Officially, the big European steel maker with deep Indian roots suddenly discovered that it would have to pay more than expected to maintain its 40% stake in the Peabody Energy ArcelorMittal (PEAM) joint venture – a claim that has a somewhat hollow ring to it.

Unofficially, and this is The Hog’ theory, Arcelor has been reading the signs coming out of two markets, and panicked.

The first market to send a shiver down the spine of senior management was the steel market, where demand appears to be collapsing as Chinese growth slows, Europe starts to go backward and the rest of the world frets.

The second market was the banking market, where European banks are raising their drawbridges and dropping their portcullis’s on new loans and calling up old loans.

More on what’s happening in the steel and banking markets later, but first a thought for everyone in the coal industry because Arcelor’s walkout sends a powerful signal that values in the sector may well have peaked.

Coal miners seeking bids for their business, such as New Hope, will be watching with dismay as a logical buyer of coal assets votes with its feet rather than its cheque book.

What happened, for anyone out of the loop, is that the PEAM partnership started bidding for Macarthur some three months ago, long before the markets caught a cold and values tumbled.

Because a bid price of $16 had been agreed with Macarthur (plus a top up to $16.25 if acceptances reach 90%) there were few legal avenues for the PEAM syndicate to withdraw despite widespread falls on stock markets around the world.

Those falling values, combined with declining demand for steel (and a falling iron ore price) must have caused near-panic at Arcelor, which realised that it was about to be asked to cough up the best part of $1.2 billion if all of Macarthur came its way, rather than a few hundred million if the bid closed at slightly over the 50% mark.

Critics of Arcelor’s decision to quit the PEAM partnership and leave Macarthur to Peabody alone have raised questions about when did the steel maker make its decision to quit and whether the market should have been told that the price was causing second thoughts.

Those questions are as hollow as Arcelor’s official position detailed in a statement announcing the walk-out:

“ArcelorMittal has determined that it would no longer be appropriate to allocate substantial capital to the acquisition of a non-controlling, minority business interest. Given the unanticipated level of acceptances into the offer, ArcelorMittal believes it is more appropriate to focus its capital elsewhere in its business.”

Smooth words which, of course, are utter nonsense because to say the acceptance level has been bigger than expected indicates that perhaps Arcelor didn’t expect the bid to succeed at all – or why bid?

As for calls that the corporate cops at the Australian Securities & Investments Commission investigate, well that too is a point loaded with nonsense for a very simple reason that seems to have been lost in transmission – Macarthur shareholders are getting the full price because Peabody is proceeding without Arcelor.

From The Hogs point of view it matters little who makes up the final bidding consortium just so long as investors get the full tote promised.

What would be nice, however, is for players in the game to be somewhat more open in their explanations, even if full disclosure for the walkout is embarrassing, or frightens investors.

Falling steel demand and falling steel prices have put the wind up Arcelor as effectively as a red hot chicken vindaloo, with the total effect compounded by fears that a $1.2 billion splash-out on an Australian coal miner could cause the company’s banks to look closely at their exposure to the big steel maker, as they are doing to all clients.

If The Hog was a betting man he might even opt more for the banking factor outweighing the steel market decline, because Europe’s financial community is sliding into a deep sulk and is watching very carefully how customers allocate their capital and debt.

Which leads back to the critical point for the coal industry: have values peaked, and will they start to slide as major potential investors retreat from the sector?