consolidation in the global steel industry, what … company, which is the case for much of the me...
Post on 15-Jul-2018
212 Views
Preview:
TRANSCRIPT
1© 2007 SteelConsult International Page
Consolidation in the global Consolidation in the global steel industry, what does it steel industry, what does it mean for the Middlemean for the Middle--East?East?
SteelConsult InternationalAntonio Vivaldistraat 52C1083 HP AmsterdamThe NetherlandsTel: + 31 (0)20 661 8900E-mail: info@steelconsult.comwww.steelconsult.comwww.steelearningsbarometer.com
Metal Bulletin
11th Middle East Iron & Steel Conference
9-11 December 2007JW Marriott Hotel, Dubai,
UAE
2© 2007 SteelConsult International Page
Introduction
About SteelConsult International
Why SteelConsult?Product AreasServices
• Languages:• Processed Products• Customer Satisfaction Surveys
• Commitment• Long Products• Cost and Feasibility Studies
• Contact network• Flat Products• Financial Modelling
• Expertise & experience• Semis• Market Research
• Specialized in Iron & Steel• Steelmaking Raw Materials• Strategy Consulting
• We know the steel industry
• We know the market
• Extensive databases
• Strong network of high level senior consultants
• We offer a complete package for analyses and decision making
3© 2007 SteelConsult International Page
Consolidation in global steel: What does it mean for the Middle-East?
Recent scale growth in the steel industry has mainly been realized through Mergers & Acquisitions. There has been a considerable acceleration of M&A transactions during the last decade
0
2
4
6
8
10
12
14
16
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
YTD
Number of M&A’s in steel industry
Source: SteelConsult analysisNote: * capacity added to acquiring or larger M&A party
0
10
20
30
40
50
60
70
80
90
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
YTD
Capacity added through M&A’s* (m tpy)
4© 2007 SteelConsult International Page
Consolidation in global steel: What does it mean for the Middle-East?
The last few years have seen a number of important and unprecedented developments in the M&A environment of the steel industry
• Since late 2004, a number of important and unprecedented M&A developments have shaken up the steel industry:
– Erdemir, Kryvorizhstal and Dofasco were sold at record prices
– Arcelor’s bid for Dofasco first hostile takeover attempt in the steel industry since Krupp’s(failed) attempt to acquire Thyssen in 1997.
– Mittal Steel’s takeover of Arcelor was the second.
– By taking over Arcelor, Mittal Steel has eliminated the only competitor that could hope to keep up
– Commercially successful companies from emerging markets increasingly buying quality leaders in mature markets that are performing poorly or are relatively undervalued:
• Severstal buying Rouge Steel and Lucchini
• LNM/Mittal Steel buying Inland, ISG, Arcelor and other
• NLMK buying Dansteel
• Tata Steel buying Corus
• Evraz buying Oregon Steel Mills, Palini e Bertoli and Highveld
• Essar buying Algoma
• Metinvest buying Spartan UK and Trametal
5© 2007 SteelConsult International Page
Consolidation in global steel: What does it mean for the Middle-East?
Prices for steel assets have gone up to multi-billion US$ levels during the last two years
Source: SteelConsult analysisNote: *Price based on 100% of shares
0
2
4
6
8
10
12
14
16
Sidor
Inlan
d Steel
Cocke
rill S
ambre
Kremiko
vtzi
Ameriste
elKos
iceSide
xTric
oLT
VAco
minas
Nova H
utAcm
e
Bethleh
em Stee
l
Nation
al Stee
lSart
idPHS
Rouge
Stee
lDun
aferr
Sid. H
unea
doraNSCWeirto
nAcin
darNatS
teel
North S
tar millsISG
CSTLu
cchin
iHyls
amex
Czesto
chow
aVitk
ovice
Kremiko
vtzi
Hunan
Vali
nErde
mir
Kryvori
zhsta
lWuha
nDofa
sco
Arcelor
Milleniu
m Steel
Huaiga
ngOva
ko
Suez S
teel
Corus
Highveld
NS Grou
pSica
rtsa
Harris
Steel
Lone
Star
Oregon
Steel
Bayi S
teel
Algoma
Ipsco
StelcoMaxi
Price paid* (bn US$)
6© 2007 SteelConsult International Page
Consolidation in global steel: What does it mean for the Middle-East?
