Steel Industry Case

This case is adapted from:

LA FUSION ARCELOR – MITTAL STEEL Un prédateur devenu proie ou une alliance naturelle ?

Auteurs : Edouard ETIENVRE et Frédéric PREVOT

Etablissement créateur : EUROMED Marseille Ecole de Management

© CCMP 2007 ARCELOR-MITTAL – Edouard Etienvre & Frédéric Prévot

© CCMP – 2007 – Arcelor-Mittal – Edouard ETIENVRE et Frédéric PREVOT – EUROMED Marseille 1

The global Steel Industry Steel is the symbol of the Industrial Revolution and today it is still the most used metal in the world. Without steel we would have no rails, no bodywork for cars and, above all, no works of art or skyscrapers. Its characteristics undeniably make it extremely polyvalent and it is practical for many types of utilization. On an economic level it offers one of the best values for money, however its production demands the mastering of a complex industrial process.

A. The industrial process and the finished product

1. The upstream industrial process Steel is made up of iron and carbon. The association of these two raw materials is the result of a long industrial process that necessitates important production resources. Steel can be produced from two distinct production channels. (See Appendix 1: Industrial process).

a. Basic Oxygen Steelmaking

The different stages of the iron sector‘s industrial process require major industrial installations (coking plant, blast furnace, converter) that can be grouped on the same site (integrated complex). However, certain companies incorporate only a part of the process, preferring to buy coke directly rather than coal.

Mined iron ore is processed in an agglomeration factory to be converted for use in an industrial context. It is then combined with steel coke (a product obtained from coal and made up of 96% of carbon) inside a blast furnace. The smelting of the two compounds results in the constitution of iron, from which the residues are then taken out (or « slag »1). It takes 1.7 tons of iron ore to obtain a ton of cast iron and between 450 and 650 kg of coke. The cast iron is therefore an alloy of iron and carbon. Chrome, nickel or tin based alloys can also be obtained. The cast iron that has been obtained must then be passed through a converter to transform it into steel. The conversion is completed by heating the iron to a high temperature and injecting air or pure dioxygen into it to make the combustion of carbon and impurities possible. The conversion is a delicate stage that conditions the quality of the steel that will be obtained. This implicates having a command of the Gildchrist or Bessemer processes .

A particularly reliable supply of mining products is required due to the important quantities of ore used. These industrial installations consume large amounts of energy in order to reach the necessary temperatures; consequently they are kept permanently active in order to maintain the correct temperature.

The steel companies are able to acquire mining products from the principal general mining companies (BHP Billiton, Rio Tinto, Xstrata) that are situated in various geographical locations. These companies have important « multi mineral » resources available as well as large scale logistical capacities that correspond to the steel sector’s demands: important volumes, worldwide implantations, the need for various different metal ores, and coke. It is also possible to call upon various mining companies, such as CVRD or Falconbridge, that are more specialized in certain resources. The relations with these suppliers are governed by long-term procurement contracts that enable them to secure necessary quantities and obtain more advantageous tariffs. As production levels are not always guaranteed, the steel manufacturers can also procure the missing quantities on the iron and coke spot markets (LME, NYMEX), whose prices have spiralled significantly since 2005, following the trend of the other commodities.

1 Slag : calcium silicate and aluminium silicate


World largest mining companies in 2005

Businesses

Coking Coal Iron ore Others Companies Country

Sales in 2005 (M$)

Ranking Market share

Raking Market share

BHP Billiton England-Australia

32 000 1 25,5% 3 15,5% Copper, Nickel

Anglo American

England-South Africa 29 400 3 7,8% - -

Platinum, Diamonds,

Copper

Rio Tinto England-Australia

20 700 5 5,9% 2 21,5% Copper

CVRD Brazil 12 800 nc nc 1 32,0% Molybdenum, Manganese

Xstrata Falconbridge*

Switzerland / Canada

3 500 + 2 400 4

4,5% (avant fusion)

- - Chromium

Fording Canada 1 600 2 11,8% - - Coal (fuel)

M$ = millions de USD, Xstrata acquired Falconbridge in August 2006.

Source: Mittal Steel web site

The steel producing companies also have the possibility of integrating mining activities by buying out operational mines or by equipping themselves with a mining exploration permit (see Appendix 2 : Internal cover rate of mineral supplies of the principal steel manufacturers). However access to these resources remains difficult, costly and risky. Thus the aim of this is more to guarantee supplies, monitor the resource‘s evolution or to withstand price increases on the spot markets. This however, is not the core business of steel manufacturers and the synergies of skills between mining and steel production remain limited.

The other fundamental raw material in the steelmaking industry is energy. In France it is estimated that steelmaking alone (which has strongly declined since the eighties) consumes 20 to 25% of the total energy consumed by the industrial sectors as a whole. This energy consumption is mainly in the form of electricity, supplied in Europe by powerful companies such as EDF, British Energy, Eon, Endesa or Enel. In order to limit their energy costs and to guarantee their supplies in case of a peak in consumption, the steel manufacturers generally conclude long term contracts.

b. Electric arc process

This process uses recycled scrap iron as a raw material that is made up of a minimum of 92% steel. This scrap iron can be whole pieces (machinery or motors) or scrap iron that has been sorted and broken down. To make the alloys, the minerals that are to be combined with the steel are added to the scrap iron during the smelting. The industrial process has been greatly simplified but still requires major industrial installations. The explosion of prices in raw materials at the beginning of the eighties accelerated the development of this process of « second stage smelting ». Consequently the steel factories with electric furnaces get their supplies of raw materials from scrap merchants, who prior to this had collected products containing steel for recycling purposes. Once the scrap iron is obtained it must be treated so that it can be melted down again, but above all so that it can be classified by grade or according to the type of alloy. The metal is smelted in an electric arc furnace and once it is in a liquid state the metal passes through slags so that the residues can be collected. The steel factories with electric furnaces do not use coal and so require a plentiful supply of cheap electric energy nearby (hydroelectric power plant, nuclear power plant) to which they are generally bound by a long term procurement contract.


