Mittal Steel and the global steel industry

Mittal Steel and the global steel industry

Introduction Steel has been made since 200 BC

Mass production of steel from iron ore, coke & limestone dated back to the 1850s

Important component for many industriesBuildingsShipAutomobileHome appliances

Possible replacement – aluminium, carbon fibre

Constant changes in the industry

Steel production process(Traditional method)

Large, vertically integrated complex

Iron ore is converted into molten iron & then into steel

High investment, large labour required

Competition from “Mini-mills”

Low cost, less labour and low grade metal

Located near customers

Turbulence & Consolidation

Mini-mills accounted for 1/3rd of steel production all over the world

Large firms in Europe & USA facing difficulties

Increased productivity led to over capacity in stagnant market

LTV steel filed for bankruptcy

Demand increased in 2003 due to economic expansion

Mittal Steel – the early days

Mittal steel started life in 1970s as “Ispat Industries” by M.L Mittal

Small scale steel production firm based in Bangalore & Kolkata

Expansion in India was difficult due to strict regulations

Ispat went to Indonesia as the market was unregulated

Company grew but found problems in acquiring good quality scrap

Alternative to scrap as raw material was “Direct Reduced Iron(DRI)”

Cheaper, few impurities & less energy in conversion

“Iscot” was leased to Ispat and within 12 months made it profitable

In 1994, Ispat acquired Iscot for $101 million

Growth in mature industry

Mexico invited Ispat to take over Sibalsa plant

In 1995, Ispat revived “Kannet” 3rd largest steel plant in soviet union

In 1994, Ispat business was split into two new companiesLNM HoldingsIspat International

In 1997, Ispat International listed on NYSE and Amsterdam stock exchange

Becoming number one

Started to penetrate USA & Canada

Acquisitions1998 – Inland Steel2004 – International Steel Group2005 – Arcelor

Buy out of LNM by Ispat International for $4.5 billion

Inside Mittal steel

Management of Dabrowa Gornicza steel plant

Simple, geographical based, divisionalized structure

Knowledge sharing programme

Expertise in DRI

Q.1 How well does the steel industry fit the life cycle model? Allocate rough dates to the different life cycle phases identifiable in the case.

200 BC – 1850 1850 – 1980 1980 – 2001 None

Market Small Growing Large

Competition Low Moderate High

Sales Low High Flattening

Business Focus Awareness Market Share Customer Retention

Q.2 How was Ispat/Mittal steel able to grow so strongly in a mature market? How well did its strategies fir with those normally recommended for this type of industry? L N Mittal's faith in DRI (direct reduced iron) technology governed his choice of

acquisitions

Starting in Indonesia in 1976, he bought mini steel mills using the DRI route in various countries

Lakshmi Mittal championed the practice of mini mills becoming integrated producers through the use of scrap alternatives

This faith created Mittal's reputation as a doctor of sick steel mills

In 1991, this reputation brought the Mexican government knocking at his door & invited to take unprofitable Sibalsa plant

Company renamed Ispat Mexicana achieved 110% capacity utilization within 4 years

Ispat makes further successful turnarounds in places like Canada, New Zealand

In 1995, Ispat bought Karmet steel of Kazakhstan

Become number 1 after acquisition of Arcelor, the 2nd largest steel maker

Q.2 How was Ispat/Mittal steel able to grow so strongly in a mature market? How well did its strategies fir with those normally recommended for this type of industry?

The company expanded from a wire rod manufacturer in Indonesia to the largest steel producer in the world, largely through an acquisitive strategy.

Capital intensive industries like Steel industries need a high volume of production and a high margin of profit to be able to provide adequate returns on investment

The acquiring companies have an advantage to lower their risks and exposures to volatile industry segments like steel industry

Such acquisition helps to achieve growth by broadening their product lines and increasing their market share

The company would be able to achieve maximum synergies in marketing, trading and purchasing

Another source of synergy involved is the integration of the technologies and research & development (R&D) processes.

Q.3 Where in the life cycle is the steel industry at the end of the case? Appraise Mittal Steel’s strategic moves in 2004 – 2006 in light of your conclusion?

At the end of the case the life cycle of steel industry is at “Growth Stage”

Demand for steel industry is increasing continuously

Q.3 Where in the life cycle is the steel industry at the end of the case? Appraise Mittal Steel’s strategic moves in 2004 – 2006 in light of your conclusion?

Acquisition of Arcelor for $33 billion

First company to produce 100 million tonnes of steel

Killing one of its competitor

Combined global market share of 10%

Thank You!