Two steel deals
Two recent steel announcements, albeit far smaller than the epochal Mittal-Arcelor deal, bear witness to the scramble to consolidate that industry.
First, Brazil-based Companhia Siderurgica Naciona (CSN) merged its US operations with US-based Wheeling-Pittsburgh Corp. The deal will create a small US contended in rolled steel, producing about 3.5 billion tons a year. Wheeling-Pittsburgh shareholder will hold 51% of the new company. Private company Esmark, a US steel products company, is still trying to buy Wheeling-Pittsburgh, and hopes to win shareholder consent to its offer.
Esmark itself is an interesting story. Just recently, it acquired Independent Steel, a Cleveland-based specialists in rolled steel, the 10th small US steel company it has acquired since 2003, including North American Steel, Miami Valley Steel Services, and others. (Note that this Esmark shares the same name with the 1980s conglomerate that once owned car-rental company Avis, food producers Hunt-Wesson and Swift, and Max Factor cosmetics, among other companies.)
Meanwhile, in China, two of the bigger companies in the fragmented Chinese steel industries announced they would join forces. Jinan Iron and Steel (#6 in China) and Laiwu Steel (#7) will link up to form the Shandong Steel Group, though they would remain somewhat independent companies. That deal, not quite a merger, follows the 2005 link-up of Chinese steel companies Angang and Bengang. In 2005, #2 Anshan bought Benxi Steel.
One of the wild cards in this deal is that Arcelor had gained approval to acquire about one third of Laiwu Steel before the Mittal Steel acquisition. It is not clear what the status of that deal is now. Mittal has an interest in China's Vatin Steel.
About the Jinan-Laiwu deal, the China Post ("Two major Chinese steel companies plan to join forces", 8/2/06) quotes one analyst as saying:
"It's a global trend for the steel industry to consolidate, as the Arcelor and Mittal case shows....And in China, many of the problems the steel industry faces result exactly from a lack of consolidation."
One of the biggest problems in the Chinese industry, according to the article is overcapacity. These link-ups help reduce competition and will probably end up in a more coordination of production through the industry, whether explicit or implicit. Unfortunately for the big companies in China, according to the Financial Times ("Two Chinese steelmakers plan merger", 7/31/06) this may be difficult to pull off
However, analysts argue that consolidation among the larger companies will not solve the over-capacity problem because a lot of the new output is coming from the hundreds of small, private steel mills that have been established in the last five years.
