By Barbara Lewis and Eric Onstad
LONDON (Reuters) - British-based conglomerate GFG Alliance will invest 2 billion euros ($2 billion), mostly in Romania and the Czech Republic, to modernize its emissions-heavy European steel plants and boost production, it said on Wednesday.
The investment is a leap of faith in a sector that is grappling with issues of over-supply and falling demand, expected to be made worse by the impact of the coronavirus.
But it is also under pressure from investors worried about climate change when steel is responsible for an estimated 7% of all greenhouse gas emissions.
Some of the cash from commodities tycoon Sanjeev Gupta's GFG will go toward installing electric furnaces, which can reduce emissions by around 60%.
Privately-held GFG will invest 1 billion euros in its Galati operations in Romania and 750 million euros at its Ostrava plant in the Czech Republic, a statement said.
The more flexible electric-powered mills, which can require less than half as much manpower, will not replace coal-fired furnaces, so no jobs are under threat for now, Neil Barrell, GFG global chief operating officer, told Reuters.
"In the short term... the two plants will run in tandem, so we wouldn't need to embark on any labor conversations," Barrell said.
He said the investment at Galati would increase production to 4 million tonnes per year over time, while for Ostrava, the output increase could be more than 50%.
GFG did not give current output figures, but said Galati has capacity of 3.6 million tonnes and Ostrava of 3 million. An industry source, who declined to be named, said both mills were operating below capacity.
While investing in raising output in a sector burdened with surpluses may take time to pay off financially, overhauling heavily polluting production methods could help allay future emissions-related costs.
A major advantage of electric arc furnace technology is that it can be easily turned on and off to respond to market conditions.
Gupta, who heads the privately-held GFG Alliance, has snapped up steel assets around the world and made repeated offers to buy British Steel, which is being acquired by China's Jingye Group.
Asked whether GLG would still be interested if the Jingye deal falls through, Barrell said the group was monitoring the situation very closely.
GFG had grown rapidly from its roots as a metals trader by spending billions of dollars buying up often troubled metals manufacturing facilities around the world.
It acquired assets in Romania, the Czech Republic, Italy, Belgium, Luxembourg and North Macedonia after the European Commission approved ArcelorMittal's purchase of Ilva on condition it sold off some of its works.
GFG said the remaining 250 million euros announced on Wednesday would be spread over its other European operations.
The company said on Tuesday it had bought a bankrupt steel plant in India for $60 million in its first investment in Gupta's homeland.
Asked whether more acquisitions were in the pipeline, Barrell said: "Sanjeev is ambitious to see the group grow."
(Reporting by Barbara Lewis and Eric Onstad; Editing by Jan Harvey)
