By Christoph Steitz
FRANKFURT, July 21 (Reuters) - Activist fund Cevian, Thyssenkrupp's TKAG.DE No.2 shareholder, has identified Swedish steelmaker SSAB SSABa.ST as the financially strongest partner for a potential steel tie-up, two people familiar with the matter said.
Among the possible partners, which include Germany's Salzgitter SZGG.DE and Tata Steel TISC.NS, SSAB is the healthiest in terms of balance sheet, the sources said, citing a document the fund prepared for Thyssenkrupp's leadership.
The fund has not recommended a scenario in the paper, the sources said, asking not to be named because they are not authorised to speak to the press.
They added Thyssenkrupp needed to keep an open mind and not commit to any partner too early because that could weaken its negotiating position.
Cevian declined to comment.
Europe's steel sector was already under pressure from weak demand and ample supply, a situation aggravated by the COVID-19 pandemic, which further depressed demand from industry.
Sweden's SSAB, Europe's sixth-largest steelmaker, on Tuesday reported a 251 million Swedish crowns ($28 million) loss for the second quarter, beating the 400 million Refinitiv forecast.
Asked about Thyssenkrupp, SSAB CEO Martin Lindqvist told journalists: "I'm happy we are in a position that some companies could maybe see us as a partner. That's positive."
Salzgitter and Tata Steel's European unit declined to comment.
Thyssenkrupp is looking at strategic options for its steel business, which could result in merging it with a peer, selling a majority stake or keeping it.
Its latest efforts follow an attempt to combine Thyssenkrupp's steel unit with the European unit of Tata Steel, which fell apart in 2019 on antitrust concerns after years of talks.
A deal with SSAB would likely face resistance from powerful German unions, who fear it would cause major job losses on the Thyssenkrupp side, a banking source said on condition of anonymity.
The unions favour a national solution with Salzgitter, they have previously said.
Thyssenkrupp declined to comment, referring to previous comments by CEO Martina Merz that all options were on the table.
($1 = 8.9602 Swedish crowns)
(Additional reporting by Helena Soderpalm in Stockholm and Arno Schuetze in Frankfurt; Editing by Edward Taylor and Barbara Lewis)
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