Two steel deals
The ongoing consolidation of the world steel industry marches on, although at a gradual pace.
This week, Russia's #1 steel company Severstal announced it would buy a US production facility, sparrows Point, from #1 steelmaker ArcelorMittal. The deal was for $810 million. ArcelorMittal was forced to divest the plant as part of antitrust agreement, following its 2006 merger.
Severstal, which already had a small footprint in the US, now becomes the US's #4 steelmaker. The company ,manage d to buy Sparrows Point in an all cash deal after a consortium including Esmark and Vale (CVRD) failed to get bank support for an earlier agreed-up buyout. (Incidentally, Arcelor in 2006 tried to buy Severstal.)
That deal was for $1.3 billion, but the US steel market is down thanks to the weakening economy.
Severstal will be able to import iron ore from Russia, as the Baltimore steel mill has its own port facilities. The deal is one of the largest for a Russian company in the US, and is another step in the discount sale of strategic US assets to overseas companies.
RTHE second announced deal was a merger between two of China's bigger steelmakers -- Laiwu Iron & Steel Group Co. and Jinan Iron & Steel Group, The combined company will be called Shandong Iron & Steel. The two companies combined will make up the world's #7 steelmaker, not far behind China's #1 steelmaker, Baosteel.
As a Wall Street Journal article observes ("China Steelmakers Will Merge
As Consolidation Efforts Unfold," 3/27/08), this merger is all about the weak bargaining power of the scattered Chinese steel industry against the big iron ore companies. As the article notes,
The merger isn't expected to immediately impact negotiations for iron ore, a key steelmaking ingredient, since several benchmark contracts have already been negotiated with price increases of more than 65%. But consolidation in China, which imports more iron ore than any other country, could add needed bargaining power in future negotiations.