World steel production in 2005 (by process)

In % of the total production in the region Basic Oxygen Furnace Electric Arc Furnace

EU (25) 61,2% 38,8%

Europe (other countries ) 39,8% 60,2%

Russia 56,9% 15,9%

North America 44,4% 55,6%

South America 61,5% 37,3%

Afric a 44,0% 56,0%

Mideast 16,5% 83,5%

Asia 76,4% 23,5%

Others 80,7% 19,3%

Average 65,4% 31,7%

Source: World Steel in figures – International Iron & Steel Institute

2. The downstreem industrial process Once the metal is in liquid form it is then directed towards the refining plant where it is separated into grades according to its carbon content or alloy content. These grades determine what type of finished product will be made, and also for what purpose it will be used. Once the refining process has been completed the steel is continuously poured (at a precise rate/speed) into ingot casts where it is rapidly chilled in water. These ingot casts can be square, rectangular or round-shaped depending on what semi-finished material is required. The semi-finished materials produced from the refining process are essentially metal sheets (which will be used for the manufacture of flat products) or blooms/billets (which will be used for the manufacture of long products). The following principal industrial operations transform the metal into more varied semi-finished products, and above all into ones that are more easy to use by the industry’s clients: forging, casting or wire drawing (the process of obtaining cables or steel wire from blooms or billets) and lamination.

World steel production in 2005 (by technology)

In % Continuous casting Ingot casting

EU (25) 95,7% 4,3%

Europe (oter countries) 93,1% 6,9%

Russia 50,4% 49,6%

North America 97,2% 2,8%

South America 93,7% 6,3%

Africa 97,9% 2,1%

Mideast 100,0% 0,0%

Asia 94,6% 5,4%

Others 99,5% 0,5%

Average 90,7% 9,3%

Source: World Steel in figures – International Iron & Steel Institute


This last operation is the most common: thanks to the lamination process flat products can be obtained (slabs, sheets, plates), or long products (beams, profiles, rails, rods…). During the lamination process the steel can undergo different treatments such as galvanization (classic or electric) which makes the metal more resistant to corrosion. Certain flat products, (sheets, strips) need a supplementary thinning down which is achieved by cold lamination. These operations require major investments and installations with large capacities and complex technologies, whereas their contribution in terms of value added is poor.

World steel consumption in 2004 (by type of product)

Type of product In % of the total consumption

Flat 51,2%

Long 41,4%

Pipe 7,4%

Total 100,0%

Source: International Iron & Steel Institute

B. The clients

The versatility of steel and its alloys means that it is used in many areas and applications. The majority of this consumption is concentrated around several large clients; however the volumes and the quality of steel they require are not uniform. They often have very specific requests which force the steel producers to work closely with their clients.

Steel comsumption by Industries in OECD in 2005

Rails 2%

Ship Yards 3%

Others 2%

Packaging 4%

Oil & Gas 5%

Automotive 19%

Mechanical Industries 22%Contruction 43%

Source: Mittal Steel, annual report 2005


1. The construction and public works’ industry This sector has an extremely high consumption of steel. In fact concrete steel is used to consolidate and strengthen the structure of buildings at all levels: foundations, load-bearing walls, floors. Nevertheless, out with these classic markets which require carbon steels valued for their resistance and low cost, the rise in metallic constructions (buildings, hangars, warehouses…) has widened the demand to other markets; for example steel for frameworks, partitions and walls. In addition these metallic constructions require relatively elaborate steel with a high value added. These constructions include works of art (bridges, viaducts, interchanges, dams…), which also need a great deal of steel (girders, boards, cables…); as the characteristics of steel means that it is used to accomplish technological feats like suspension bridges. As a result, the construction and public works’ sector uses considerable quantities of steel. However, in order to satisfy this demand, it is fundamental to produce near to the zones of consumption, bearing in mind the low value added of the products consumed (essentially long products) and the atomization of the construction sector (even if powerful players such as Vinci or Bouygues distinguish themselves by the scale and technical nature of their projects). Furthermore, confronted with these types of clients the steelmaking industry is strongly dependent on the financial health of the building and construction sector, which is particularly cyclic and tends to run out of steam after experiencing a boom for a number of years.

2. Mechanical construction Steel (and its diverse alloys) satisfies the demand in this sector particularly well. More often than not, clients need specific products, especially for precision parts, developed jointly with their R&D departments. Steel is used in all forms: flat products, long products but also ingots intended for moulded parts. The characteristics of steel and its reasonable price puts it in a favourable position when compared to other metals that are generally more expensive (bronze, cobalt, manganese). The mechanical construction sector is less cyclic than the construction and public works’ sector as it is linked to a multitude of downstream markets. The mechanical construction sector is fragmented (large number of companies) and the companies in this sector are extremely specialized. Hence, the steel producers must collaborate closely with their their clients in the mechanical construction sector.

3. The automotive industry A vehicle is made up of 55 to 70% steel parts. These are used in the manufacture of the chassis, the motor unit, as well as in the structure and the panels of the bodywork. It suffices to say that this market is vital for the steel producers due to the quantities it handles. The determinants of the market have changed due to the constraints that the constructers are subjected to in terms of security (malformation of the vehicles, shock absorption…) and the fight against corrosion. For a long time, steel sheets for cars were of average quality, making this an attractive market mainly due to the quantities used. However the sector, whilst consuming mainly flat products (steel plates and sheets), is moving towards products with higher value added such as alloys or processed steel. As the automotive industry has moved up in the range of materials it uses, new competitors for steel (particularly aluminium and composite materials) have appeared on the market. Consequently, in order to satisfy the constructers’ demands, the steel producers have had to make major efforts in their R&D and work more closely with the main actors in the market, collaborating right from the conception of the vehicle and the steel parts that it is made of. Nevertheless the automotive industry is extremely competitive and pressure on prices very strong mainly due to the growing concentration in the sector (see Appendix 3: Evolution of the automotive industry), and also the development of programmes to reduce constructors’ costs linked to the decline in the automotive industry in Europe and especially in the US.

