Global steel group Liberty Steel’s struggling operations in Czechia, Romania, Hungary and North Macedonia have become collateral damage in the British-based steel group’s wider financial crisis.

Liberty Steel, part of industrialist Sanjeev Gupta’s GFG Alliance, has been in deep trouble since the collapse of the group’s main lender, supply-chain finance group Greensill Capital, in 2021, to which GFG owes a reported $5bn. Since Greensill’s collapse, GFG has been desperately trying to find replacement sources of finance, while fending off creditors and fighting allegations of fraud.

The CEE mills are key to the story, as several were used as collateral for some of the Greensill loans, and they are now being squeezed because of the wider group’s financial woes.

They are also the subject of a separate lawsuit by the world’s second largest steel group, Arcelor-Mittal, which alleges that Liberty Steel did not stump up the €140mn in deferred payment it owes from when it bought them as part of a wider €740mn deal in 2019.

Yet the woes of Liberty Steel's mills also reflect the struggle of former Communist Central and Eastern Europe’s once mighty steel sector to remain competitive.

Soaring energy and coal prices and falling steel demand and prices following Russia’s invasion of Ukraine have hurt a sector already struggling to adapt to European Union environmental rules that reduced their competitiveness compared to Asian rivals. Many have had to cut production and shutter blast furnaces.

Liberty Steel's Czech mill in Ostrava says that “soaring energy costs when combined with other input cost rises and high inflation mean that it is almost impossible for it to produce steel at a price which allows it to compete effectively with foreign competitors”.

Many CEE mills have received little financial help from their governments – notably with making the transition to a green economy – because of swollen budget deficits or ideological resistance to state aid and scepticism on green issues.

Many of the region’s steel mills want to move away from using coking coal and invest in direct reduction iron technologies such as using gas or hydrogen, as well as modern electric arc steel furnaces using green electricity, which would help reduce their emissions and need for ever costlier carbon credits. However, they lack the finance for this because of continuing losses and a shortage of green electricity and hydrogen sources.

Some mills are also looking to move away from making raw iron altogether but cannot do so because of a regional shortage of scrap iron and the disruption to sourcing semi-finished steel imports from Russia and Ukraine.

Below bne IntelliNews correspondents across CEE report on the struggles of the main steel plants in the region, beginning with the four key ones owned by Liberty Steel.

Czechia

In Czechia, Liberty Steel’s operations are at a virtual standstill and it is under court protection from insolvency while it finalises a restructuring plan.

But Liberty Steel has managed to antagonise the government and the unions at the country’s largest steel mill, formerly known as Nova Hut, as well as suppliers, including its main energy provider, Arcelor-Mittal owned Tameh.

Insolvency is therefore still a very real threat. Unions say up to 30,000 jobs in total are dependent on the plant in what is one of Czechia’s poorest regions.

The government accuses Liberty Steel of not communicating with it and also alleges that the group owes money to the Ostrava company. There was an outcry when Liberty Ostrava sold carbon credits to its Romanian sister company, and the government is now reportedly refusing to give it a further reported CZK5bn (€200mn) in carbon credits because of a fear that these too will be moved out of the country.

"If the owner had left the money in Liberty [Ostrava], there would be no problem either with the state, or with the energy supplier, or with other suppliers who supply Liberty with products or services," Finance Minister Zbynek Stanjura told Czech TV recently.

The government has also made thinly veiled threats to take legal action against the company unless it sees a viable restructuring plan and the money is returned to Ostrava. Minister of Industry and Trade Jozef Sikela recently sent a strong letter urging the group to rescue Liberty Ostrava.

“The minister again urged the speedy return of a significant portion of this money back to the Liberty Ostrava company,”  deputy industry ministry spokesman Marek Vosahlik told bne IntelliNews, adding that  “Czech legislation requires the members of company bodies to act with economic care, which is key for due and responsible management, especially in the case of financial difficulties such as those Liberty Ostrava faces.”

Vosahlik also said that “the minister is pointing to possible legal repercussions for breaching of these duties, including financial responsibility in case of bankruptcy”.

He added that “the government continues to expect a credible restructuring plan from representatives of Liberty Steel”.

The integrated plant’s 6,000 workers have been told to stay at home (on full pay) since December. They have staged a series of protests and many are now seeking alternative employment, fearing the worst. 

