10-26-2004, 04:12 AM
From the Economist, A Subscription Site :
<b>ON A ROLL</b>
<b>High steel prices and surging demand for the metal are helping billionaire Lakshmi Mittal to take a bold move into America, in a deal that also creates a new world leader in the industry</b>
<img src='http://www.economist.com/images/ga/2004w44/CGA857.gif' border='0' alt='user posted image' />
LAKSHMI MITTAL, a London-based billionaire of Indian descent, is used to turning a profit from the rusty remnants of the worldâs industrial past. At the last count, he and his family had interests in steel mills in 45 countries, many of them in once down but now up-and-coming parts of central and eastern Europe. This time, though, he is aiming for an even bigger prize.
On Monday October 25th, Mr Mittal announced a two-step deal worth $17.8 billion, which, if successful, will result in the family becoming the worldâs biggest producer of steel. As a preliminary step, Ispat, of which Mr Mittal owns 77%, is to buy LNM Holdings, a company wholly owned by the family. Once merged, the enlarged group, which is to be called Mittal Steel, will take over International Steel Group (ISG), one of Americaâs largest steel producers. Mittal Steel says it plans to offer ISGâs shareholders $42 per share, paid for partly in cash and partly in its own shares. If it comes off, the deal will put the Mittal family in control of a company that has a production capacity of 70m tonnes of steel a year, employs 165,000 people and boasts pro-forma revenues for this year of $30 billion.
Mr Mittal has chosen a good time to do his deals. Steelmakers are riding higher than for a long time. Thanks largely to the economic boom in China, demand for steel has rocketed of late. Indeed, the International Iron and Steel Institute expects world consumption of the metal to jump from 882.6m tonnes in 2003 to 950m this year. Consumption is expected to be higher still in 2005.
Prices of steel have also been rising lately, nearly trebling since the beginning of 2002. A combination of higher volumes and higher prices has transformed the finances of many struggling steelmakers, particularly those in parts of eastern Europe. Firms that have slimmed down their workforces and found ways to produce steel more efficiently have benefited the most. Plants in Kazakhstan, Romania and the Czech Republic that have been bought in recent years by LNM or its affiliates have quickly been turned around.
Thanks to rising demand for steel, producers like Arcelor, until now the worldâs largest producer of the stuff, have managed to push up prices four times during the past year. Some firms are already talking about raising their prices for a fifth consecutive quarter when contracts are reviewed in January. This is not just greed on the part of the producers. It is because their own costs have risen strongly too. The price of inputs has jumped: iron ore is up by about a fifth so far this year. As a result, the steelmakersâ margins are coming under pressure. âThe days of cheap steel are not going to be with us for a few more years,â Peter Fish, managing director of MEPS (International), a firm of consultants, told Lloyd's List. âThe shortage [of steel] that we are experiencing now wonât be as acute next year, but it doesnât mean that the over-supply situation will come back either.â
Indeed, until supply comes more into line with demand, steelmakers will continue to ship the metal as fast as they can. ISG, which is based in Richfield, Ohio, reported record shipments for the most recent quarter. That ISG has been able to crank up its own production to meet demand is due partly to its having also bought two other American companies: Weirton Steel and Georgetown Steel. The company has signalled to the stockmarket that its forthcoming results are likely to be better than expected.
It is not just existing producers that are trying to cash in on the steel bonanza. Upstream producers such as Brazilâs Companhia Vale do Rio Doce (CVRD), the worldâs largest producer of iron ore and pellets, are trying to get into the business of making quality steel. CVRD is talking about forming a partnership with Chinaâs Baosteel, a partly privatised manufacturer, to produce around 24m tonnes of steel a year.
That Mr Mittal is aiming to consolidate his familyâs interests into a single steelmaker whose shares are listed in New York and Amsterdam suggests two things: first, that he expects the boom in steel prices to last for a while longer yet; and, second, that he wants to enlarge and restructure his business while steel prices are still high. Although his and his familyâs operations are based in Britain, Mr Mittal has done most of his business elsewhere in the world. This latest deal suggests that he now thinks that, having blazed a trail in formerly communist countries, it is time to boost his presence in more mature markets.