Recent sums translate to prices of US$400-1,100/tonne capacity, and 4-10 times EBITDA. This compares to an average of just US$180/ tonne and 3.6 times EBITDA in other transactions since 1997
0
200
400
600
800
1,000
1,200
Sidor
Inlan
d Steel
Cocke
rill S
ambre
Kremiko
vtzi
Ameriste
elKos
iceSide
xTric
oLT
VAco
minas
Nova H
utAcm
e
Bethleh
em Stee
lSart
id
Nation
al Stee
lPHS
Rouge
Stee
lDun
aferr
Sid. H
unea
dora
Nat. S
teel P
hil.
Weirton
Acindar
NatStee
l
North S
tar mills ISG
CSTLu
cchin
iHyls
amex
Czesto
chow
aVitk
ovice
Kremiko
vtzi
Averag
e '97
-'05
Hunan
Vali
nErde
mir
Kryvori
zhsta
lWuha
nDofa
sco
Arcelor
Millenn
ium Stee
lHua
igang
Ovako
Suez S
teel
Corus
Algoma
Stelco Maxi
0
2
4
6
8
10
12
Source: SteelConsult analysisNotes: *Price based on 100% of shares** EBITDA during 4 quarters prior to final bid
Price paid* (US$/tonne capacity crude steel) Price/EBITDA**
7© 2007 SteelConsult International Page
Consolidation in global steel: What does it mean for the Middle-East?
Until 27 January 2006, steel companies were expecting to consolidate towards a handful of giants of 100-120m tpy capacity by 2010. MittalSteel and Arcelor were well underway…
Source: IISI
17
18
18
18
19
23
30
31
32
47
63
0 10 20 30 40 50 60 70
TKS
RIVA
Corus Group
Nucor
US Steel
Baosteel
JFE
POSCO
Nippon Steel
Arcelor
Mittal Steel
Situation on 1 January 2006
Crude steel output, 2005
8© 2007 SteelConsult International Page
Source: IISINote: *Incl. Sicartsa **Incl. Stelco ***Incl. Bayi
Consolidation in global steel: What does it mean for the Middle-East?
Instead of a handful of giants, there is now one supergiant with 120-130m tpy capacity. Will the gap ever be bridged? Or will it become even larger?
17
18
19
20
26
30
33
120
5
10
26
25
18
32
0 20 40 60 80 100 120 140
TKS
Severstal
RIVA
Tangshan
Nucor
Tata Corus
Baosteel***
US Steel**
POSCO
JFE
Nippon Steel
ArcelorMittal*
CSA slab project by 2009
Firm expansions in South America, Ukraine, South Africa and Kazakhstan by 2010
Crude steel output, 2006
9© 2007 SteelConsult International Page
10
26
120
5
32
10
4
20
30
19
26
18 18
33
25
0 20 40 60 80 100 120 140
Top-3 ME
Nos. 6-11
Nos. 2-5
ArcelorMittal*
Consolidation in global steel: What does it mean for the Middle-East?
ArcelorMittal is as large as Nippon Steel, JFE, POSCO and USS combined. Or as Baosteel, Tata Corus, Nucor, Tangshan, RIVA and Severstal put together…
Nippon Steel JFE POSCO US Steel**
Baosteel*** Tata Corus Nucor Tangshan RIVA Severstal
Crude steel output, 2006
Source: IISINote: *Incl. Sicartsa **Incl. Stelco ***Incl. Bayi
Imidro Ezz Hadeed
10© 2007 SteelConsult International Page
Consolidation in global steel: What does it mean for the Middle-East?
ArcelorMittal is still not a particularly large player compared to leaders in other industries, where market leaders account for >20% of the global market…
11%14%
19% 19% 20% 20%23%
33%37%
9%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
ArcelorMittal Alcoa-Aluminum
GeneralMotors
Caterpillar Hewlett-Packard
ABB Norilsk Alcoa-Alumina
Nokia Vale*
Source: SteelConsult analysisNote: *sea-borne ore
Global market share industry leader 2006
11© 2007 SteelConsult International Page
Consolidation in global steel: What does it mean for the Middle-East?
As an illustration, 14% global market share would translate to a steel super giant of around 300m tpy in 10 years’ time
Steel output LNM/Mittal Steel/ArcelorMittal, m tonnes
Source: ArcelorMittal company reports and presentations, SteelConsult analysis
0
50
100
150
200
250
300
350
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
e20
0820
0920
1020
1120
1220
1320
1420
1520
1620
17
?
12© 2007 SteelConsult International Page
Consolidation in global steel: What does it mean for the Middle-East?
