AFTER ARCELOR/MITTAL MORE CONSOLIDATION IS INEVITABLE

Consolidation in the global steel industry has accelerated in recent years.The tussle between Mittal Steel and Arcelor that has been going on since January appears to be nearing its endgame at the time of writing. A 30 June Arcelor shareholders meeting is expected to accept a new proposal to merge the two organisations.

Companies that kept out of the acquisition game – preferring to pursue internal organic growth – were overtaken by consolidators. Nippon Steel and Posco were for many years numbers 1 and 2 in the list of the world’s top steelmakers. But now they have been pushed aside by companies that are the result of mergers and takeovers – Mittal and Arcelor.

Likewise, ThyssenKrupp and Riva have been overtaken by JFE, Nucor and US Steel which have been adding capacity by acquisition or amalgamation.

Over most of the past 20 years, consolidation in the steel industry has been prompted largely by adverse circumstances. Fusion was seen as the path to cutting excess capacity - concentrating production on the most efficient installations and eliminating loss-making operations.

Today, things have changed. What one top executive recently called the “revitalisation of the steel industry” has left many companies cash-rich and able to finance takeovers and acquisitions. Banks are now more willing to fund such deals.

Such is the enthusiasm for consolidation that it is penetrating most corners of the steel world. Steelmaking in Latin America has traditionally been very much a nationalistic business. But the last twelve months have seen the formation of two groups which are the region’s largest producers – Ternium (with operations in Argentina, Mexico and Venezuela) and Arcelor Brazil (Argentina, Brazil and Costa Rica).

A few years ago not many people would have predicted that Russian steel companies would become significant players in the global consolidation of the industry. But they have become increasingly active, with acquisitions in Italy, the Czech Republic, Denmark, the USA and elsewhere.

Russia’s Severstal was proposing a merger with Arcelor. The move by oil industry magnate Roman Abramovich to buy a large minority stake in EvrazHolding – the largest steel company in Russia – may help catalyse a further consolidation among the country’s iron ore, coal and steel producers.

Asia has taken up the trend with less alacrity. Perhaps because of the nature of company culture in countries such as Japan, mergers are more difficult to arrange. The formation of JFE Steel by merging NKK and Kawasaki Steel is an exception – other regional steel companies have preferred to form looser bonds of “co-operation”.

The combination of Mittal and Arcelor could herald a wave of further consolidations. Joining the world’s largest steel producer with the second largest is absolutely unprecedented in the industry. It would create the first 100 million-tonne steel company, with over 60 plants in 27 countries. Rivals will be looking for partners of their own.

Source: MEPS - International Steel Review

Display MEPS steel news & prices on your website - click here