4. The oil and gaz industry The demand for steel in this sector is felt at all stages. Upstream, the exploration and production infrastructures are essentially made of steel. Downstream, the infrastructures of refineries and Liquefied Natural Gas trains are quasi-exclusively made of steel (principally in the shape of tubes). Long products are widely used (rods, cables, girders…). However the demand for flat products is equally strong (sheets, plates, panels). The majority of this demand is characterized by products that are produced from the flat products (in particular pipes). The particularly difficult conditions inherent to the oil and gas industry mean they require special stainless steels adapted to their needs. This industry is extremely cyclic. The oil service companies are in a position of strength during the peak periods and are more than able to recover the supplementary costs originating from their suppliers. In less prosperous times the relationship is to their disadvantage and they can find themselves caught in a vice, even if they are powerful (Schlumberger, Halliburton, Baker Hughes, Saipem, Technip, Aker Kvaerner) or of a more modest size (Acergy, SBM). Extravagant projects (Thunder


Horse, Gorgon LNG, Qatar GTL, Dolphin) have become more numerous due to the high rates in crude oil and the high refinement margins that have been experienced since mid-2005. These projects will continue to support the sector’s demand for steel up until 2008.

5. The packaging industry This sector uses a great deal of steel essentially flat products (sheet) that are then transformed in order to obtain the packing component (lids..) or the desired finished product (tins, cans…) The packaging industry mostly uses alloys because of their corrosion resistance. Steel alloys / tin (white iron) are the most widely used on the basis of costs and compatibility with food products. However, although steel is recyclable and relatively inexpensive, within the packaging sector it is increasingly confronted with competition from plastic materials (more versatile and not costly) but also from aluminium (which has similar characteristics to those of steel, making it very competitive). The packaging sector is directly linked to the level of household consumption, but the demand would appear to be a lot more stable than for many other industries that are steel clients. The steel producers tend to develop subsidiaries in this sector. The packaging sector remains relatively fragmented, yet some powerful heavyweights have appeared: Alcan packaging, Tetra Pack…

6. The shipyards Steel is the main raw material used in shipbuilding. A ship’s structure (frame, bodywork of the hull and the deck…) is constructed from semi-finished materials and products transformed into steel. Therefore the quantities used by this industry are considerable, both in long products (girders) and in flat products (strong sheets). Being highly shock resistant and low priced, steel is particularly appreciated in this sector. The steels used for the majority of ships are essentially carbon steels with a low value added. However, certain very specific activities (construction of gas carriers) require special steels (with chrome and with nickel). The escalation in shipping traffic and the boom in container transport (made from steel) have increased this sector’s demand for steel. The industry has undergone major restructurations over the last few years and only the more stable shipyards have survived, mostly in Asia (Hyundai, Daewoo) and a few in Europe, notably Aker Kvaerner.

7. The railway industry The railway industry used to be a historical market for steel and nowadays it remains one of the main clients of the steel produce rs, in spite of the relative saturation of demand. Long products represent the quasi-totality of the demand, in the form of railway track material, shunting and cables (overhead wires), which are made from steel that has high carbon content. The rapid development of high speed lines has increased the sector’s demand which is essentially from re-equipment and replacement, with products that are specifically adapted and that require close collaboration with the conceivers of railway lines and machines. The ra ilway cars and wagons are also made of steel which has increased the market for steel in this sector. The steel producers’ clients are often national rail companies, companies that manage railroad infrastructures or companies that manufacture railroad equipment (Alstom, ABB…)

C. History of the steel industry

1. From prosperity to crisis The steel producing companies experienced a high rate of development during the entire post-war period, caused by the need for steel for reconstruction purposes. This strong demand had been reinforced by the economic boom of the Glorious Thirties, era of the automotive, consumer goods and major activity in the building sector. However this apparent prosperity, sustained by government incentives to encourage the development of the steel industry by fixing minimum prices (such as the CECA in Europe), was abruptly and severely affected by the economic crisis which started from 1974/1975 onwards and which pushed the steel sector into the doldrums in the USA, Japan and Europe. The consequence of the crisis was a steep decline in world demand, with certain discrepancies between different parts of the world. In fact the US was affected by the crisis right from the beginning in 1974/1975, whereas Western Europe was only really affected by the crisis from 1977/1979 onwards. It manifested itself by a drop in demand for industrial products, which up


until then had experienced strong growth (cars, capital goods…), and the building industry also experienced a noticeable decline in demand. In this context all the major steel markets were hit by the crisis, steel and carbon being the most affected. Only certain niche markets remained distinctly profitable, notably special steels for the oil industry that was booming during this period (however these markets represented only 8 to 10% of production at that time).

Evolution of world steel consumption (1974-1985)

In Mt 1974 1975 1980 1985 Evolution (%) 1974-1985

USA 144 116 115 119 -17,3%

EU 113 97 97 93 -17,6%

Japan 76 68 73 73 -4,0%


As a result of the decline in the demand, there was a surplus in the production and the steel factories’ utilization rate fell strongly. This was accentuated by the inactivity of numerous investment projects: they had been developed before the crisis but came into operation at the height of the overproduction period. In the short term, price naturally became the adjustment variable which quite collapsed.

Evolution of European steel prices for export markets

In USD / tonnages 1974 1977 Evolution %

Long products 325 195 -40,0%

Flat products (slabs) 490 190 -61,2%

Flat products (plates) 309 245 -20,7%

Source: Metal Bulletin Research

However, the amplitude of the crisis was not simply due to the vicious circle of under-consumption / overproduction, as eliminating the capacities of production in this case would have been sufficient to stop the crisis in the steel industry. The steel industry suffered from other problems that were in fact amplified by the crisis .

