Industry Analysis Case Study

Consolidation in Global Steel Industry: What Lies Ahead?

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Abstract:

Since the mid-1990s, the global steel industry had exhibited a brisk and impressive pace of restructuring and consolidation. A spate of mergers and acquisitions had characterised the steel sector. It was estimated that by the end of 2006, the top ten steel producers represented about 28% of the global production. The share was expected to rise up to 35% in 2010, implying only three-four players producing more than 80 million tons, and five-six players producing between 40-50 million tons. The key drivers behind the consolidation of steel industry included reduced overcapacity, cost control, better negotiation, and better management of the balance between demand and supply as the larger the producers were, the more they were able to adapt production fluctuations in demand. It was further believed that the global consolidation would continue to be a factor shaping the steel industry resulting in greater discipline in it. However, some analysts were skeptical about the overall implications of the consolidation on the steel industry. Many concerns were raised about the consolidation wave such as “Is bigger necessarily better?”

The case discusses the consolidation in the global steel industry, major trends of consolidation and the key drivers behind it. The case also highlights issues such as, is bigger necessarily better? What are the likely future trends in the steel industry?

Pedagogical Objectives:

• An outlook of global steel industry
• Mergers and acquisitions in the global steel industry
• The factors behind consolidation.

Keywords : Consolidation; Steel Industry development; steel Production; Total Shareholder Return; Value Chain; Arcelor-Mittal; Baosteel; Mergers,Acquisitions,Alliances Case Study; Fragmentation; Cyclicality; Investment Trap; Global Steel Industry; Regional Champions; Niche Specialists; Global Player; Steel Cycle