Consolidation in the steel industry is beginning to resemble that of the oil business during the second
half of the 1990s, according to analysts. But it is not just the steel makers themselves that want to
become less-fragmented; some of the key suppliers of raw materials have already made moves toward
consolidation too, while others are in the process of following suit. As a result of an earlier round of
consolidation, the world's supply of iron ore to the steel industries in Asia and Europe is dominated by
just three producers: two in Australia and one in Brazil.
If the proposed merger between the world's largest steel maker
Mittal Steel and the world's number two,
Arcelor, succeeds, it would be the equivalent of the merger of
Exxon and Mobil that formed what is now the world's largest oil major. For the first time in the
steel business, it would create what many analysts describe as a truly global player. They argue that the
combined entity would have the upper hand when negotiating with major customers, such as the automotive
industry. At the same time a combined Mittal/Arcelor would also have significant bargaining power in iron
ore negotiations, especially as Mittal is already integrated with iron ore production in some areas of the
world. Analysts say that the pressure for further consolidation in steel will be even greater if the merger
goes through. The end result would be higher and more stable steel prices and stability of earnings among
steel makers.
Since the Mittal/Arcelor merger was first proposed in January of this year, it has emerged that Russian
steel major Evraz is in talks with British-Dutch steel
group Corus that could lead to a merger and the
creation of another major player in Europe, even if it is not a global player. Corus, itself, was the
result of an earlier round of consolidation that emerged in the mid 1990s from the former state-owned
British Steel merging with Dutch steel maker
Hoogovens. The mid-1990s also spawned the combination in Germany of the Thyssen group
with Krupp, to create ThyssenKrupp. This earlier round
of consolidation in Europe was the first step in the European industry of moving away from being fragmented
and was in reaction to a round of consolidation that had already occurred in Asia.
In Japan, the emergence of JFE Steel in the last few
years was the result of a merger of Kawasaki Steel and NKK, creating the world's fifth largest steel
producer and Japan's second largest after Nippon Steel.
In the US, a recent round of consolidation has left the country with four dominant steel producers, the
largest of which are Nucor and Mittal Steel USA. Mittal Steel was the result of Mittal buying International Steel Group. This gave Mittal the largest share of the lucrative US
automotive industry.
China has emerged in the last two years as the world's largest steel producer, but steel is a highly
fragmented industry with very few dominant large producers.
Shanghai Baosteel, ranked
as the world's fifth largest producer in 2005, is China's largest steel maker. Analysts say it is
inevitable that China will have to undergo a significant round of consolidation. Part of this may also be
forced by the closure of inefficient, high-polluting blast furnaces that are close to large population
centers, to comply with environmental regulations that will force some of the smallest producers out of
business, according to analysts.
On the raw materials side, Canada's Inco and
Falconbridge are in the process of trying to
merge in a deal that will create the world's largest nickel and cobalt producer, the former being a key
input into the production of stainless steel. In Norway and the US, Elkem is rapidly exiting the energy-intensive ferrosilicon and silicon metal producing
business. In the US, this resulted in the sale of a 65,000 mt/year silicon plant to
Globe Metallurgical in January, making
Globe the largest producer of silicon in North America.
In South Africa, there has been consolidation among ferrochrome producers. Ferrochrome is another key
input to the stainless steel industry. The consolidation of ferrochrome producers in South Africa has
enabled the South African producers to push through price increases this year as stainless steel
production has recovered and as the value of the South African rand has risen against the dollar.
And in April 2006 Russian steel maker Evraz has agreed to buy US vanadium producer
Stratcor in a deal worth $110 million. Vanadium is
an important input into carbon steel, especially in tool steels, and Evraz lacked its own ability to
produce vanadium. The company has said that it was interested in a "strategic exposure of the company to
attractive markets of high-valued vanadium products."
Created: Apr 13, 2006
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