2. The consequences of protectionist policies It is important to remember that in the Seventies and Eighties the world was still very compartmentalized, and countries with planned economies (Soviet Union, China) were completely closed (they did however carry out some exchanges between themselves). This reminder is fundamental as this situation influenced the structure of the world steel industry. In fact, the production capacities available on a global scale at this particular period were not evenly distributed throughout the world. In reality each large production / consumption zone (US, EU) was not particularly receptive to international exchanges. Customs duties were high in order to insure local minimum prices (approximately at the level of average production costs). The crisis only served to highlight the main symptoms generally suffered by industries benefiting from protectionist provisions. In the Seventies, American steel producers chose to embark on a concentration strategy (in 1970, US Steel and Bethlehem Steel represented 44% of US production) or to diversify (US Steel held shares in Marathon Oil). This generated a high level of profits; however they did not renew their production tools. The situation in Europe was the same; steel factories being more orientated to long products (used essentially by the building industry and in the construction of infrastructures), using extremely energy-consuming processes (blooming, stabilizing) in an environment of inflation of raw material prices. Thus the American and European steel producers, confronted by the crisis and lacking modern production capacities (particularly concerning continuous casting processes), were


unable to extract themselves from the negative price spiral by producing steel with higher value added. In addition to this, their processes were less than competitive, and their installations less than productive. As a result their room for manoeuvre regarding costs was very limited and therefore they were extremely vulnerable despite the protectionist barriers in place.

Continuous casting as a percentage of total production capacity

1972 1975 1980 1985

USA 7% 16% 39% 71%

EU 6% 9% 20% 44%

Worldwide 8% 14% 30% 49%


3. Everyone does not react to the crisis in the same way… The Japanese steel industry developed from large companies backed by powerful banks from the end of the 1950’s and all throughout the Sixties. The principal Japanese steel producers, Nippon Steel, Kawasaki, Kobe Steel and Nippon Kokkan, therefore had access to large scale means enabling them to develop in the sector. Bearing in mind the limits of the Japanese market, these companies focused mainly on exporting to sell their products. They followed an aggressive price policy (described as « dumping » by the European and American steel producers) to enable them to penetrate the major zones of consumption, those of the US and the EU. The emergence of Japanese steel producers was made possible due to the pressure they imposed on their costs, which gave them the possibility to offer extremely competitive prices in comparison to their main competitors. The Japanese companies did in fact have production capacities that allowed them to fully benefit from the scale effect. Beyond this size effect, the Japanese companies rapidly understood the advantages of having modern infrastructures. They equipped their complexes with oxygen converters and used the continuous pouring process from an early stage. This rationalises the industrial process and enables enormous economies of energy to be made. The South Korean companies also followed the same development model. Furthermore, the Japanese steel producers adjusted their product mix to flat products and special steels with higher value added.

Continuous casting as a percentage of total production capacity

1972 1975 1980 1985

Japan 17% 31% 59% 91%

South Corea - 20% 32% 63%

Monde 8% 14% 30% 49%


4. The difficulties faced by the American and European steel producers The American and European steel producers, confronted by both the pressure of the crisis and also the Japanese steel producers had few short term alternatives that would enable them to avoid disaster and be able to survive. Although the protectionist measures had helped avoid a complete collapse in the price of steel products, the significant drop could not be absorbed by reducing the excesses of production capacities alone. The modernization of the complexes could only be done with the help of huge investments. The American and European steel producers closed down the oldest and the least productive installations in order to direct their attention to the more productive ones. Investments were frozen to limit indebtedness and to concentrate the financial resources on production needs. Hence the volumes produced between 1974 and 1985 were greatly reduced and as the economy recovered, left the way open to importations of more competitive Asian products. Faced with this situation the American and European steel producers were under threat. Having


reduced their production capacities, they were no longer able to take advantage of the volume effect. In addition, due to a lack of confidence in the sector by management teams, banks and shareholders wishing to limit the damages, the ste el producers did not attain the necessary investment to become competitive again. Thus the sector experienced major restructuring. The American and European steel producers had limited room for manoeuvre in order to re-establish their profits and survive. Nevertheless the measures taken on each side of the Atlantic were significantly different.

Steel production, consumption and importation in the USA

In Mt 1971 1974 1976 1978 1984 Evolution %

Production 109 132 116 124 84 -23,0%

Consumption 128 144 130 145 119 -7,0%

Importation 21 14 14 21 30 +42,8%


5. The restructuring USA US Steel, the number two in the American steel sector, chose to limit their specialization in the steel sector in order to take advantage of the boom in the oil sector. They did so by reinforcing their diversification strategy through their subsidiary Marathon Oil, an independent oil company. This allowed them to compensate for the difficulties in their particular branch of steelmaking and to finance the modernisation project. In addition the company became a steel-oil conglomerate in 1986 under the name of USX. At the same time, Nucor was able to limit its losses thanks to excellent productivity, well-controlled costs and competitive products. This was thanks to an original business model, focusing on small production capacities using only the electric arc process, developed right at the beginning of the company. Most of the other giants in the American sector were extremely badly affected. They had particularly ageing equipment and had also invested in other downstream activities related to the steel production sector which were exposed to strong Asian competition (shipyards, construction of railcars).

