Rivals may slow Mittals Asia drive

Aug 30 | Updated: Aug 31 2006, 05:30am hrs
Steelmakers across Asia are putting defensive measures in place to prevent being swallowed by Mittal Steel Co, which is focusing on the continent after agreeing to buy Arcelor SA for $38.3 billion.

Nippon Steel Corp, the worlds second-biggest steelmaker, is asking domestic rivals to help block a hostile takeover from abroad. South Koreas Posco may buy back shares to increase its market value, and Tata Group plans to raise its stake in Tata Steel Ltd to 33.5%.

Mittal is definitely a reason, B Muthuraman, managing director of Mumbai-based Tata Steel, said of the plan to increase the groups holding by 3.2 percentage points. Lakshmi Mittal, the son of an Indian steel entrepreneur who split from the family company in 1994, has built the worlds largest steel company with iron-ore mines, steel plants and finishing mills on four continents. The biggest holes in that network are China and India, the two fastest growing nations among the worlds largest economies. That has increased pressure for mergers among Asian steelmakers.

Consolidation is the outlook for the steel sector, said Philip Miall, an analyst at Fitch Ratings in Brisbane, Australia. The global steel sector is under pressure from input costs, and steel is a highly fragmented industry. Shares of Tokyo-based Nippon Steel and Tata Steel have gained more than 30% since mid-June, when shareholders at Arcelor, previously the worlds No 2 steelmaker, indicated they would accept Mittals bid. Poscos stock has risen 11% in the period.

Mittal, the worlds fifth-richest man, plans to invest $8.7 billion to build a mill in Indias Orissa state, tapping growing demand in an economy that expanded an average of 8% in each of the past three years. We are focusing on India and China, Mittal said on July 7 in Bhubaneswar. India is a very important milestone for us to remain the biggest company in the global steel industry. Mittal spokesperson Selina Vaccarino declined to comment for this story.

Heavy Metal

Mittal's fury
Nippon Steel is asking domestic rivals to help
block a hostile takeover
Posco may buy back shares
to increase its market value
Tata Group plans to raise
its stake in Tata Steel
Holes in Mittal Steel network
China and India
Consolidation time
Global steel sector is highly fragmented industry

Acquisitions in India will be difficult because the countrys steelmakers are either majority-owned by their founders or the government, says Sajjan Jindal, MD of JSW Steel Ltd, Indias third-largest producer of the alloy. Still, Jindal Group, JSWs biggest shareholder, plans to boost its holding to 50% from 45% to deter predators. It is better to be safe than sorry, Jindal said. China, the worlds No 1 steel producer, has hundreds of steelmakers. Although the government is encouraging consolidation, it bars foreigners from taking control of companies.

Bloomberg