US steel consumers see pricing pressures from Mittal combination
Many of the major steel consumers, particularly auto manufacturers are worried that the emergent Mittal Steel Company will significantly reduce their bargaining power and put increased pressure on their efforts to control costs.
As reported by SteelOrbis earlier this week,
Netherlands-based steel producer Ispat International N.V. and Ohio-based International Steel Group (ISG) recently signed an agreement under the scope of which the two companies will merge. In addition, Ispat International N.V. will acquire LNM Holdings N.V. After the takeover and merger are completed, the new name of the company will be Mittal Steel Company N.V.
Mittal Steel Company will be the largest steel company in the world, with 40% of the US market for flat rolled steel used in automaking.
In the past few years the
US steel industry consolidated extensively, leaving fewer players in the marketplace and contributing to higher prices.
As a result, the number of suppliers able to make high quality steel products for automakers fell by roughly half and after the proposed transaction. Three major steel suppliers Mittal Steel,
US Steel Corp and AK Steel Holdings Corp., will control the vast majority of
production in the US. Moreover, further consolidation in the North American steel market is expected.
John Surma, CEO of
US Steel, the largest American steel producer before ISG's recent merger with Ispat International, N.V. has reportedly stated that his company is a diversified stable company that can still provide profitable returns to its shareholders. However, in his statement Surma did not rule out the possibility of mergers in the future, as he pointed out that the company has done that successfully in the past.
Ford and General Motors, the US's largest automobile manufacturers have not yet announced whether they will object to the Mittal combination on anti-trust grounds.
Steel producers around the world have been locking in high prices with long term contracts, with many of the largest producers announcing that they have secured prices as much as 20% higher than under previous contracts.