Transcripts

Big Steel Finds Strength In Consolidation

PAUL KANGAS: The world`s largest steel maker, Mittal Steel, today reported a 35 percent decline in quarterly profits, as it struggled with lower selling prices for finished steel and higher prices for iron ore. Mittal is also in the middle of a takeover battle for another rival, Arcelor Steel, which also reported a profit drop today. As Jeff Yastine reports, consolidation in the steel industry is just one of the changes it is undergoing.

JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Times are good for steelmakers. Last year, about 1.1 billion tons of steel were produced worldwide, fueling an ongoing boom in the U.S. and fast-growing economies like China and India. No wonder steelmakers feel confident that, despite rising costs for iron ore and energy, there`s a global balance in steel demand and steel supply coming out of the mills. That has left the industry`s largest players to consolidate a jumble of large and small global players.

LOUIS SCHORSCH, CEO MITTAL STEEL USA: Our parent company Mittal Steel, which is the largest steel producer, is bidding for number two, Arcelor. We`re very pleased that that`s about to go to the shareholders of Arcelor for them to decide that issue. But even if that deal goes through, that largest company would be only about 10 percent of world steel production. In the aluminum industry, the largest players are more than 20, iron ore the top three account for almost 80 percent of trade.

YASTINE: And there are other mergers being considered. Russia`s Everaz is talking with British-Dutch steelmaker Corus. This year, Everaz bought U.S. based Stratcor, a producer of vanadium, a key component in stainless steel. Analysts say they`re seeing another trend in the steel industry, vertical integration, where one company controls not just the steel-making, but also the mining of its key component, iron ore.

SCOTT BURNS, MORNINGSTAR: I think as the world industrialized over the past, over the later part of the 20th century there, the need to have that captive resource became a lot less. Now we`ve got an economy or several economies that are ramping up much like the U.S. was at the turn of the century and again it`s becoming more important to have that captive resource in order to control your supply chain and kind of cut out the middleman essentially.

YASTINE: Analysts expect China to encourage consolidation among its 800 steelmaking companies, a huge capacity that concerns the U.S. steel industry.

SCHORSCH: This is still an industry that`s largely government owned and most of the decisions about investment are made with zero interest loans by regional governments that are more concerned with employment or economic just development if you will. We have a lot of concern that there`s already more capacity in that country than they`re going to need and that capacity`s continuing to grow. YASTINE: Analysts say that for now, China`s economy continues to consume most of the steel produced there. But if its economic boom slows down, it could put tons of cheap Chinese steel back on U.S. and world markets. Jeff Yastine, NIGHTLY BUSINESS REPORT, Miami.