Mittal Steel

0 Comment

Mittal steel announced a hostile takeover bid for its nearest rival Arcelor steel. Mittal has lead consolidation in the world steel industry and their strategy emphasises size and scale and well as product diversity and quality. This acquisition satisfies all those elements of their strategy. Since Arcelor is not only a very large producer, which would add to the size and scale of Mittal’s operations but also a producer of high value steel which is not a strength of Mittal Steel, this would satisfy the range of product diversity and quality which they desire.
The steel industry has in the past largely been dominated by domestic countries that supplied steel to their market and then exported an excess overseas. Recently however this has drastically changed.
Going Global: The steel industry has now become a largely global industry as opposed to a domestic one, especially in with the emergence of Mittal steel which is built on acquisitions and companies such as Arcelor and ThyssenKrupp now actively pursuing acquisitions. According the Economist (2005, 72) Until these deals, steel had largely been a national business, with America’s traditional integrated producers serving chiefly the domestic market. The international steel business consisted of export trade, rather than the ownership of assets in several countries. The emergence of Arcelor and Mittal has changed all that, with steel groups that have an increasingly global dimension.
Consolidation: Recent acquisitions and the new global nature of the steel business have helped to consolidate the industry. Instead of being fragmented, many companies, Mittal included have sought to achieve success through size and scope. The Economist (2005, 72) notes that, the global industry will come to be dominated by a handful of big groups with production of around 100m tonnes a year.
Privatisation: Many Eastern European governments in particular have privatised major industry, allowing for easier consolidation in the industry. Mittal itself was about to take advantage of this by purchasing major steel operations from Poland and the Ukraine.
China: China’s capacity for steelmaking has increased from 11% in 1994 to 25% of the world total in 2005 (Economist 2005, 72). While demand has gone up in the world and China in particular for steel, the worry is that if demand in China goes down they will export their steel and flood the market.
Anti-Competition Policies
The EU has the right to make anti-trust allegations regarding the merger of Arcelor and Mittal. There is pressure from especially the French government to prevent this merger.
Market Trends
The consolidation of the steel industry has brought about many cost efficiencies and has allowed Mittal in particular to become vertically integrated. According to D’Costa (1999, 13), the emergence of low cost firms makes sense because, Most processing technologies connected with steelmaking were and continue to be characterised by strong economies of scale. Add to that the fact that large amounts of finance are needed to implement best-practice techniques on scales that yield