Merger to create steelmaking giant
A
MEPS (International) product story
Edited by the Engineeringtalk editorial team
Nov 1, 2006
The Tata-Corus merger will keep consolidation uppermost in the strategic thinking of steel company executives all around the world.
Unless a rival bidder emerges soon, Tata Steel seems likely to succeed with its takeover bid for the Corus Group.
The acquisition will be a giant leap for the Indian company.
It is currently the world's 56th largest steel maker - albeit one of the lowest cost producers.
Adding Corus's 18 million tonnes of crude steel output to Tata's 5 million tonnes per year will rank the new company the fifth in global steelmaking.
But the merger will do little to advance the overall consolidation of the main suppliers.
Based on their 2005 output, the ten largest steel companies make a total of 316 million tonnes - equivalent to 28% of the world total production.
Merging Tata with Corus will raise the top ten's share by 0.4 of a percentage point.
However, Tata has plans for a massive expansion.
As well as doubling capacity at its Jamshedpur works to 10 million tonnes per year, it is working on no fewer than three greenfield integrated steelworks projects in India, as well as large-scale projects in Iran and Bangladesh.
The Tata-Corus merger will keep consolidation uppermost in the strategic thinking of steel company executives all around the world.
If the formation of Arcelor Mittal made it urgent for other mills to consider expanding by acquisition, Corus-Tata has reduced the number of targets available to acquisitive companies.
There is probably room for only a few more acceptable combinations of mid-sise steelmakers in Western Europe and North America.
It is Asia that has most potential.
Ten of the world's top 20 steel companies are based in Asia.
Of these, Nippon Steel and Posco show little interest in either acquiring or being acquired.
In fact the two organisations took steps to strengthen their mutual alliance - in order to fend off hostile takeover bids.
Of the others, Sumitomo Metals has close links with Nippon Steel, and Japan's JFE recently formed an alliance with Dongkuk of Korea.
They are unlikely to be players in any global consolidation unless competitive pressures intensify.
China has five steel companies in the world's top 20 but the industry is hugely fragmented and consolidation is now moving rapidly up the agenda.
China's leading steelmaker, Shanghai Baosteel, has attempted to establish co-operation pacts with some other Chinese mills, and these may eventually result in business combinations.
The merger of Anshan and Benxi Steel could be a model for others.
Foreign investment in Chinese steelmaking may also help further consolidation, if the authorities allow it.
In a potentially significant move earlier this month, Taiwan's China Steel Corp signed a strategic co-operation agreement with Wuhan Steel, China's third largest steel company.
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