Drama intensifies for the world’s #1 steel producer

The May 25th announcement that Arcelor plans to merge with Severstal was both surprising and, most likely, a sizable plus for global steel stock valuation:

Surprising because Mittal Steel may be usurped, at least temporarily, in the race to obtain an unassailable #1 global steelmaking capacity position. Arcelor is Europe’s leading steel company, highly profitable in Brazil and the second largest in the world on a capacity basis, while Severstal is Russia’s best-positioned steel company in the view of many observers (including WSD).

A sizable plus because, if the Arcelor + Severstal combination prevails (a good possibility in the opinion of this writer), the world’s other leading steel mills will be more encouraged to join the race to be #1. The Mittal Steel + Arcelor combination would have given Mittal Steel an insurmountable lead and, as a consequence, might have dampened the “urge to merge” enthusiasm at least to some extent. As pointed out to Peter Marcus by a hedge fund manager: “now that the Russian steel mills have been given the green light to participate in the international consolidation of the steel industry, the valuation of steel stocks may rise even more.” (Note: Besides Severstal, the other leading Russian steelmakers are Novolipetsk, Magnitogorsk and Evraz, with the first two participating in, and dominating along with Severstal, the steel sheet business in the country. Novolipetsk is owned 97% by its Chairman, Vladimir Lisin; Magnitogorsk is controlled by its Chairman, Victor Rashnikov, and Evraz is controlled by its Chairman, Alexander Abramov.)

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