a signed deal yet, but Jindal is ready to splash billions of euros on one of Europe's oldest steel names.🧵👇

Thyssenkrupp operates the largest steel plant in Europe at Duisburg, but it's also one of the dirtiest by emissions, still running on old coal-fired blast furnaces. To keep selling steel in Europe with its strict climate rules, Duisburg must be rebuilt at enormous cost.

Thyssenkrupp used to be a sprawling German industrial giant dating back to the 1800s. It made steel, car parts, ship parts, and its elevators were known worldwide. You've probably seen their logo in Indian metro stations, airports, and society buildings.

But in 2020, drowning in debt, the group sold its entire elevators business for €17 billion (~₹1.5 lakh crore). This signaled a shift in strategy, Thyssenkrupp no longer wanted to be a jack of all trades but slim down to master just its core businesses.

Europe's new climate rules threw a wrench into those plans. Duisburg's green rebuild will take billions, its old furnaces must be replaced with those running on cleaner sources like hydrogen. Yet it's losing money fast, making €10.7 billion revenue but often running at a loss.

The company tried different escape routes that failed. A joint venture with Tata Steel was blocked by regulators. UK's Liberty Steel circled but never closed. In 2023, Czech investor Daniel Křetínský bought 20% of its steel arm, but that didn't solve much.

Jindal Steel is one of India's biggest private steelmakers, with over 90% of its sales being domestic. Its overseas bets so far have been small and scattered, coal mines in Mozambique and Australia, an iron ore project in Cameroon, a small Czech steel mill.

None of these deals changed its core identity. But taking over Thyssenkrupp's steel arm could make a real dent. Duisburg alone produces nearly 10 million tonnes of steel a year. Owning it would put Jindal on the same global stage as Tata Steel and ArcelorMittal.

This acquisition might strengthen Jindal's supply chain. It would start with high-quality iron ore from its African mines, ship to Oman where it's building a hydrogen-ready plant to turn ore into sponge iron, then feed directly into Duisburg's furnaces.

The reward could be global scale, access to a new market, and a solid place in the green steel transition. But Jindal will have to bear the burden of a full green rebuild. Thyssenkrupp is also tied down by pension obligations to workers worth €2.7 billion.

To understand why green steel is so expensive, consider how steel is made today. A traditional blast furnace takes iron ore and mixes it with coke made from coal. This releases huge amounts of CO₂, roughly two tonnes for every tonne of steel made this way.

The replacement is the hydrogen route. Instead of coal, you use hydrogen gas to react with iron ore. That produces iron without releasing CO₂. The iron then goes into an electric arc furnace running on electricity instead of coal, cutting emissions by 90%.

The catch is cost. Hydrogen production uses lots of electricity, and European electricity is already costly, especially since Russia's Ukraine invasion. A tonne of steel made dirtily might cost ~₹40,000 in Europe, with hydrogen it jumps to ~₹60,000.

Governments step in with subsidies. Germany is planning €2 billion to help Thyssenkrupp build its first hydrogen-ready furnace at Duisburg. But finishing the transition costs much more, and that gap is what a private buyer like Jindal would have to fill.

It's impossible to discuss Indian steelmakers buying into Europe without mentioning Tata Steel's experience. In 2007, Tata bought Corus for around ₹1 lakh crore, India's biggest-ever overseas acquisition, marking our arrival on the global stage.

That celebration was short-lived. The 2008 global financial crisis hit months later. Steel demand in Europe collapsed, and Tata found itself with expensive plants in markets that weren't growing. The acquisition has always been a drag on Tata Steel's balance sheet.

Europe has been flat for years, consuming 140 MT of steel annually without growth for over a decade. The auto industry is shifting to EVs which use different supply chains, hence less traditional steel. Construction has slowed as high interest rates make projects expensive.

Imports give too much competition. Europe complains about cheap steel from Asia, especially China. Even with tariffs, shipments continue at lower prices. European producers struggle to raise prices, no matter how high their costs are due to world's highest energy costs.

Climate rules add pressure and opportunity. Europe is introducing the Carbon Border Adjustment Mechanism, basically a tax on imports of carbon-heavy goods including steel. For producers who go green, CBAM is protection. For those who can't, it's a nail in the coffin.

Rivals are hedging bets. ArcelorMittal is investing billions to decarbonise its European plants while putting more money into India and North America, where demand is growing and costs are lower. They don't expect Europe to be very profitable.

For Thyssenkrupp, Jindal's interest is a potential escape hatch after years of struggling. For Jindal, it's the boldest overseas move ever attempted. If successful, it would instantly become a global steelmaker, not just an Indian one.

Jindal's offer is still non-binding. The real test comes when it must commit, is Jindal ready to spend the money and stay the course long enough to see payoff? If it does, it could mark India's rise as global steel power. If not, another Tata-like disaster.

We cover this and one more interesting story in today's edition of The Daily Brief. Watch on YouTube, read on Substack, or listen on Spotify, Apple Podcasts, or wherever you get your podcasts.

All links here:thedailybrief.zerodha.com/p/another-indi…