Scrapping over steel

MY WORD!

It must be extremely annoying for steel tycoon Lakshmi Mittal. For years, as governments around the world began to privatise their rusting steel mills, Mittal's LNM Holdings was the only international conglomerate which turned up for the party. Now, there's a crush of partygoers determined to have a good time before the music stops.

At end December a Ukrainian steelmaker Donbass-Alchevski emerged as the surprise winner in a bidding war for Dunaferr, Hungary's largest steel producer. Donbass beat the favourites, LNM Holdings and Russian steelmaker Severstal.

Meanwhile, Severstal "" a relatively new player on the international stage "" emerged as the winner in another part of the world. It bid $ 287 million for Rouge Industries, which owns an ageing Michigan steel plant that was once the in-house supplier to Ford Motor Co.

Severstal raced to the front ahead of US Steel Corp which most had reckoned was the frontrunner. Severstal is the world's 19th largest steelmaker and produces about 8.1 million tonnes annually. It was taken over a few years ago by a former manager and turned around.

The events of the last few months in the usually slow-moving world of steel hardly need any explanation. As prices surge around the world and the Chinese display an insatiable appetite for the product, steelmakers are almost minting money in their blast furnaces. Simultaneously, consolidation is taking place both in Europe and the US and giant conglomerates are prowling for distressed assets.

Mind you, Lakshmi Mittal isn't sitting back and watching as the nouveau players gatecrash into what used to be his exclusive party. In November he snapped up Polish giant Polskie Huty Stali.

Now he's manoeuvring to pick up a controlling stake in South African company Iscor. He's already the largest shareholder but wants complete control quickly. Iscor was controlled by the South African government but Mittal bought a stake in the company a year ago.

In fact, Mittal has been scouting for good buys in every corner of the world. He's said to be eyeing another South African company Highveld Steel and Vanadium Corp. Also, he and his family "" the Ispat Group based in India "" were involved in an unusual tussle for a Philippine company three months ago.

Ispat India, owned by Lakshmi Mittal's father and brothers, made a higher bid and seems to have beaten the international takeover king this time round. The sudden interest in the Philippines is because it could supply the Chinese market.

But still it is evident Mittal doesn't have the field to himself any longer. The steel boom appears to have galvanised his rivals into action. The world's biggest steel company Arcelor has been sitting tight since it was created by merging three firms into one three years ago.

Now, it's going on the expansion trail once again. In December it tied up with Chinese giant Baosteel and Japan's Nippon Steel. Together the three will put up a new factory in China that aims to turn out 1.7 million tonnes of steel annually. The venture will cost around $ 785 million. Arcelor is also sniffing around Asia for other buys.

Cross to the United States where, during the '90s, the steel industry collapsed like a house of straw. Since 1998 there have been 36 steel bankruptcies in the US. But now new giants are emerging. There's US Steel, Nucor and International Steel Group (ISG) controlled by maverick investor Wilbur Ross who has specialised in buying distressed companies and putting them on their feet.

The analysts confidently pronounced, Ross had made one unusual investment too many when he bought the ageing Bethlehem Steel plant last year. Today the're eating their words. US Steel and ISG are consolidating their hold on the domestic market and they've now turned their sights on foreign markets. US Steel has already bought Slovakian steelmaker VSZ.

What does all this mean for Mittal? For the last decade he has been the powerful newcomer in a dying industry. He got the pricing right and walked away from deals that were too costly. It will be a much tougher challenge now that a school of sharks is on the prowl.