Everywhere you look ArcelorMittal appears in the news mired in controversy. Once held up as the most dynamic company in the steel world, the firm seems to have lost its way since the global downturn. In South Africa it has been caught up in the case of Kumba Iron ore, first being held to ransom by its supplier and then engaging in some decidedly shady deals with relatives of the president over ownership of mineral rights. In Zimbabwe, the firm was thrown out of the first attempt to sell state owned Zisco as being too big to be acceptable but has shown persistence by turning up again in the second auction. In Ukraine, the firm is at risk of having its Kryviy Rih steel plant, purchased in 2005 for $4.8bn, confiscated for failure to adequately invest as originally agreed with the government. If the government seized the plant and it would likely sell for less than $1bn in today’s market according to Christopher Cornier, a management board member at ArcelorMittal, quoted in the WSJ, leaving Arcelor with a crippling loss. Meanwhile, even the possibility of a little local knowledge isn’t helping Arcelor’s cause in India. Bloomberg reports that massive steel plants planned in Orissa and Jharkhand are being delayed by farmers objecting over land and water-use rights. One small piece of good news, in Europe the firm has been hit with a 230 million euro fine for being part of a price fixing cartel good news? Yes well it was 276 million but was reduced due to “calculation errors by the EU commission.
In Europe where the firm accounts for about 25% of steel production, suggestions are being made by smaller players that Arcelor should take the lead in making permanent capacity cuts. Quoted in the Financial Times, Wolfgang Eder, Chief Executive of Voestalpine, Austria’s largest steelmaker, expects output this year in the EU of about 160m tons. That compares with annual capacity of some 220m tons and “normalized output the likely production figure when demand has returned to healthier levels of about 185m tons. Based on that, Mr Eder, who is also chairman of Eurofer, a European trade body for the steel industry, said that a 15% cut in capacity over the next three to five years was needed to “restore the balance between supply and demand and give the industry as a whole greater stability. Needless to say Lakshmi Mittal, the 60 year old Chairman, CEO and still at 42% by far the largest shareholder of Arcelor, did not agree. But his position and performance over the last two years has raised questions about when he is due to retire and hand the reigns over to his 34 year old son, Aditya Mittal currently CFO and said to be widely respected in the industry.
It has been a difficult time for all steel makers but it raises the question has Arcelor become too large? It was easy to appear world conquering when the steel industry was in boom town but now times are hard and expansion is hard to justify. It comes down to the tough grind of making existing, often under utilized, assets pay. Not that Arcelor isn’t making a profit – the firm’s earnings before interest, tax, depreciation and amortization came in at $5.8bn in 2009. But that’s still a long way from $24.5bn the year before.