Mittal-Arcelor merger: Our view... - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Mittal-Arcelor merger: Our view...

Jun 26, 2006

The inevitable has happened! The world's second largest steel maker, Arcelor has finally bent to a US$ 32 bn takeover bid by its larger competitor, and world's largest steel maker, Mittal Steel. The combine will create a global steel giant that will be almost 3 times bigger than the nearest rival, Nippon Steel of Japan. The agreement has been arrived at after almost a five-month battle, which has involved, apart from Mittal Steel and Arcelor, several European governments.

Parameters Unit Mittal Steel Arcelor
Capacity MT 63.0 46.7
Revenues US$ bn 28.1 39.1
EBIDTA margins % 20.6 17.3
PAT margins % 12.0 11.8
The combined entity will be called Arcelor-Mittal and will have a 10% share of the global steel capacity of 1,132 m tonnes (MT) per year. As reported, while the Mittal family will hold a 43.4% stake in the new entity, Arcelor shareholders will own 50.5% stake. Lakshmi Mittal and Joseph Kinsch (Arcelor's current Chairman) will jointly head the new corporation, which will have combined revenues of around US$ 69 bn.

As indicated in a Mittal Steel presentation, the combine, with a geographical footprint in 27 countries (with 61 manufacturing locations), will have several strategic advantages like:

  1. Leadership position in high-end segments in North America, with strong R&D capabilities;

  2. Operations in high-growth economies of Asia and South America with low-cost profitable assets and local operations expertise in numerous emerging markets;

  3. Access to raw materials and upstream integration

  4. Well-balanced portfolio exposed to the whole spectrum of steel products

So, what are the implications for Indian steelmakers?
Not much, really! While the Arcelor-Mittal combine will hold around 10% of the global steel manufacturing capacity, it is still not sufficient to create any monopolistic kind of a situation in the steel markets. The fact that the largest player in the market (Arcelor-Mittal) will only have a 10% share (top 10 steel producers only just 26% of the global steel capacity) speaks volumes of the nature of fragmentation in the industry. Since 2000, the world steel capacity has increased by as much as 5% per annum with major players expanding capacity to take advantage of the favorable pricing situation. In this backdrop, it is difficult for one or two players to be price makers. While the new entity (Arcelor-Mittal) will be in a position to guide steel production and prices in select regions where they have a stronghold, on a global scale, the implications are not really serious.

More importantly, it is not only steel prices that are important, but also the cost of inputs i.e., iron ore and power. Even as capacity is increasing at a faster pace, there is a shortage of iron ore supply, which is forcing manufacturers to acquire interests in mines. In fact, for 2006, the Chinese steel producers have agreed for more than 16% increase in iron ore prices (from South America). The adjacent graph reflects the trend in hot-rolled steel prices, cost and profit per tonne (Source: Steelonthenet). Despite prices going up significantly in the last five years, the corresponding change in profit per tonne is not that significant. In our view, integrated steel players are much better play as compared to pure steel manufacturers. Having said that, given the fact that interest rates around the globe is on an uptrend, the prospects of global economic slowdown cannot be ruled out, which in our view, will have a negative impact on commodity prices.

Equitymaster requests your view! Post a comment on "Mittal-Arcelor merger: Our view...". Click here!

  

More Views on News

ITI Mid-Cap Fund: Investing in Potential Midcap Companies for Growth (Outside View)

Feb 26, 2021

PersonalFN analyses the features of ITI Mid-Cap Fund and explains the potential this fund has to offer to its investors.

NSE Glitch: Why Did the Market Go Up? (Fast Profits Daily)

Feb 26, 2021

In today's video, I'll discuss why thew stock market went up on Wednesday, 24 February 2021, when the NSE had to shut trading due to a technical glitch.

My Personal Checklist for Your Trading Success (Profit Hunter)

Feb 26, 2021

You my personal trading checklist and you will be well on your way to making it big as a trader.

Make Rs 5,000 Per Day Trading the Market (Fast Profits Daily)

Feb 25, 2021

In this video, I'll show you how to get started on the path to daily trading profits.

Refresh Your Investment Portfolio in 2021 to Align with Your Financial Goals (Outside View)

Feb 25, 2021

Timely review of your investment portfolio is the key, to enable stable returns and work towards your envisioned financial goals during various market phases.

More Views on News

Most Popular

It's the Beginning of a New Bull Phase in Smallcaps (Profit Hunter)

Feb 24, 2021

Last time the smallcap index crossed 19k a big correction followed. Here's what makes it different this time.

Intraday Trading for a Living (Fast Profits Daily)

Feb 15, 2021

In this video, I'll cover your queries on intraday trading and also share my view on how to decide stop losses and target prices.

Top 5 Stocks Mutual Funds Bought and Sold in January 2021 (Sector Info)

Feb 16, 2021

A look at what India's top equity mutual funds bought and sold in January 2021.

I Would Recommend this Small-cap Stock Over Tesla (Profit Hunter)

Feb 16, 2021

Do you enjoy reading Tesla and Bitcoin stories? Here's a not so famous small-cap stock to profit from the rise of EVs.

More

India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Feb 26, 2021 (Close)

MARKET STATS