In the past, many acquisitions in steel consisted of troubled companies and privatizations…
M&A’s in steel industry, capacity addition to dominant party (mln tpy)
0
5
10
15
20
25
30
Sidor
CSIKrup
pInl
and S
teelHoo
gove
nsC. S
ambreKrem
ikovtz
iAmeri
stee l
Kangw
onAlex
andria
VSZ K
osice
Cosipa
Alfasid
Arbed
NKKSide
xTric
oLT
VCo-S
teel
Acomina
sKuz
netsk
Nova H
utAcm
eBirm
ingha
mASW
Bethleh
em Stee
l
Nation
al Stee
lSart
idPHS
Rouge
Stee
l
H. Ostr
owiec
Dunafe
rrNSC (P
hil.)
We irton
Mergers Privatization Bankrupt/Chapter 11 Other acquisitions
‘97 ‘99 ‘00 ‘01 ‘02 ‘03‘98
Source: SteelConsult analysis
13© 2007 SteelConsult International Page
Consolidation in global steel: What does it mean for the Middle-East?
However, the era of privatizations is over and hostile takeovers will become increasingly common
M&A’s in steel industry, capacity addition to dominant party (mln tpy)
0
10
20
30
40
50
60
Acindar
NatStee
lNort
h StarISGCST
Echen
gLu
cchin
iHyls
amex
Czesto
chow
aVitk
ovice
Kremiko
vtzi
Hunan
Vali
nErde
mir
Kryvori
zhsta
lJili
n Jial
ong
Wuhan
Benxi
Xuanh
uaChe
ngde
Dofasc
oArce
lorMille
nnium
Hefei
Huaiga
ngOva
koLa
iwu
Smorgon
Corus
Wheelin
g P.
Highveld
NS Grou
pSica
rtsa
Lone
Star
Oregon
Steel
Bayi S
teel
Sicarts
aAlgo
maIps
coStelco Max
i
Mergers Privatization Bankrupt/Chapter 11 Other acquisitions
‘04 ‘05 ‘06
Source: SteelConsult analysis
‘07
14© 2007 SteelConsult International Page
Consolidation in global steel: What does it mean for the Middle-East?
The ME steel sector ownership structure protects much of the industry from unfriendly approaches, but also represents a barrier to the positive sides of consolidation
• The steel mills that are in the M&A driving seat have their own raw materials and/or are commercially more successful than their targets, selling steel at the best margin rather than the best quality
• Technology and quality leadership do not provide protection from hostile takeovers. Serving the demanding auto sector has status, but is not necessarily the most profitable business
• There is also no protection in size
• The only robust barrier to undesired takeovers is a critical share of private or state ownership in the company, which is the case for much of the ME steel industry
• However, the ME steel industry’s ownership structure also represents a barrier to consolidationof the steel industry in the region
• While markets are booming, there is no urgent necessity for scale enlargement
• However, the steel industry in the rest of the world is changing rapidly as a result of the ongoing consolidation. The ME steel industry is growing fast through expansions but organic growth cannot keep up with acquisitive growth
15© 2007 SteelConsult International Page
Consolidation in global steel: What does it mean for the Middle-East?
The average output of the Top-10 steel mills has doubled in 10 years’time, enabling operational and commercial advantages
15 15 15 15 14 14 15 15 15
17 17
2021 21
23
26
2830
3335
0
5
10
15
20
25
30
35
40
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007e
Average crude steel output Top-10 steel mills, (m tonnes)
Source: IISI, SteelConsult analysis
16© 2007 SteelConsult International Page
Consolidation in global steel: What does it mean for the Middle-East?
The improved financial performance and scale enlargement of the steel industry has led to financially very powerful players, with large war chests and the need to reinvest excess cash
Source: SteelConsult International (www.steelearningsbarometer.com)Note: * pro-forma incl. all acquisitions in all years
EBITDA Top-65 listed steel companies (bn US$)
27
35
22
29
42
85
9298
0
10
20
30
40
50
60
70
80
90
100
1999 2000 2001 2002 2003 2004 2005 2006
Global Steel Earnings (Top-65)
0
5
10
15
20
25
1999 2000 2001 2002 2003 2004 2005 2006 2007e
ArcelorMittal*
POSCO
NSC
TKS
EBITDA (bn US$)
17© 2007 SteelConsult International Page
Consolidation in global steel: What does it mean for the Middle-East?
