Analysts: Arcelor consolidation in line with global trends
Bnamericas Published: Wednesday, October 19, 2005
Luxembourg-based steelmaker Arcelor's plan to group together by November its Brazilian steel holdings Belgo-Mineira, CST and Vega do Sul follows a global trend toward the consolidation of metal companies, analysts told BNamericas. Arcelor's Brazilian holdings, grouped under a company called Arcelor Brasil, will become one of Latin America's biggest steel producers, reaching annual production of 11Mt. By comparison Argentine-Italian group Techint's new Latin American steel company Ternium is due to produce 12Mt/y steel. Arcelor Brasil will be listed on Brazil's main Bovespa stock exchange. "We have been seeing an ongoing consolidation in steelmaking worldwide, resulting in big steelmaking groups," Ágora Senior mining and steel analyst Cristiane Viana said. "Arcelor's asset consolidation in Brazil is a continuation of the worldwide movement toward consolidation," she said. "This is a positive move for the Brazilian industry to be more consolidated and aligned with this global trend." While Brazil's steel industry has been quite fragmented, Viana pointed out the country already has consolidated its iron ore and automobile industries. Viana does not believe steel consolidation will alter Brazil's market drastically because the three companies work in different segments of the industry. Vega do Sul supplies its coiled hot-rolled strip steel to CST, which is a flat steel producer. Belgo-Mineira produces long steel. "There will be no change in competition since other Brazilian steel companies [CSN and Usiminas] are highly competitive and able to compete on the same level as the Arcelor Brasil group," she said. "We also don't see an influence in steel pricing and domestic market prices will not fall due to consolidation." A POSITIVE STEP ABN Amro analyst Pedro Galdi was also bullish about the new steelmaking group, saying it will start off with a strong cash position. The three components of Arcelor Brasil also will benefit from the Arcelor "label," he said. "Arcelor Brasil's consolidation is interesting because from the moment you grow in the steelmaking business, there's a gain in scale and more bargaining power to negotiate materials and services with suppliers," he added. Banif Investment Banking analyst Catarina Pedrosa is also upbeat about the consolidation, saying it could create synergies and reduce costs. "Strategically speaking, it is better to be a consolidated group, whether you are buying or selling, because you have more power to negotiate," she said. "Consolidation is something that is happening around the globe, where you see large corporations instead of small companies spread around." ACESITA'S ROLE Analysts also pointed out that specialty steelmaker Acesita could be consolidated into Arcelor Brasil. Pension funds Previ and Petros, which owns part of Acesita, have agreed to sell their shares in the Brazilian specialty to Arcelor, giving the steel giant a controlling stake in Acesita. Viana believes Acesita will become part of the new group and Galdi went as far as to say the specialty steelmaker would be incorporated into Arcelor Brasil between December 2005 and early-2006. On the other hand Pedrosa believes Acesita will not become part of Arcelor Brasil but will instead join a group of stainless steel producers.
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