Jul 27 2005
Consolidation of the steel industry in North America took a giant leap forward with Mittal Steel’s acquisition of International Steel Group earlier this year. Since 2000, ten independent integrated steel companies have amalgamated into three majors, and eight separate electric furnace operators have merged into two big groups. Some independents still remain, but consolidation in North America has been largely completed.
Now the industry’s attention is turning to Latin America where consolidation is starting to gather momentum. Several deals are currently under way that aim to bring together multiple steel plants under common ownership in order to exploit economies of scale.
The most ambitious of these was unveiled a few weeks ago by Techint, the steel, engineering and energy group based in Buenos Aires. It plans to acquire Mexico’s largest steel producer, Hylsamex, for the substantial price of $US2.3 billion.
This would create Latin America’s largest steelmaking combine, with operations stretching from Argentina to the US border. Techint already owns Argentina’s largest steel maker, the 2.8 million tonne per year flat rolled products manufacturer Siderar, and has a controlling share in Venezuelan flat and long producer Sidor. Together with Hylsamex, the new enterprise would be able to make around 12 million tonne per year, putting it in the top 20 global producers.
Brazil’s Usiminas – which has already become that country’s largest steelmaker by taking control of plate and coil producer Cosipa – also aims to be a substantial shareholder in Techint’s new concern. This may lead to further consolidation in the medium term.
There is good reason to believe Techint’s grand plan will be accomplished, as the company has a solid track record in corporate deal-making. In the early 1990’s it began building up a group of seamless tube producers, by acquisition. These included taking over NKK’s mill in Japan in a pact that was the first to allow foreign owners to control a Japanese steel company. Today Tenaris – as the company is now called – is the worlds largest seamless tube producer, with manufacturing operations in nine countries.
One of the pioneers in consolidation of steelmaking throughout the Americas is the Brazil-based Gerdau group. For many years it has produced steel in Uruguay, Chile and Argentina as well as Brazil. Its North American arm, Gerdau Ameristeel, operates in Canada and the USA where it recently acquired the North Star Steel mini-mills. The group as a whole produced more than 13 million tonnes of crude steel last year. Gerdau is continuing to look for acquisitions and is in the process of taking over the largest electric steel mill operator in Colombia.
Arcelor is also active in consolidating the Latin American steel sector. Later this year, it plans to establish a holding company for several producers in Brazil and Argentina in which it has interests. The new Arcelor do Brasil company is expected to be listed on the São Paulo stock exchange.
Assuming all these deals go through as planned, there still remain opportunities for further consolidation of the Latin American industry. There is currently speculation that mills in Chile, Peru, Mexico and Colombia may become takeover targets. Although some of these would need significant investment to upgrade their production processes, the generally positive prospects for the region’s steel markets make them attractive – if the price is right.
See MEPS for more information [http://www.meps.co.uk]