Cheers <!--emo&:beer--><img src='style_emoticons/<#EMO_DIR#>/cheers.gif' border='0' style='vertical-align:middle' alt='cheers.gif' /><!--endemo-->
<b>ON A ROLL</b>
<b>High steel prices and surging demand for the metal are helping billionaire Lakshmi Mittal to take a bold move into America, in a deal that also creates a new world leader in the industry</b>
<img src='http://www.economist.com/images/ga/2004w44/CGA857.gif' border='0' alt='user posted image' />
LAKSHMI MITTAL, a London-based billionaire of Indian descent, is used to turning a profit from the rusty remnants of the worldâs industrial past. At the last count, he and his family had interests in steel mills in 45 countries, many of them in once down but now up-and-coming parts of central and eastern Europe. This time, though, he is aiming for an even bigger prize.
On Monday October 25th, Mr Mittal announced a two-step deal worth $17.8 billion, which, if successful, will result in the family becoming the worldâs biggest producer of steel. As a preliminary step, Ispat, of which Mr Mittal owns 77%, is to buy LNM Holdings, a company wholly owned by the family. Once merged, the enlarged group, which is to be called Mittal Steel, will take over International Steel Group (ISG), one of Americaâs largest steel producers. Mittal Steel says it plans to offer ISGâs shareholders $42 per share, paid for partly in cash and partly in its own shares. If it comes off, the deal will put the Mittal family in control of a company that has a production capacity of 70m tonnes of steel a year, employs 165,000 people and boasts pro-forma revenues for this year of $30 billion.
Mr Mittal has chosen a good time to do his deals. Steelmakers are riding higher than for a long time. Thanks largely to the economic boom in China, demand for steel has rocketed of late. Indeed, the International Iron and Steel Institute expects world consumption of the metal to jump from 882.6m tonnes in 2003 to 950m this year. Consumption is expected to be higher still in 2005.
Prices of steel have also been rising lately, nearly trebling since the beginning of 2002. A combination of higher volumes and higher prices has transformed the finances of many struggling steelmakers, particularly those in parts of eastern Europe. Firms that have slimmed down their workforces and found ways to produce steel more efficiently have benefited the most. Plants in Kazakhstan, Romania and the Czech Republic that have been bought in recent years by LNM or its affiliates have quickly been turned around.
Thanks to rising demand for steel, producers like Arcelor, until now the worldâs largest producer of the stuff, have managed to push up prices four times during the past year. Some firms are already talking about raising their prices for a fifth consecutive quarter when contracts are reviewed in January. This is not just greed on the part of the producers. It is because their own costs have risen strongly too. The price of inputs has jumped: iron ore is up by about a fifth so far this year. As a result, the steelmakersâ margins are coming under pressure. âThe days of cheap steel are not going to be with us for a few more years,â Peter Fish, managing director of MEPS (International), a firm of consultants, told Lloyd's List. âThe shortage [of steel] that we are experiencing now wonât be as acute next year, but it doesnât mean that the over-supply situation will come back either.â
Indeed, until supply comes more into line with demand, steelmakers will continue to ship the metal as fast as they can. ISG, which is based in Richfield, Ohio, reported record shipments for the most recent quarter. That ISG has been able to crank up its own production to meet demand is due partly to its having also bought two other American companies: Weirton Steel and Georgetown Steel. The company has signalled to the stockmarket that its forthcoming results are likely to be better than expected.
It is not just existing producers that are trying to cash in on the steel bonanza. Upstream producers such as Brazilâs Companhia Vale do Rio Doce (CVRD), the worldâs largest producer of iron ore and pellets, are trying to get into the business of making quality steel. CVRD is talking about forming a partnership with Chinaâs Baosteel, a partly privatised manufacturer, to produce around 24m tonnes of steel a year.
That Mr Mittal is aiming to consolidate his familyâs interests into a single steelmaker whose shares are listed in New York and Amsterdam suggests two things: first, that he expects the boom in steel prices to last for a while longer yet; and, second, that he wants to enlarge and restructure his business while steel prices are still high. Although his and his familyâs operations are based in Britain, Mr Mittal has done most of his business elsewhere in the world. This latest deal suggests that he now thinks that, having blazed a trail in formerly communist countries, it is time to boost his presence in more mature markets.
Cheers <!--emo&:beer--><img src='style_emoticons/<#EMO_DIR#>/cheers.gif' border='0' style='vertical-align:middle' alt='cheers.gif' /><!--endemo-->