Arcelor eyes India in bid to topple Mittal

European steelmaker Arcelor looks keen to regain its top position among global steelmakers from the L N Mittal group, and its leader Guy Dolle has cast his net in Asia, Africa and central and eastern Europe for acquisitions that will take Arcelor to that position.

Dolle is now a suitor for Erdemir, Turkey's largest steelmaker earmarked for privatisation later this year.

But no group with global ambition can any longer afford to ignore India, one of the world's fastest growing economies.

It is, therefore, no surprise that Arcelor has announced its interest in participating in India's programme of lifting steel capacity from 36 million tonne to 100 millioin tonne by 2020.

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An Arcelor release said the group "could play a role in the setting up of additional steel capacity in India."

Arcelor has not announced if it wants to build a new unit or buy some capacity and then go for brownfield expansion.

The offers from Arcelor and another offer for steel-making technology from Luxembourg's Paul Wurth come in the wake of Korean giant Posco's plan to build a 10 million tonne steel mill in Orissa in partnership with BHP Billiton, the world's largest minerals group.

India is attracting steel investments because the government allows 100 per cent foreign direct investment in steel. The cost of production also compares favourably with other countries.

Moreover, India has plentiful deposits of iron ore with high ferric content, apart from thermal coal.

But infrastructure remains a major problem, calling for government attention. The Luxembourg based Arcelor made nearly 50 million tonnes of steel in 2004.

It was born following the 2002 merger of Usinor of France, Aceralia of Spain and Arbed of Luxembourg. Dolle was the automatic choice for CEO of the merged entity.

Arcelor shareholders have reason to be happy with the company's surging profits and rising stock prices thanks to Dolle's path-breaking initiatives. On the other hand, the global steel turnaround since mid-2002 has helped Lakshmi Niwas Mittal's moves.

But what really helped Mittal succeed is his anticipation that steel production will gradually shift from high-cost to low-cost zones. So he went on buying what others thought were rusting capacities in Kazakhstan and several places in central and eastern Europe and then made them profit earners.

"Mittal has put to good use the ownership of multi-location

capacities allowing steel production through blast furnace and electric arc furnace routes and facilities to make all kinds of long and flat products. No other group has thought of having a fire-fighting team with members drawn from different plants to tackle technology issues throughout the group," said an expert.

Mittal has also for the first time talked about the possibility of a new Indian steel plant. His group last fall sped past Arcelor by a long margin in terms of steel making capacity ownership.

The rivals are not going for one another's jugular though. There has been more than one occasion in the past when both Mittal and Dolle have complimented each other in public fora for merger and acquisition moves to the pleasant surprise of steel executives.

Some will argue that the more pioneering moves so far have been made by Mittal as his is still the only group with a footprint from China to South Africa to the US.

In comparison, Arcelor, in spite of its recent acquisition of Companhia Siderurgica de Tubarao of Brazil and an R&D alliance with Japan's Nippon Steel, remains basically a European steel group.

But with a market share of nearly 35 per cent, the growth opportunities for Arcelor in Europe are limited. Demand in the continent also fell 14 per cent in the flat-rolled steel segment owing to high inventories and weak steel buying by white goods and auto body panel units.

This led Arcelor to cut production by 1 million tonnes. Dolle's aim appears to be the magical 80 million tonne capacity figure. Already, some industry analysts have said 100 million tonne would be the next target for the merger & acquisition players.

Capacity consolidation will impart a great degree of price discipline through production management when the current bull run comes to an end.

Mittal bagged International Steel Group a few years after his takeover of Inland Steel, both in the US.

Dolle can have a go at either Nucor with 19 million tonne production last year or US Steel with 18 million tonne, or both. For these mini giants, alliances with Arcelor will bring considerable value in terms of technology transfer and market access. Similarly, the benefits of partnership with Arcelor cannot be lost on small US steel produces like AK Steel.

The weakness of dollar has made capacity acquisitions by foreign groups easier.

As a World Steel Dynamics official said, Dolle as one of the two to lead steel capacity consolidation has built a reputation which will automatically attract merger partners.