6. The restructuring in Europe In Europe, certain companies stepped up their diversification policy to compensate for the difficulties that the steel industry was facing. Thus Thyssen (Germany), thanks to its diverse profile with activities linked to high added value steel (lifts, engineering…), was able to minimize the effects of the crisis by limiting its exposure to the steel industry. Hoogovens (Netherlands), for their part, made acquisitions in the aluminium and chemical industries. The other main European companies turned to the State. As the steel industry is a sector of activity that employs a huge amount of people, governments decided to partly or totally nationalize their steel industry companies to avoid mass unemployment. Thus the government of Luxemburg progressively increased its capital in Arbed, reaching a total shareholding of 31% in the Seventies and Eighties. At the same time the Luxembourg based company refocused its strategic positioning on high value added products: special steels and flat products. In Belgium, the main steel company Cockerill, played a unification role within the industry by taking over the other companies in the sector before the Belgian State nationalized the company (which became Cockerill-Sambre) and transferred it to the Walloon region. In France, the socialist government included Usinor and Sacilor in its wave of nationalization. The country’s two main steel companies were in great difficulty and had already been receiving state aid since 1978/1979. Usinor and Sacilor had previously taken over the majority of companies in the sector that were in their death throes. Then in 1986, Usinor and Sacilor merged so the new company could attain a critical size and also the means to restructure. The new entity refocused its activities on high value added products: flat carbon and special steel products. In certain other countries the sector had been nationalized before the crisis, such as in Great Britain, where British Steel had been nationalized in 1967, or in Spain where the national company Ensidesa had taken over the companies in the sector that were in difficulty, notably Uninsa in 1973. Although State action had been deployed as early as possible in all the European countries, this did not stop them from being confronted by a major crisis and financial losses. This cover-up simply allowed them to avoid bankruptcy and to save jobs. From an industrial positioning point of view, these companies were less reactive as their investment capacities were too poor to embark on large scale transformations; the States’ resources having been concentrated on the payment of their losses.


D. Changes in the strategies of the firms int the steel industry

The victors of the crisis were undeniably the Asian steel producers, whose technological and managerial advance made it possible for them to impose themselves as extremely aggressive and profitable actors, despite the difficult market conditions on a worldwide scale. In spite of increased steel consumption and the stabilization in world development at the end of the Eighties, this did not lead to a rise in production capacities.

World steel production

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200

400

600

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1000

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1950

1960

1970

1980

1990

1995

1996

1997

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2001

2002

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2004

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Ste

el P

rod

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ion

in m

t

World Steel Production in mt

Source: World Steel in figures - International Steel Institute

The modernisation efforts carried out in Europe and the US during the Eighties meant that the pressure on prices was reduced with an increase in the range of products. The rationalization of the continuous casting process, the oxygen converters and the development of the electric arc process (mini mills) both improved the steel producers’ productivity. As a result of these two levers, the profits of the companies in the sector were undeniably restored. However this balance remained fragile right throughout the Nineties due to tough competition in the sector, all the more so due to the appearance of new actors with low costs (labour force and raw materials) from countries whose markets had been closed up until then (Russia: NLMK, Severstal, Evraz; and China: Baosteel). In addition, for the traditional actors in the sector, the essential sources of productivity gains had been exploited. The steel producers therefore had to find other alternatives in order to align themselves with these newcomers and reduce their costs; this resulted in a merger wave in the sector.

1. First merger wave The French company Usinor2 (the new name for Usinor-Sacilor since 1997), privatised in 1995 to give it the financial resources to tackle world competition, bought the Belgian company Cockerill-Sambre to increase its size to compete with the Japanese giants (Nippon Steel, Kawasaki Steel) and the South Korean (Posco). Likewise, British Steel privatised in 1988 by Margaret Thatcher’s government, had to find a target firm to avoid being marginalised and to remain competitive. Finally the British company merged with the Dutch company Hoogovens to form the Corus Group. Between 1997 and 2000, the Luxembourg based company Arbed carried out numerous acquisitions in Spain (Aristrain, Ucin), thus doubling its size. Lastly German steel production was also to experience a large scale rapprochement with the merger « of equals », Thyssen and Krupp, the two leaders in the German sector. At the same time, medium sized steel producers throughout the world participated in a movement of concentration of the sector, taking advantage of the opportunities resulting from the

2 Usinor also took over Sollac in 1990 and Ugine’s steel activities in 1991 following the elimination of the industrial conglomerate PUK (Péchiney-Ugine-Kuhlman).


fragilization of the small sized steel producers, but also from the opening up of the Soviet block which was bursting at the seams with entities that were in danger (as often unproductive) faced with the tough competition in the sector. It was thus that the holding LNM (number 4 worldwide) emerged, the Indian steel producing company whose main assets were in Trinidad and whose business model focused on development by acquisitions.

This first merger wave did not happen by chance and took place mainly in Europe. Faced with competition from the Asian, Russian and Chinese steel producers, the principal companies unquestionably sought to capitalize on the size effect and synergies to limit costs in order to remain competitive. There is however another explanation. The fragile balance of prices depended mainly on a rigorous management of production capacities. Bearing this in mind, the only way for the steel producers to grow and increase their profitability was to absorb the production capacities of a competitor. As a result steel producers were pushed to overgrow to increase their market power and marginalise their competitors.

