Editor’s Note: This is the second of a two part series. The first part appears here
So what can we expect in the years ahead, not so much from ArcelorMittal, Lakshmi Mittal himself is a young man and will no doubt continue on this path as long as the competition authorities will allow him. No I was thinking more of the steel industry in general. Last year’s US Steel acquisition of Stelco is an example of a trend that has been running for several years now as the industry has fought for the critical mass to stay in the big league by buying up the opposition. US Steel’s purchase makes pretty good strategic sense even if some thought the price a bit steep at the time. But it still leaves USS with only a third of the sales of ArcelorMittal and doesn’t rank them in the top 30 worldwide. The same process is happening in China which currently has some 260 iron and steel companies but is undergoing consolidation. Diana Chen, one of China’s richest women and known as the iron princess for her success in the steel industry is quoted as saying in five years China will be dominated by just a few mega steel producers.
It is these huge steel producers in the developing world that many of today’s western steel producers fear, and against the threat of which they are currently trying to position themselves through acquisition.
Should consumers be concerned by this? There was considerable anxiety when the Japanese and later the Korean steel industry grew at breakneck speed in the 70’s and 80’s but today they are generally seen as reliable and responsible suppliers of high quality material. The arrival of the Japanese can also be said to have created competition that lead to dramatically improved steel qualities and production methods worldwide, something all consumers should be grateful for. There is always the risk as a fragmented supply base becomes consolidated that control moves from the buyer to the seller as supply options are reduced. But as much as high prices the cyclical nature of the steel market has been a major headache for consumers and producers alike. Consolidation should in theory allow the producers to adjust production to meet demand more efficiently and effectively. To a certain extent we are seeing that in the market place today, demand has dropped off in certain product areas but mills have adjusted production and prices have remained firm. The telling time will be in the coming 12-18 months if demand drops off as predicted by some observers (us included) will the mills respond with a gentle easing in price and reduced supply? Let’s see. One thing is for sure though, the insatiable appetite to buy steel mills will continue.