Earlier this month, the board of Spanish steelmaker Acerinox terminated M&A talks with Dutch rival Aperam. No reasons were given and no indication of the proposed terms of the tie-up.

If they decided to progress, it would likely have drawn the ire of antitrust authorities. Combined, the companies could produce 2.3 million tonnes of stainless steel every year, more than the current regional leader, the Helsinki-headquartered Outokumpu.

Up to the invasion of Ukraine, the M&A market for European steel companies had been on a roll. According to Dealogic, the €1.5 billion deal value seen in 2021, year to date, was a decade high, despite there being more deals in the same period of each year from 2010 to 2015.

At this point in 2022, however, there have only been 10 deals in the industry with an aggregate value of €364 million, not including the Acerinox-Aperam deal that never was.

Supply and demand 

For many companies, margins have been squeezed by inflation, making M&A transactions an attractive option to drive down costs in recent months.

Steelmakers, on the other hand, have been sitting pretty. Acerinox's net profits multiplied 11-fold to a record €572 million last year as rising demand and constrained supplies pushed prices northwards. 

Supplies were further strained by Russian players being excluded from the market owing to sanctions. And Dutch-owned Ukrainian player Metinvest acknowledged that it will fail to deliver contracts after the fall of Mariupol, where it ran the giant steelworks. It has refused to do business in Russian-occupied Ukraine.

Meanwhile, raw materials from Ukraine have also come under pressure as supply chains have run into understandable difficulties.

Rollercoaster ride 

This trend was seemingly unstoppable. In March, the price of hot-rolled coil—the benchmark steel product—briefly topped a record €1,400 per ton. But it has since flipped back to around €1,000 in a matter of weeks. Inventories have been fully stocked during the panic and economic growth across Europe is now slowing.

As a result, there are nagging concerns over how much steel will be needed in the next six to 12 months. If profits slide back down, it may not be long before steelmaking M&A finds another run as companies look to consolidate.