2. Second and third merger waves The second merger wave was also initiated in Europe in February 2002 with the constitution of a company without equal in the world, combining more than 40 Mt of production capacity: Arcelor, resulting from the simultaneous consolidation of Usinor, Arbed and Aceralia. The new company automatically became the world leader in flat products and special steels, although its internationalization remained limited. The Japanese companies that had been the most powerful up until then had to react. In September 2002, just six months after the foundation of Arcelor, Nippon Kokan (NKK) and Kawasaki Steel announced their merger. This enabled them to remain in the competition with a combined production capacity of more than 30 Mt. As for the American companies, they did not develop in the same manner. In 2001, US Steel (that became USX), whose judicious diversification into petroleum had enabled it to survive the crisis by providing it with an external source of profits, decided to refocus its efforts on its main field of activity, steel, in a context of increased world prices and an increase in world demand for steel products. Above all, the company took advantage of a recovery in the price of the barrel after the gloomy years of 1998/1999, to sell Marathon Oil for a good price on the market. In 2003, US Steel confirmed this strategy of refocusing on steel, by acquiring the American company National Steel. At the same time, Nucor continued its development in the Nineties by increasing its production capacities using the electric arc process. It became the No. 2 in America following the collapse of Bethlehem Steel in 2001. In spite of ceasing its « wagons » activity in 1993 and its shipbuilding activity in 1997, Bethlehem Steel still reached the point of bankruptcy due to many years of abysmal losses, the slowness of the restructuring plans, as well as repeated managerial errors. In 2003, a part of the company’s assets were taken over by a consortium, International Steel Group (which also included LTV), founded by the American businessman Wilbur Ross. This consortium was bought out in turn by the Anglo -Indian millionaire Lakshmi Mittal’s company (LNM holding / Ispat) in October 2004 for 4,3 billion dollars. The new company which became Mittal Steel was thereby propelled to the No. 1 worldwide position in the sector.

The favourable conditions within the sector and in the financial markets since 2003/2004 relaunched another round of mergers and acquisitions within the steel industry (see Appendix 4: Main mergers and acquisitions in the steel industry since 2004). Thus in 2005, Arcelor launched a takeover bid for the Canadian company Dofasco, who specialised in flat products and was extremely well positioned on the American automotive market. In spite of the German company ThyssenKrupp’s counter offer, it was finally Arcelor who carried it off, before becoming itself the target of a takeover bid by Mittal Steel in January 2006 (see Appendix 5: Profile of the main global steel-producing companies).


Evolution of top 10 steel-producing companies 1995-2004

1995 2000 2004

1 Nippon Steel 27 Mt 1 Nippon Steel 29 Mt 1 Arcelor 47 Mt

2 Posco 23 Mt 2 Posco 28 Mt 2 LNM 43 Mt

3 British Steel 16 Mt 3 Arbed 24 Mt 3 Nippon Steel 31 Mt

4 Usinor-Sacilor 16 Mt 4 LNM 22 Mt 4 JFE 31 Mt

5 Riva 14 Mt 5 Usinor 21 Mt 5 Posco 31 Mt

6 Arbed 12 Mt 6 NKK 21 Mt 6 Baosteel 21 Mt

7 NKK 11 Mt 7 Corus Group 20 Mt 7 US Steel 21 Mt

8 US Steel 11 Mt 8 ThyssenKrupp 18 Mt 8 Corus Group 20 Mt

9 Kawasaki Steel 10 Mt 9 Baosteel 18 Mt 9 Nucor 18 Mt

10 Sumitomo Metal 10 Mt 10 Riva 16 Mt 10 ThyssenKrupp 18 Mt

Source: JFE Holding, Annual Report 2005

E. Market tendecies

1. Demand driven by China: a growing market since 2001/2002 Since 2002 China has played an important role in the acceleration of world demand. In spite of the development of major production capacities by the Chinese steel producers (see Appendix 5bis: Main global steel-producing companies in 2005), this increase in the country’s needs was translated by tensions in the market. Production capacities having been voluntarily limited, the steel producers struggled to respond to this new situation. Nevertheless, with the exception of the « Chinese effect », demand in other regions of the world progressed slowly.


Steel's demand trend in mt

0200400600800

100012001400

2004 2005 2006e 2007e

In m

t Rest of the World

China

Source : International Iron & Steel Institute

Worldwide distribution of steel demand in 2005

China31%

Other Asia15%

Europe (EU 15)14%

NAFTA14%

Japan8%

Other Europe3%

CIS4%

Australia & New Zealand

1%

South & Central America

3%

Middle East3%

New EU Countries2% Africa

2%

Source : International Iron & Steel Institute

2. Price increases The tendency towards price increases in steel products persisted and it was not only Asia (south East Asia and Japan) that was concerned. In all the major consumption zones, prices spiralled as never before (between 100 and 200%), compared to 2001. Yet, this phenomenon of price increases did not result in tensions between the offer and demand on a worldwide scale. Two major elements became apparent; firstly the steel producers adopted a stocking policy to take advantage of the best prices,


in an environment of rising inflation of prices in the market, and secondly, exchanges between the different zones of consumption escalated.

Growth in demand and production capacity utilization rate

(In %) 1980-2000 2000-2005

Average rate of growth in demand 1,0% 6,9%

Average utilization rate of total production capacity

82% 89%

Source: Mittal Steel website

Evolution of Steel Prices on the World's Main Markets (1995-2005)

0

100

200

300

400

500

600

700

800

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

In U

SD

/ T

on

ne

HRC US Domestic HRC German Domestic

HRC Japan Domestic HRC Far East Domestic

Source : Mittal Steel, Fact Book 2005

3. Escalation in exchanges Up until now the steel market had resulted from the addition of regional markets that were relatively « isolated », with differences in demand and high prices. The majority of the exports were limited to inter-zone/inter-regional exchanges. This was explained by the protectionist policies that aimed to stabilise prices in each region. However, since the end of the Nineties, despite the existence of a pronounced American protectionist policy, the increase in China's needs led to a noticeable growth in exchanges of steel products.


World Production and Exports of Steel Products since 1975

0

100

200

300

400

500

600

700

800

900

1000

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

In m

t

Production Exports

Source : World steel in figures - IISI

. Nevertheless, this increase of exchanges did not have an impact on all types of steel products. Globally it was long products that were exchanged the most.