Higher spending power is enabling steel mills to grow fast, not only horizontally but also up- and downstream. A new type of competitor is emerging, controlling the chain from mine to distribution…
STEEL MILL END-USER
1980
STEEL MILL1990
2000 STEEL MILL END-USER
INTEGRATED PRODUCER, PROCESSOR AND DISTRIBUTOR OF STEEL
SERVICE CENTER / STOCKIST
MINING COMPANY
Iron oremining
Iron andsteelmaking
Steelrolling
Steelprocessing
Steeldistribution
Steel consump
tion
END-USER
STOCKIST
END-USER
SERVICE CENTER / STOCKIST
18© 2007 SteelConsult International Page
Consolidation in global steel: What does it mean for the Middle-East?
Some signs of consolidation are visible in the CIS, which would lead to new, larger players self-sufficient in raw materials and investing heavily in modernization and expansion
DonetskAlchevsk I&S
ZaporizhstalKryviy Rih Mariupol
im. Ilyich
DMZ
Azovstal
Petrovsky
Enakievo I&SMakeyevki
DnMK
• In Russia, NLMK recently purchased a 51% stake in Maxi Group
• In Ukraine, Metinvest announced plans for a multi-billion dollar merge with Smart Holding.
• Also Russia’s Metalloinvest and Ukraine’s Industrial Union of Donbass(ISD) are seriously studying proposals for a merger of the two companies’ operations.
• The 200km radius around Donetsk holds 49BFs and 45m tpy of steel capacity.
• Much of the mills are still using Open Hearth Furnaces and Ingot Casting, but are modernizing and expanding fast.
19© 2007 SteelConsult International Page
Consolidation in global steel: What does it mean for the Middle-East?
New capacity from new entrants is also emerging in Turkey and India…Turkey could well be used as a springboard to the ME market, especially if new investments would lead to local oversupply
• In addition to potential new leaders in the CIS, the Turkish steel industry is also seeing rapid developments
• Adding to investments already under progress by Erdemir, ArcelorMittal, NLMK and MMK have recently announced new investment projects in Turkey
• In India, ArcelorMittal and POSCO are preparing investments in large greenfield integrated plants
• Corus has brought cutting edge R&D knowledge and operating practices to Tata, which will lead to considerable synergies in cost and quality in the future
POSCO
ArcelorMittal
Tata Corus
Metinvest/SmartMetalloinvest/ISD
NLMK MMKArcelorMittal
20© 2007 SteelConsult International Page
Consolidation in global steel: What does it mean for the Middle-East?
As a result of consolidation, ME mills are facing fast growing, powerful competitors that are spreading activities increasingly closer to the ME region
• The consolidation of the global steel industry will continue, as war chests are filled, earnings remain strong and steel mills seek geographical and scale growth
• Many smaller or poorly performing assets have been absorbed by the large and the strong in recent years, focus to shift to larger deals, likely incl. more hostile moves
• Future consolidation will be increasingly intercontinental, as regional industries have neared the limits of competition authorities in North and South America, Europe and Southern Africa
• Merchant semi markets are getting tighter, as consolidation leads to increased used of excess output for intra-company shipments
• Organic growth through new investments is firm in the ME, but competitors outside the region are growing both via new investments and M&As, leading to the emergence of fast growing, powerful competitors on the doorstep of the Middle-East region
• These players are not just growing through horizontal expansion within the steel industry, but also vertically in mining, processing and distribution, leading to players with scale, low cost raw materials, high quality performance and control over an increasingly large part of the supply chain
21© 2007 SteelConsult International Page
Consolidation in global steel: What does it mean for the Middle-East?
It may take some time before circumstances are conducive to consolidation within the ME steel industry, but progress can be made in various other ways
• Benefits of consolidation do not necessarily require full mergers and acquisitions, synergies can also be realized by JVs and alliances with steel mills inside and outside the ME, with the option to expand co-operation in the future
• ME companies have a lot to bring to foreign partners who may wish to establish a presence in the region
• Growth by acquisitions can also be realized outside the ME region, as demonstrated by Al Tuwairqi
• Furthermore, growth can also be realized by vertical expansion for example by investment in processing and distribution
22© 2007 SteelConsult International Page
Consolidation in global steel: What does it mean for the Middle-East?
Thank you for your attention!
SteelConsult InternationalAntonio Vivaldistraat 52C1083 HP AmsterdamThe Netherlands
Tel: +31 20 661 8900Fax: +31 20 661 8901Email: info@steelconsult.com
www.steelconsult.comwww.steelearningsbarometer.com
top related