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| TITLE |
Asian Steel Makers Form Bonds Of Iron |
| WRITER |
administrator |
DATE |
2008-10-18 11:21:40 |
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Asian Steel Makers Form Bonds Of Iron
Tina Wang, 2008.10.17,
As the Asian proverb goes, it is much harder to break a bundle of chopsticks than just one chopstick. So when a mining firm in Brazil came up for grabs, a number of Japanese, Korean, Chinese and Indian steel makers jumped aggressively into the fray.
Asian steel makers are banding together in various alliances to try to put themselves on better footing in dealing with the global mining industry, which is highly concentrated and has sought steep price hikes for raw materials this year. Steel producers in Japan, Korea and China are eager to secure their own iron ore supplies, and they want to pick off Nacional Minerios, or Namisa, a mining company owned by Brazilian steel producer CSN. After all, amassing mining assets around the world is a tried-and-true strategy blazed by steel giant ArcelorMittal (nyse: MT - news - people ), controlled by Lakshmi Mittal, who is No. 4 on the Forbes global rich list. (See "ArcelorMittal Digs Self-Sufficiency.")
A consortium of Japanese and Korean steel companies plans to venture 400 billion yen ($3.9 billion) for 40% of Namisa, which produces about 20 million tons of iron ore a year. "Although there aren't too many commercial or meaningful mining assets out there to grab, steel companies are trying to grab whatever is possible out there," said Simon Park, a Seoul-based analyst for BNP Paribas.
The participants include Japanese trading house Itochu (other-otc: ITOCY - news - people ) and five of Japan's biggest steel manufacturers: Nippon Steel (other-otc: NISTY - news - people ), JFE Holdings (other-otc: JFEEF - news - people ), Sumitomo Metal Industries (other-otc: SMMLY - news - people ), Kobe Steel (other-otc: KBSTY - news - people ) and Nisshin Steel (other-otc: NHISY - news - people ), according to a Nikkei report Friday. South Korea's Posco (nyse: PKX - news - people ) is the lone non-Japanese player in the mix. Itochu will reportedly contribute 40%, or 160 billion yen ($1.58 billion), to the joint bid, while the steel makers will divide the remainder according on their own iron ore supply needs.
Currently, Posco's own mining assets supply 15% to 20% of the steel maker's needs, while ArcelorMittal is 50% self-sufficient, according to Park. "Every steel company wants to be like [ArcelorMittal]," he said.
Competitors have their eyes on the same mining asset, though. Reportedly vying with the Japanese-Korean bid are a Chinese consortium led by the Shagang Group as well as India's Tata Steel (other-otc: TATLY - news - people ) and, of course, ArcelorMittal.
Their passion for owning their sources of supply is no wonder since the world's Big Three in mining, BHP Billiton (nyse: BBL - news - people ), Rio Tinto (nyse: RTP - news - people ) and Vale (nyse: RIO - news - people ) have been the tough guys in the room this year. They pushed for steep hikes in iron ore prices from the steel firms, which have less leverage because of the atomized state of the industry. "Lately, they've exerted so much bargaining power over steel companies which are fragmented," Park said of BHP, Rio and Vale. This past summer, BHP and Rio Tinto secured an 85% hike in iron ore prices from Chinese steel producers. BHP's takeover attempt of Rio Tinto, if successful, will concentrate pricing power even further.
The prospect of a global downturn is unlikely to deter steel producers' efforts to gobble up mines. "For next year's contract negotiations, there's going to be a debate about whether prices are going to go down because of global slowdown and slowing demand for steel. But, over the long term, everyone would agree that emerging markets would have to increase their per capita steel consumption," Park said. Japan and Korea each have per capita steel consumption of close to one metric ton. China has 500kg, while Latin America has 100 kg. All these countries are getting hungrier for steel, Park noted.
In Tokyo, Nippon Steel shares closed up 16 yen (16 cents), or 5.3%, to 316 yen ($3.12) Friday. In Seoul, Posco shares were up 500 won (38 cents), or 0.2%, to 302,000 won ($226.50).
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