Evolution of exportations by product type (2000-2004)

Type of Product CAGR (%) 2000 2001 2002 2003 2004

(mt)

Ingots and semi-finished material 5,2% 48,1 47,3 48,7 51 58,9Railway track material 3,4% 2,1 2,5 2,5 2,7 2,4

Angles, shapes and sections 1,2% 18,5 17,8 16,8 18 19,4Concrete re-inforcing sections 9,4% 11,1 13,2 11 14,8 15,9

Bars and rods, hot rolled 2,4% 9 9,3 8,3 9,1 9,9Wire rod, drawn wire 5,2% 16,8 16,3 17,2 17,9 20,6

Other bars and rods 7,5% 3,6 3,8 3,6 3,9 4,8Hot-rolled strip 0,8% 3,1 3,4 3,4 3,2 3,2

Cold-rolled strip 6,5% 3,5 3,2 3,4 3,6 4,5Hot-rolled sheets and coils 2,7% 49,4 43,9 48,9 50,1 54,9Plates 9,1% 17 17,7 18,2 20,6 24,1

Cold-rolled sheets and coils 1,8% 29,1 26,9 28,2 29,8 31,2Galvanised sheets and strips 9,2% 2,6 2,6 2,7 3,4 3,7

Galvanised sheet 5,2% 21,9 20,5 23 24,3 26,8Steel Tubes and Fittings 7,0% 21,5 23,8 24,2 23,8 28,2

Wheels (forged and rolled) and axles 7,5% 0,3 0,3 0,3 0,3 0,4Castings 15,8% 0,5 0,5 0,5 0,6 0,9

Forgings -7,5% 1,5 0,8 0,8 0,8 1,1Others 2,1% 12,8 12,2 13 13,3 13,9

Total 4,5% 272,4 266 274,7 291,2 324,8

Source : World steel in figures - IISI


4. In spite of the economic revival, threats still loom over the industry Despite the escalation in demand and an extremely high level of prices registered since 2002, many threats still loomed over the market. The strong development in Chinese consumption resulted in the steel producers being dependant on China for their exports. In addition it was the Chinese demand that partly determined the level of prices, whereas Chinese demand tended to be on the decline since the second semester of 2005. At the same time the clients cast doubt on their leve ls of consumption. In fact the major difficulties of the American automotive industry and the measures taken by the largest companies in the sector (reduction of 20 in the production during the 4th semester of 2006) will no doubt affect the steel industry. Also increases in interest rates, particularly in the US, provoked a noticeable decline in the construction and public works’ sector. Although the steel producers had to respect a certain discipline concerning the management of production capacities on a worldwide scale, the context of elevated prices at that time led the latter to consider developing expansion projects to satisfy the high demand (concentrated in Asia).

Geographical distribution of increases in production capacity 2005-2010

Country Increases in production capacity (in Mt) % of new production capacities

China 263 60%

India 89 20%

Russia 38 9%

Others 47 11%

Total 437 100%


These new capacities will progressively inundate a market that is fragile and extremely dependent on world growth. Faced with an increase in production capacities, prices (which had been corrected and lowered during the second semester of 2006 due to the effect of destocking) should be less favourable for the steel producers in the years to come. The sector should therefore experience new perturbations, whose effects will be felt progressively, with the risk of causing a decline in the demand and over-capacities of production.


Appendix Appendix 1: Industrial process.

Source : Usinor Appendix 2 : Internal cover rate of mineral supplies of the principal steel manufacturers in 2005

In % of the consumption

Arcelor

Mittal Steel

Corus

Acerinox

Us

Steel

Nucor

Dofasco

Nippon Steel

JFE

Holding

Posco

Evraz

Severstal

NLMK

Iron

6%

69%

0%

nd

96%

0%

273%

19%

18%

17%

128%

61%

95%

Coal

85%

89%

90%

nd

140%

0%

100%

92%

96%

100%

115%

100%

218%

Source : Brokers, Rapports annuels Appendix 3: Evolution of the automotive industry

Evolution of the number of independent car makers

1970 1980 1990 1995 2000 2005

Number of independent car makers 57 41 31 23 13 13 Source : Mittal Steel / JD Power

Car Production by type of Car Maker

1999 2005 2015e 2020e

Global Car Makers 45% 60% 70% 85%Semi Global Car Makers (2 regions) 40% 20% 20% 0%Regional Car Makers (1 region) 15% 20% 10% 15%

Total 100% 100% 100% 100% Source : Mittal Steel / JD Power

Electric Process

(From Steel Scrap)

Cast Iron Process

(from Pig Iron)

Rolling Mill

Rolled Products

Steel Scraps

Coking Coal

Pig Iron

ContinuousCasting

Electric Process

(From Steel Scrap)

Cast Iron Process

(from Pig Iron)

Rolling Mill

Rolled Products

Steel Scraps

Coking Coal

Pig Iron

ContinuousCasting


Appendix 4: Main mergers and acquisitions in the steel industry since 2004

Date Assets/CoType of

Products Country Prod. Cap. In mt % acquired BuyerEV of the target

(mUSD) FundingEV/tonne

(USD)EV / EBITDA (année N-1)

10-2004 ISG Long & Flat USA 19 100% LNM Holding* 4 381Cash (50%) - Scrip (50%) 231 4,9

12-2004 MMK Long & Flat Russia 11,5 40,80%United Financial Group of

Russia 1 660 Cash 354 -

01-2005Hunan Valin Steel Tube & Wire Long China 7,1 36,70% Mittal Steel 338 Cash 130 -

02-2005 Lucchini Long Italy 3,5 62% Severstal 550 Cash 253 6,0

02-2005Fundia / Imatra Steel / Ovako Steel Long Finland 2 Fusion

Rautaruukki (47%)/Wartsila (26,5%)/SKF (26,5%) 498 Scrip/Assets 249 2,8

03-2005 CSN Flat Brazil 4,5 23,20% Famille Steinbruch 8 606 Cash 1 912 5,7

04-2005 Kremokovtzi Long Bulgaria 1,4 71,10% Ispat Ind.* 410 Cash 293 -

05-2005Corrugados Azpeitia & Getafe Long Spain 1,7 100% Alfonso Gallardo Group 280 Cash 165 5,3

