Steel consolidation
Luxemburg-based Arcelor SA, the world' largest steel firm, has taken a controlling interest in Companhia Siderurgica de Tubarao (CST), the #2 Brazilian steel company. This is another step in the internationalization of the steel industry, which was until recently highly fragmented and highly nationalistic.
Arcelor was formed in 2002 by the combination of Arbed SA of Luxemburg, Aceralia SA of Spain, and Usinor SA of France. Combined with other Brazilian holdings, the move makes Arcelor now the leading Brazilian steel producer. That's significant because Brazil produced around 25% of the world's iron ore. Until recently, Brazilian steel mills have produced mostly slab steel which has been exported to other countries for finishing, and Brazil has exported iron to other countries' steel mills.
Arcelor has already started to move some of its finishing operation to Brazil from high-labor-cost European plants. In a Bloomberg article, "Arcelor to Take Control of CST for $579 Million", 6/28/2004), one analyst notes that CST is one of the lowest-cost steel producers globally, with costs about a fifth of those in Europe. In addition, demand growth is far higher in Brazil and other developing countries than in Western Europe. Arcelor has announced layoffs in Spain, France, and Luxemburg.
In the same article, Arcelor CEO Guy Dolle is quoted as saying that after Brazil, the company will seek out other possibilities, including Russia, India, and China. The company already has a joint venture in the works with Nippon Steel Corp. and Shanghai Baosteel Group Corp. to build a plant near Shanghai to produce steel sheet for carmakers.
Meanwhile, the company selling Arcelor its interest in CST is Companhia Vale do Rio Doce (CVRD), a Brazilian company that is the world's leading exporter of iron ore and manganese. That's firm is trying to buy Noranda, Canada's largest mining company (nickel, copper, and zinc), for a price approaching $5 billion. That would be a typical move, letting go its vertical interest in steel production and moving horizontally to buy another mining company. Noranda's biggest shareholder, Brascan Corp., is interested in selling its 42% share in order to concentrate on its interests in real estate and asset management.
Thus the players keep improving their hands.
