Has ArcelorMittal Lost its Way?

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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.

–Stuart Burns

Comments (2)

  1. Tiger says:

    Well its too early to comment on this …. but guess the article is point in right direction and there are reason to belive this

    1. The Economic environment itself has forced this company the mode of extinction

    2.The company has been milking the resources of the nations where are present and in turn return less than what is expected ( in fact it is just a mockery to talk about that

    3.When the going was good everybody was happy and getting thier cut in the company as well outside/regulatory/politicians/etc but as soon they had little money to pay everything is suppose to fall in shambles

    4.The conditions of thier units ( ex mittals ) is in real pathetic state particularly in eastern europe and CIS ( the bissgest money milking machines for the group ), the workers are pathetically underpaid with the economic situation of inflation coming across in all there emerging countries they are bound to face the issues. leave apart the cost side which is further putting pressure on the production cost

    5.The most important reason the Human resources ( Mittal earlier has a army of dedicated management people who owned the company as that was the company they themseleves had built ) with the merger with Arcelor and their culture forced many executives to leave, with naming them I guess it is quiet evedient that the decision making and risk taking ability of the group its self has been made blunt by the people with in the managment as there is typical fight of control in the group ( though nobody can get it as far as Mittal family is there )

    6.The emerging markets governments itself are becoming so aware of there these Envirnonment/regulatory/commintment / investment issues that they know that they are giving gold mines to arcelormittal and they want their fair chink ( eg india, senegal, southafrica, ukraine ). There is still mor eto come as when the eastern europe awakes, the weak government and corrupt offical are still driving the things and arcelormittal is able to hold on due to bad economic condition in their home economy

    7. There is a lack on commintments towards the CSR and people itself the primary focus is only one , how to milk maximium in shortest span of time without any long term vision and it is supported by the top man with non professional people driving the key decisions ( as happens in any family controled business )

    8. these views are purely personal and based on expereince hence may involve personal bias 🙂

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