OECD to host talks on steel consolidation

By Anna McLauchlin

Date: 10/11/04

The Organization for Economic Cooperation and Development (OECD) in Paris is to revive talks between the world's steel-producing nations at the start of next year.

Earlier discussions became deadlocked over the issue of cutting subsidies but the high-level talks are being resurrected to look at other developments, including recent consolidation between companies.

The creation of the world's biggest steelmaker through the expansion of Mittal Steel Company, announced on 25 October, has given new impetus to talk of further mergers.

The UK-based steel magnate Lakshmi Mittal, with two companies based in the UK and the Netherlands, is purchasing the US steel company International Steel Group (ISG). European steel companies have welcomed the move as a further step towards the eventual consolidation of the industry, even though it will knock the EU's Arcelor off its number one perch.

A senior industry economist at the OECD told European Voice that the January talks would bring together industry and government representatives from the OECD countries, as well as the major steel-producing areas including China, India, Brazil, Russia and Ukraine. They will analyze the world's largest steelmakers' prediction that by 2015 there will be only five or six global groups producing around 90 million tonnes of steel.

"The meeting will explore the driving forces behind the increasing consolidation to see on what scale it is likely to be and how far it might go," he said. He added that he was not sure that the Mittal merger would unleash a concentration wave.

"The industry is expecting huge consolidation but if you look at the Mittal merger, it's the only one jumping all over the globe.

"You don't find others like that. Look at Nucor in the US or JFE in Japan. They are all staying on a national level."

Imtiaz Ali, senior metals analyst at UK-based Metal Bulletin Research disagrees. "I don't think anyone expected Mittal to happen so soon and now anything is possible," he said. "Arcelor won't rush to acquire just to regain the number one spot but if the right synergies can be created there will be no holds barred."

Steel companies are keen to merge so as to give them a better bargaining position against the iron ore firms that supply them. The top five iron ore producers account for 90% of their global market.

A report produced by the OECD shows that the ten largest producers of crude steel each accounted for only 2-4% of global production last year, which is virtually unchanged from the situation in the 1970s.

Consolidation has so far been on a national and regional scale. Arcelor was created from Spain's Aceralia, Luxembourg's Arbed and France's Usinor in 2001. UK-based Corus was created from British Steel and the Dutch Koninklijke Hoogovens in 1999.

A Corus spokesman said, "We have been saying for a long time that we are the middle men between the few raw materials companies and the number of clients - like the automotive industry - that you can count on one hand. In order to have some bargaining power we need to have some economy of size."

"We're not saying it won't happen," says the OECD economist. "But if you look at the numbers we are putting out it is not a given." The OECD report estimates that even if there is "vigorous change" in industry concentration, individual firms will still only account for 8% of world production at most.

The OECD conference will take place on 12-13 January 2005. It is the first of its kind since similar meetings were suspended in September 2001 to concentrate on reaching an agreement to reduce or eliminate trade-distorting subsidies following the US tariffs on steel imports which were lifted in 2003 following a WTO trade dispute. These talks ended in June after the interested parties failed to agree on exceptions to the ban on subsidies.

Participants will also discuss other hot topics facing the industry at the meeting. These include the changes in the steel trade balance - notably the influence of China, which has seen rising consumption as well as increased exports. Governments will also consider possible shortages of iron ore and coke, transportation problems and how to adhere to environmental laws while maintaining security of supply.

"You see some in the industry who get very nervous about some things, so we have picked all the burning issues to see how they will play out," said the OECD economist. "That's the value of people coming together on a global scale."

Article says that the Organisation for Economic Co-operation and Development (OECD) in Paris is to revive talks between the world's steel-producing nations at the beginning of 2005. Earlier discussions became deadlocked over the issue of cutting subsidies but the high-level talks are being resurrected to look at other developments, including recent consolidation between companies.