A nimble giant: ArcelorMittal's moves help to heat up the global steel industry.

Global demand for steel has exploded, despite some well-publicized problems in the U.S. auto industry. While a number of reasons exist for the renewed zeal that has embraced the steel industry, Mittal Steel--now known as ArcelorMittal following its most recent acquisition--can be considered a major catalyst. The company, with its origins in India, has grown throughout the past 10 years to become the largest steel company in the world. Its growth has helped to stimulate an industry that was steeped in lethargy during the mid-20th century.

What Mittal Steel did was realize, far before many other companies, that consolidation in the highly fragmented steel industry could improve the industry's overall health. Sharply consolidating the industry, Mittal's reasoning went, would offer more control of steel production and inventory.

The company pursued consolidation opportunities, which culminated last year in the merger of Arcelor Steel, a European company that had been the world's second largest steel company and itself a combination of several other steel companies.

While Mittal has been able to make strategic acquisitions throughout the world, it currently controls only 10 percent of total world steel production. This seems to indicate that Mittal has significant opportunities to continue growing through acquisition.

CONSOLIDATED STRENGTH. Reflecting ArcelorMittal's diverse operations, of the roughly 118 million metric tons of steel produced by the company, 22 percent is manufactured in North America; 18 percent in Central and Eastern Europe; 34 percent in Western Europe; 10 percent in the Soviet Commonwealth of Independent States and Central Asia; 7 percent in Africa; and 9 percent in Latin America. The company has operations in a total of 60 countries on four continents.

Since it began its acquisition binge, Mittal has acquired Iron & Steel Co. of Trinidad and Tobago, Sibalsa, Sidbec-Dosco, Hamberger Stahlwerke, Karmet, Inland Steel Co., Unimetal, Alfasid, Sidex, Nova Hut, BH Steel, International Steel Group, Stelco subsidiaries and, finally, Arcelor.

These acquisitions have helped to give the company a major edge in the global steel business, but the merger with Arcelor not only provided Mittal with added capacity, it also helped to fill strategic gaps in its portfolio.

Arcelor and Mittal make a perfect fit, at least on paper. As an example, Arcelor had a significant presence in South America, while Mittal had none. Conversely, Mittal had a large presence in Eastern Europe, while Arcelor had minimal exposure to this market.

A larger global footprint is not the only advantage of combining the two companies.

Michael Locker, principal of Locker Associates, a New York City-based consulting firm, says ArcelorMittal's goal is to move up the value chain. One of the biggest advantages, he adds, is that ArcelorMittal has been able to meld the high standards of quality that Arcelor was known for with Mittal's aggressive growth mode.

Locker says the ArcelorMittal merger, which was expected to be quite contentious, has instead been a fairly smooth process. He estimates that the merger is nearly 80 percent complete and adds that the company is already taking concrete steps, with such moves as interchanging management, to strengthen its management.

The combined company's U.S. operations include ArcelorMittal USA's facilities as well as the ArcelorMittal Long Flat Carbon Americas plant, both headquartered in Chicago. In the United States, the company has five integrated steel mills, four mini-mill electric arc furnaces and five finishing operations, which cover 12 states.

While ArcelorMittal has a number of U.S. operations, it also is looking to expand in the U.S. by opening a plate steel line at its Gary, Ind., plant. That plant, which was never opened by Mittal, ended up in the company's portfolio in 2005 through the acquisition of International Steel Group (ISG).

SIZE HAS ITS PRIVILEGES. While ArcelorMittal is the largest steel company in the world, it can still feel the pinch of volatile raw materials markets. Whether it is iron ore, ferrous scrap or scrap substitutes, the company has to contend with a market that puts greater pressure on consuming companies.

David Allen, a spokesman for ArcelorMittal USA, says the company has been able to integrate its operations through the raw material side. "We have been acquiring iron ore properties," he notes. This has helped the company to offset higher iron ore prices. ArcelorMittal got its start early on with a direct reduced iron plant in Trinidad and Tobago, he adds. While building up its stable of steel producing assets, the company also is focused on strengthening its raw materials side and is expected to control more than 75 percent of its coke and iron ore supply. This should help mute some of the fluctuating raw material prices that can cause havoc for a steel producer.

While ArcelorMittal's path to success has been smooth, some issues continue to haunt the steel industry.

The world steel market has been on a strong upward swing throughout the past several years, and there will likely be a decline in the future. The last time a sharp decline in the steel market hit, dozens of companies filed for Chapter 11 bankruptcy. Can a more consolidated steel industry offset the volatility the steel industry struggles with?

THE BIG TARGET. While ArcelorMittal has been able to stake a significant presence in many parts of the world, the company has been working to further grow its operations in China. However, as is the case with other companies that are based outside of China, policies in that country limit foreign ownership to minority status. While this may change in the future, presently, ArcelorMittal has only a minority stake in a number of Chinese operations. These joint ventures are expected to strengthen the company's position in this fast-growing sector.