The Tameh power plant – which is integrated with the mill but was separated from the rest of the company when Liberty Steel bought the Ostrava plant from Arcelor-Mittal – declared insolvency and cut off power to Liberty Steel in December because of the mill’s unpaid bills of CZK1.8bn. It said Liberty Ostrava is not negotiating in good faith over the debts and had petitioned for an end to the company’s protection from insolvency, a plea that was rejected on February 27.

Liberty Ostrava needs Tameh to restore power in order to resume operations, but the latter is refusing to do so until it has been paid at least a substantial portion of its debts. The dispute is further complicated by the fact that eventually Liberty Ostrava intends to end its dependence on Tameh, whose energy bills it says are “onerous”.

A Liberty Steel Group spokesperson said after the court decision on February 27 that “the court’s decision to maintain the general moratorium shows faith in our plans, which provides the best route to keep the business solvent, restart operations, retain thousands of jobs and tens of thousands in the supply chain. It is also the only plan that will repay all undisputed creditors. Last week we provided Tameh with a solution to resolve the impasse on energy supply and we are restarting our downstream operations through the supply of slab feedstock, which will lead to around 1,500 people returning to work."

Liberty Steel says it is finalising its restructuring plan. Once this is done, it then has to be approved by a majority (75%) of creditors, probably in April.

Liberty Steel says its plan is to shift production at the plant – which has a capacity of 3.6mn tonnes per year (tpy) of steel – to higher-valued steel products, and has said that it wants to buy in coke and stop its own coke production, and import semi-finished steel products to use in new electric arc furnaces that it has ordered.

This would require investment of CZK8.6bn over eight years and – partly through building renewable energy plants and a new power line – make the company carbon-neutral by 2030. It says it already has an investor lined up that would inject €200mn.

“Liberty Ostrava’s restructuring plan, which has now been shared and discussed with the majority of our creditors and other major stakeholders, shows a clear and achievable path back to profitability and the repayment of creditors, aided by significant support from Liberty Steel Group,” Paddy Toyne-Sewell, spokesman for the GFG Alliance, told bne IntelliNews. “However, its success depends on the restart of the Tameh power plant, without which we cannot restart Ostrava’s blast furnace no.3 and the steel plant.”

“Liberty Ostrava’s robust restructuring plan, which provides a route to restart operations and repay all creditors, is being blocked by Tameh’s refusal to negotiate on the future," he added.

Romania

The blast furnace at Liberty Galati in Romania has operated on and off for a year already, while the company has faced such serious financial challenges that it was forced to sell emission allowances it needed (forcing it later to buy allowances from Liberty Steel Ostrava).

After closing down in October because of the low water level in the Danube, the furnace resumed operations on December 9, only to stop operations during the Christmas period due to problems with raw material supply. The mill restarted production at its rolling mills and hot-dipped galvanised line in January.

Liberty Galati is subject to tens of insolvency requests filed by small-sized suppliers that report that the payment discipline has deteriorated over the past year, according to Europa Libera (Free Europe). The company claims that these are insignificant cases that are being settled. However, the appointment of a lawyer (Radu Ionescu) at the top of the company was interpreted as a precautionary measure ahead of more significant legal complications being anticipated.

The steel mill is also seeking a €150mn state-guaranteed bank loan from Exim Banca Romaneasca under a scheme aimed at helping companies facing problems as a result of the war in Ukraine.

Hungary

Despite its own financial crisis, Liberty Steel last summer bought Hungary's largest steelmill Dunaferr out of liquidation for about €55mn and recently restarted operations there.

Liberty Dunaujvaros, formerly known as Dunaferr, restarted its rolling mills and the galvanising line on January 8 to fulfil a specific order before production could be ramped up, possibly in the second quarter.

The company intends to shift to green steel production within three years in cooperation with China's state-owned CISDI Engineering Company, which will supply a new 150-tonne capacity electric arc furnace, which will reduce carbon emissions by about 80% and allow for flexibility in charge materials, significantly enhancing the competitiveness of the operation.

“The business will shortly be running a campaign-based production based on around 90,000 tonnes of secured slab,” says Toyne-Sewell.

