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Asia next stop in steel M&A wave Industrial trend  5/24/2007

LONDON (Reuters) - The next big wave in steel sector consolidation is set to sweep China, forging global powerhouses that will pose serious threats to high-cost Western producers, a senior industry official predicted on Monday.
"Look out," International Iron and Steel Institute (IISI) Secretary General Ian Christmas warned steelmakers of the Chinese juggernauts set to emerge, noting western companies will need to be top fit and have a clear strategy to meet the threat.
"They 'll have to run very hard," he said.
Christmas told the Reuters Global Mining and Steel Summit in London that few steelmakers of significant size were still available for taking over in Europe and the Americas.
"There aren 't so many players left that don 't have complications attached to them, which is probably why we see a slowing of mergers and acquisitions," he said.
"There are some niches out there but I think the main area for the next wave of consolidation is going to be Asia."
China, the world 's biggest steel producer and a net exporter, seems overdue for a merger wave because it remains fragmented, he said, noting the top five producers have even less domestic market share than they did five years ago.
"There is a massive job of consolidation yet to come in China," said Christmas, whose industry organisation counts the world 's biggest steelmakers as its members.
But just as in Europe and North America two decades ago, consolidation in China is being held up by the conflict between boosting efficiency and preserving local jobs and tax revenue.
The Beijing government seems to have a strategy of creating a few world-class players, probably based on the coast to cut transport costs and charged with leading the sector 's restructuring, Christmas said.
Chinese steelmakers are entrepreneurial, innovative and able to draw on the domestic banking sector and retained profits for finance, enabling them to keep foreign companies at bay.
"It 's a frustration for the companies like Arcelor Mittal that want to be truly global players that they seem to be for the moment at least locked out of the biggest market of all and the one that still must have the greatest potential."
At the moment, Chinese steelmakers are importing most of the technology they need but this is set to reverse in a few years, he predicted, since most of the new investment in the steel industry is going on in China.
"The leaders like Baosteel are spending as high a percentage of their turnover on R&D as Nippon Steel or the other leaders in the industry. In a few years time the Chinese will own most of the intellectual property in the steel industry," he said.
Bolstered by strategic overseas investments in raw material supplies, Chinese companies will emerge within a few years as major international investors in steel, he forecast.
Other potential consolidators include iron ore companies and mining groups flush with cash from the commodities price boom.
"The iron ore companies are very rich. Even though steel companies ' capitalizations have gone up remarkably -- the CVRDs BHPs the Rio Tintos have gone into the stratosphere," he said. "Mining companies...ultimately -- where they are -- they must look downstream," he said.
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