US' Reliance could target TK Materials Services: Update

Updates with comments from a senior distribution source in Europe

The US' largest metals distributor, Reliance Steel and Aluminum, could target the acquisition of German steelmaker ThyssenKrupp's Materials Services division, investment bank Jefferies said today.

This would strengthen Reliance's presence in the US, where ThyssenKrupp (TK) Materials Services is the number four distributor in terms of market share, as well as give it exposure in Europe, according to Jefferies.

Such a deal would "make sense at least from a North American perspective as it would strongly consolidate the number one position of Reliance," a senior distribution source in Europe said. The deal would give it 8-9pc of the North American market, he said.

The acquisition would also give TK Materials Services a "global steel distribution" footprint compared with negligible market access now, the source said. And as Reliance is a public company its shares would be "very fungible".

ThyssenKrupp's distribution business could be sold after pressure from activist investors to radically restructure the group. Consolidation among European distributors and service centres has picked up in recent years, given the potential for upstream mergers among mills.

Reliance's "best-in-class margin performance" should continue to drive its strong earnings and free cashflow generation in the coming months, despite US steel price momentum probably fading, Jefferies said. Reliance could see upside in the next few quarters from recent carbon steel price strength, robust aluminium Midwest premiums and a "quiet rally in stainless". And distributors could prove "increasingly attractive" investments into the second half of the year, as steel prices stabilise or subside.