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2004 was a very acquisitive year for you. How much more consolidation do you think needs to take place in the steel industry? Are you still on the look out for further acquisition opportunities?
It’s true that 2004 was a great year for acquisitions by the Company. We completed the acquisition of Polskie Huty Stali in Poland and took control of Iscor in South Africa, increasing our shareholding to a majority stake. We also completed some other smaller transactions in Europe, acquiring assets in Bosnia and Macedonia. However, we are most excited about the recently completed merger with International Steel Group. This is all part of our strategy to remain a low-cost, high quality and preferred supplier of steel on a global scale. We have, to some extent, already achieved this, having built up positions of strength on four continents, but we continue to look for further opportunities that would enhance our business. We have never made any secret of the fact that we believe that consolidation and globalisation should bring long-term benefits to our industry. Do I believe that there has been enough consolidation yet? No, I do not. Mittal Steel Company is now the largest producer
in the world, with only 6% of total global production. When compared with other industries, it is clear that steel is still a fragmented market. You have to ask what
is it that we are trying to achieve through consolidation? The answer is a more stable, less volatile sector that can provide value to our stakeholders throughout the cycle.
Is it realistic that we can achieve this whilst still operating in a fragmented marketplace? It will certainly be tough, but I believe the industry has reached a point where collectively it has embraced this idea and I think we will see continued consolidation over the next few years.
The steel industry has been notoriously cyclical. Do you believe it can shed its past image and reinvent itself as a sector that can provide long-term value?
To some extent the steel industry will always be cyclical, because its behaviour is determined by underlying economic growth. But in the past it has been characterised by severe swings and it is this volatility that I believe can be reduced. Again, we need to look at what has caused these swings and the resulting poor image that the industry has attracted. Essentially it has been the industry’s inability to manage global supply and demand effectively. A more consolidated environment should make it easier for the industry to appropriately manage the cycles that we will experience. And if we can achieve this, then yes, I do believe we have the opportunity to move away from the past and demonstrate that we can create value through the cycles.
Do you think the fundamental structure and thinking of the industry has really changed?
Historically the steel industry was mostly state-owned, production driven and local in its thinking and behaviour. Compare this with the situation you find today and there
is no question that the structure is rapidly changing. We have seen state ownership
of steel companies decrease as countries have moved ahead with their privatisation programmes. This has led to the emergence of a more market-oriented industry,
with the new breed of management teams focused heavily on the bottom line.
How much do you think your stakeholders believe in this possibility? How do you convince them that you are really making progress?
I believe we are making progress, but for our stakeholders the proof lies in the pudding. The steel industry has historically seen peaks and troughs. That is why, despite the buoyant steel markets we are currently experiencing, the steel industry is commanding very low earnings multiples in the financial community. This says to me that we still have much more to do in order to convince our stakeholders and financial markets that the fundamental structure of the industry has changed. How do we convince them that we are making progress? By continuing to focus on cost, by proving that we can better manage supply and demand, and by delivering superior results. Our stakeholders need to see the evidence that we are better able to manage ourselves as a result of consolidation. We need to demonstrate that we can be sustainable and I am absolutely convinced that we can.
You are regularly quoted as saying that there should be two or three, 100 million ton producers. Is this correct and do you believe it is possible? And do you continue to take the lead in further consolidation?
There should be at least three players between 80-100 million tons and I believe the key players in the industry are thinking about this seriously. Today you see so many steel companies talking about their desire to consolidate. Everyone experienced the severity of the last downturn and I think that is when companies really began to appreciate that there was a real need to change. I do not believe that 80-100 million tons is an unrealistic target. We are already a 60 million ton producer and we have more than doubled in size over the past few years. In our experience the benefits of size, scale and diversity add considerable value, and we will certainly be continuing to look for further acquisition opportunities.
Everyone talks about the threat from China. How real do you believe this threat to be?
We have recently entered into an equity partnership with the Hunan Province in China and we believe this will be a great opportunity, as it will really help us to understand the Chinese steel industry. China is clearly one of the most important markets for the steel industry and I have said several times that we cannot be truly global until we have a production presence in China. In this regard I see China as a big opportunity. They are already the largest consumer and producer and they are very ambitious in terms of improving their product development and marketing know-how. If we can help them build up this kind of knowledge, then I think the partnership should work very well. In terms of China becoming a threat, it is true that this year they will be exporting more than last year, but I believe the Chinese are very conscious of what they are doing. I don’t think it is in their interest to disturb the global market. In any case, their domestic market continues to grow and they will need to continue to import the value-added products, which are not yet being produced within China.
Where do you see future growth coming from?
Everyone believes that countries like India, Russia and Brazil should see rapid growth and that steel demand will accelerate. I also believe that in addition, the countries in Central and Eastern Europe will continue to grow faster as they try to come closer to Western European standards. I believe it is safe to say that steel demand will continue to grow at around 3% annually over the next decade, and that is a lot of demand.
You have built up positions of strength in both developing and developed countries. What is your rationale for this; given some people believe that
steel production will naturally migrate to lower-cost economies?
We do not think in terms of developed versus developing countries when we consider acquisitions. Instead we look at the particular situation and evaluate if we could add value to that company. We look at opportunities in both developed and developing markets and you can see this from our geographic profile, which is appropriately spread. It is true, however, that the lower-cost economies do have a cost advantage, but at the same time the developed economies have greater demand for higher quality, and therefore, each one has its own peculiarities. This is why our business model is global. We are also able to transfer knowledge and skills across all our assets. This is an advantage of being a global company.
Where do you see Mittal Steel being in ten years time?
Our strategy is to be a low-cost, high-margin, high-quality producer on a global basis. With this in mind we will continue to remain vigilant in terms of growth opportunities. This will include looking at downstream and upstream operations to support our steel-making facilities. We are investing heavily in capital expenditure at present with the intention of moving our products up the value chain, particularly in the developing countries. Our aim is to become the world’s most admired steel institution and therefore we must excel in every area and every aspect of our business.
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