Fewer steel players to spell price stability

NEW DELHI: Price fluctuations in the steel market would become a thing of past. The consolidation phase in the steel industry is likely to add stability to the industry with the emergence of 10 large players controlling almost 35% of the global market by 2010, the Boston Consulting Group has said in a report on the steel industry launched on Thursday.

The report titled “Beyond the Boom: The Outlook for Global Steel”, has said that consolidation would mean that there would be three or four players producing more than 80 million tonnes, and five or six players producing between 40 million and 60 million tonnes of steel annually. While the consolidation would bring stability in the market as large players could prevent sharp fluctuation in prices through production cuts, it would also open the doors for further mergers and acquisitions where a substantially large company would also be vulnerable to a take over bid.

“More mergers and acquisitions will be stimulated by the current combination of mostly moderate valuations and high earnings. Even large, successful companies whose shares win high valuations are in danger of becoming acquisition targets now that the Arcelor-Mittal merger has created a market leader 3 times the size of the new company’s nearest competitor,” the report has said.

It has said that the trend toward inter-regional mergers is expected to continue with steel makers in developed countries using facilities in low-cost countries to make structural improvements in their upstream cost positions.

and increase in demand for high-quality steel products from important customers such as automotive and appliance manufacturers.

The report predicts that the world-wide steel industry will achieve significant growth of 3 to 4 percent per year through 2015, reaching 1.55 billion to 1.7 billion tons annually.

For India the report has said that changes in the structure of global steel industry and increased domestic demand would benefit the country by way increased investment in the sector.

The country would also emerge as a major player in the mass market segment as global demand for steel would pick up on the back of a resurgence in the commodity sector. It has said that India would need to increase its steel productivity at the rate of 7 to 8 % annually to sustain the growth in demand and also work towards improving technology and product quality.

What works in favour of the Indian steel industry is abundance of iron ore (6% of world-wide deposits) and of coking coal (11% of world-wide deposits).