North Macedonia

In November, Liberty Steel Skopje decided to diminish its share capital to offset incurred losses. During the initial nine months of 2023, the unit in North Macedonia trimmed its net losses by 34% year on year, reaching MKD667.9mn (€10.9mn). Following the procedure, the nominal value per share decreased from €5.11 to €1.10.

“Regrettably, the adverse effects of the global economic crisis, coupled with the economic repercussions of the conflict in Ukraine, continue to significantly impact the industry. The decline in income is largely an extension of the prevailing global economic conditions, and our import-export-oriented company keenly feels this impact. Despite stabilised energy prices, the elevated costs of raw materials, particularly the hot-rolled strip, have maintained production costs at a high level. Meanwhile, the prices of finished products have not kept pace with this rise, and reduced demand has led to a contraction in production and sales, resulting in diminished revenues,” the company in Skopje commented.

Liberty Steel Skopje boasts a production capacity of 750,000 tpy for cold-rolled steel, 200,000 tpy for hot-dip galvanised steel and 77,000 tpy for organic-coated steel. Its services cater to construction and industrial clients throughout the Balkans and Southeast Europe. It has approximately 480 employees in North Macedonia.

Poland

Via its local branch ArcelorMittal Poland (AMP), ArcelorMittal owns Dabrowa Gornicza, one of four steel mills the company operates in Poland.

The mill has been in operation since 1972, being the one-time biggest investment of Poland’s communist government. Recently, however, the mill has been struggling in the wake of the global economic slowdown, the decline of the Polish coal industry, increased competition from China, and – last but not least – Poland’s political struggle for the release of billions of euros from the EU’s pandemic recovery fund.

The latter is important for the steel mill – the largest in Poland–  as it is expected that the funds will fund a number of big investments in Poland that will in turn boost demand for steel.

However, the facility’s future is uncertain after AMP said in January that it would be idling production at its blast furnace and steel shop in Krakow – which led to speculation that the Daborwa Gornicza plant was next in line.

The Polish government has a history of supporting the steel industry but, facing budget constraints, and it is not clear how much support it will be able to provide to AMP, if any.

That said, AMP is not giving up. Late last year, the company announced plans to invest PLN720mn (€150mn) to refurbish blast furnace No. 2 at the mill in Dabrowa Gornicza. The investment is expected to allow the mill to operate for the next 15 years, pointing to AMP’s confidence in the continuity of operating in Poland.

Slovakia

The future of US Steel Kosice – the largest mill in the region, with a capacity of 4.5mn tpy – is currently in limbo because of  US Steel's sale to Nippon Steel of Japan.

US Steel had planned a big investment to modernise the plant, partly financed by EU and state funds, but this is now in question because of the transfer of ownership.

The new Slovak government is seeking confirmation that the investment plan can still go ahead but everything is hanging on the finalisation of the sale, which still requires US government approval.

Under the plan, some €1.3bn would be invested in replacing two of the company’s three furnaces with electric arc ones with a capacity of 3.1mn tpy, financed by €300mn of EU funds and €300mn in state aid.

US Steel Kosice employees 8,300, making it the largest employer in eastern Slovakia. It produced 3.48mn tonnes of raw steel in 2022, giving it €307mn in net profit that year on €4.5bn in revenues.

Production rose to 3.9mn tonnes last year; however, gross profits sunk to only €4mn. One blast furnace was shut in September as losses piled up.

Serbia        

China’s Hebei Iron and Steel Group (HBIS), which acquired Zelezara Smederevo, Serbia’s only steel mill, in 2016, already shut down one of its two furnaces in 2022.

HBIS Group Serbia Iron & Steel has a capacity of 2.2mn tpy of finished products, but steel output is slightly over 1.1mn tonnes of cast slabs, according to an announcement in January.

HBIS Serbia’s executive director of operations, Vladan Mihailovic, told state TV channel RTS in January that “the company is ready to restart blast furnace No. 1 if the steel market and customer needs require it”.

Despite this, HBIS has remains among Serbia’s top exporters. The Ministry of Finance said last year that HBIS’ exports reached €374.3mn in the first seven months of 2023.

Further reporting by Clare Nuttall in Glasgow, Valentina Dimietrievska in Skopje, Wojciech Kosc in Warsaw, Albin Sybera in Ljubljana and Iulian Ernst in Bucharest.