Along with dealing with high raw material costs, ArcelorMittal is contending with the challenges of higher energy costs and the opportunities and challenges associated with mitigating these costs.

While still a significant consumer of energy, ArcelorMittal is taking a number of steps at various locations to lessen its dependence on external energy sources. At its Indiana Harbor mill, for example, the company is implementing new heat-recovery technology that allows it to produce nearly 100 megawatts of energy.

In a nod to some alternative energy sources, Allen also says the company has started a partnership to put windmills at various ArcelorMittal properties in the Lackawanna, N.Y., area. The company presently has eight windmills in operation at that site.

As for its U.S. operations, ArcelorMittal still uses union labor, though Allen says the union and the company's management do not have the contentious relationship that has hampered so many steel companies in the past. He credits that to ISG. "It is a legacy of International Steel Group of working with unions to come up with better ways to do things differently."

In the North American market, most steel produced in the region typically remains in the United States and Canada. ArcelorMittal has traditionally sold all its steel within the United States. However, as of late, the company has started to ship some steel products from the United States to Europe.

While the steel industry can still fall victim to the boom/bust scenario that plagued it less than a decade ago, companies such as ArcelorMittal are more confident that while problems with the domestic auto industry could create challenges, serving additional steel sectors can help to smooth out potential problems.

While ArcelorMittal has become the largest steel company in the world, its goal, as Lakshmi Mittal, CEO of the company noted, is to be the premier steel producer in the world. This means that the company is looking to offer a wider range of products while also improving its product quality.

Speaking recently at a conference in New York City, Mittal said: "I think we are all agreed that today the industry is in a far healthier position. But similarly I feel that the new period of stability we have entered calls for a new focus. We have succeeded in proving that the steel industry has the chance of a future. Now we have to concentrate on building a steel industry for the modern age. One which is quality driven in terms of product, process and supply chain."

SUSTAINABLE BUSINESS. Mittal said that while the steel industry has been focused on becoming sustainable for some time, historically this effort had related to the ironing out of the industry's cyclical nature and volatility. Now, he said, it is time to work toward a sustainable model focused on customer and stakeholder satisfaction, not only self preservation. He suggested the industry "think like a service company.

"If the past few years have been about ensuring our survival, the future must be about recreating an industry admired for its operational excellence and quality of application and product," Mittal said of shape of the steel industry to come.

Of the Arcelor merger, he said, "Integration is progressing very well and we are making excellent progress in creating a united culture and operational approach. Our scale has created an enormous knowledge pool from which all units can benefit. Operationally we can leverage expertise in more established markets to our operations in developing ones. Our product and geographic diversification has created a more stable earnings base. Our enhanced stability has enabled us to increase our R&D budget to ensure we produce the most sophisticated products." Mittal concluded, "We are able to offer customers a global solution with a common standard."

The author is senior and Internet editor of Recycling Today and can be reached at [e-mail].

TOP 20 LARGEST STEEL
PRODUCING COUNTIRES

1      China              422,700,000
2      Japan              116,200,000
3      United States       98,600,000
4      Russia              70,800,000
5      South Korea         48,500,000
6      Germany             47,200,000
7      India               44,000,000
8      Ukraine             40,000,000
9      Italy               31,600,000
10     Brazil              30,900,000
11     Turkey              23,300,000
12     Taiwan, China       20,200,000
13     France              19,900,000
14     Spain               18,400,000
15     Mexico              16,300,000
16     Canada              15,400,000
17     United Kingdom      13,900,000
18     Belgium             11,600,000
19     Poland              10,000,000
20     Iran                 9,800,000

International Iron & Steel Institute

MARKING THE YEARS

1989     Acquisition of Iron & Steel Co. of Trinidad & Tobago

1992     Acquisition of Sibalsa

1994     Acquisition of Sidbec-Dosco

1995     Acquisition of Hamburger Stahlwerke; Ispat International
         Ltd. and Ispat Shipping formed; acquisition of Karmet

1997     Ispat International NV goes public

1998     Acquisition of Inland Steel Co.

1999     Acquisition of Unimetal

2001     Acquisition of ALFASID; acquisition of Sidex

2002     Business assistance agreement signed with Iscor

2003     Acquisition of Nova Hut

2004     Acquisition of Polski Huty Stall; acquisition of BH Steel;
         acquisition of Macedonian facilities from Balkan Steel;
         creation of Mittal Steel and proposed acquisition of
         International Steel

2005     Acquisition of a stake in Hunan Valin; ISG acquisition
         completed; Mittal Steel Europe created; Mittal Steel makes
         Fortune 500; MDA with Liberian government; acquisition of
         Kryvorizhstal; MoU with state of Jharkhand, India;
         acquisition of Stelco subsidiaries; stake lifted in Mittal
         Steel Zenica

ArcelorMittal Web site at www.mittalsteel.com