05-2005 Colombus Stainless Stainless South Africa 0,718 12% Acerinox 60 Cash 696 4,9

05-2005 Amazonia Consortium Flat Venezuela 4 4,50% Technit 107 Cash 594 -

05-2005 Hylsamex Long & Flat Mexico 3,2 100% Technit 2 806 Cash 877 3,7

07-2005 Vitkovice Long Czech Rep. 0,9 99% Evraz 287 Cash 322 -

07-2005 Huta Czestokowa Long Poland 0,9 100% IUD 375 Cash 417 -

07-2005 CST Flat Brazil 4,9 27,20% Arcelor Brazil 685 Scrip 514 -

10-2005 Erdemir Long & Flat Turkey 5,77 49,90% Oyak Group 2 960 Cash 1 028 8,5

10-2005 Acesita Stainless Brazil 0,77 12% Arcelor Brazil 176 Cash 1 905 5,1

10-2005 Kryvorozhstal Long & Mining Ukraine 7,13 93% Mittal Steel 4 377 Cash 660 8,6

11-2005 Sidenor Long Spain 1,3 100%Gerdau (40%), Santander (40%), Sidenor Executives 565 Cash 435 3,7

01-2006 Dofasco Flat + Mining Canada 4,2 100% Arcelor 5 427 Cash 1 292 7,6

03-2006 Sonasid Long & Flat Marocco 1,4 50% Arcelor 575 Cash 821 5,5

04-2006 Ruukki reinforced bars Long Finland 0,7 100% BT Norway AS 153 Cash 219 3,1

05-2006 Acesita Stainless Brazil 7,1 15,70% Arcelor 205 Cash 184 4,9

06-2006 Evraz Long & Mining Russia 14,6 41% Roman Abramovich 6 098 Cash 1 019 4,3

06-2006 Smorgon Steel Long Australia 0,923 100% Onesteel 1 200Cash (52%) - Scrip (48%) 1 300 5,5

06-2006 Tata iron & steel Long & Flat India 6,4 6,80% Tata Group 282 Cash 648 3,5

07-2006 Highveld Steel Special steel South Africa 0,684 79% Evraz 678 Cash 1 255 1,6

07-2006 Oyj Ovako Ab Long Finland 1,6 100%Homberg / WP de Pundert Ventures & Pampus Ind. 700 Cash 438 3,3

Source : Brokers’ notes


Appendix 5: Profile of the main global steel-producing companies Groups Geographic

Positioning Type of

Products Type of Clients

Partnerships Technologies Strategy

US Steel (USA)

USA, Mexico, Germany, Eastern Europe. Revenue: 80% NAFTA and 20% Europe.

Flat Products (86% of the EBITDA, n°2 in the US), Seamless Pipes (n°1 in the US).

Automotive in the US, Constrution of the US, Containers, Oil (NAFTA), LT Contracts.

JV with Posco in California.

Galvalume® (galvanized flat products) from Dofasco.

Devlopment in Europe. High Quality and High Value Added Products. Acquisitions.

Nucor (USA)

East Coast of the US, Trinidad. Electric Mills only. Revenue: 100% NAFTA.

Flat Products (54% of the EBITDA), Long Products (46% of the EBITDA, n°1 in the US).

Automotive and construction in the US.

JV with CVRD (Cast Iron from charcoal in Brazil), JV to access technologies.

Castrip® (continuous casting), Hismelt® (direct conversion of Pig Iron into Cast Iron)

Profitable every year since 1966. Small Acquisitions. Organic Growth (new mills).

Dofasco (Canada)

Canada, USA. Revenue: 100% NAFTA.

Galvanized flat products (42% of the prod.), other Flat Products (53% of the prod.), Pipes (5% of the prod.)

Automotive (33%of the prod.) n°4 in North America, Construction (12% of the Revenue), Packaging (10% Market share in North America).

« Solutions in steel » partnership and development of solutions with its clients (Ford). Partership with Arcelor (Extragal®)

Galvalume® (galvanized flat products). Zyplex® (sandwich steel sheets)

High Value Added products for the Automotive industry.

Corus Group (UK – Netherlands)

UK, Netherlands (Europe 100% of the production). Revenue: 80% in Europe (o/w UK 27%), 11% NAFTA, 9% Other.

Flat Products (77% of the EBITDA), Long Products (17% of the EBITDA), Other/Aluminium (6% of the EBITDA).

Automobile (16%), aéronautique, génération électrique, construction, biens de consommation, pétrole offshore

DAF trucks, Europe: Ford, Jaguar, Land Rover. Aerospace (BAe, Rolls Royce…)

Magnashield®, Galvatite® (galvanized products), Protact® (Packaging). Silent tracks (rails) 576 patents.

Integrated solutions, design of new products. High Value Added Products. Downstream business exposure.

Acérinox (Spain)

Spain, USA, South Africa. Revenue: 42% Europe, 39% NAFTA, 14% Asia, 5% Other.

Prod: 92% Flat Products, 8% Long Products. Special Steel (stainless): 100% of the EBITDA.

N°2 in the world for special steel products (stainless).

n/a

n/a

High Value Added Special Products. Involved in Retail Business.

Nippon Steel (Japan)

Revenue: 100% Asia (o/w 70% Japan).

Flat Products (62% of the EBITDA), Long Products (11% of the EBITDA), Special Steel (3% of the EBITDA), Others (construction).

Automotive (50% Market share in Japan), Ship Building, Construction (30% of the prod.) Consumer Goods.

Japanese Car Makers, Japanese Ship Yards. Rio Tinto. Alliance with Arcelor and Posco on the R&D side (steel sheets for Automotive).

NSGP-1 (High Standards Steel Sheets for Oil Tankers). GA-TRIP (Carbon Steel Sheets), HTUFF (High Temperature resistant steel sheet), STEN-1.

High Value Added Products. Organic Growth and Diversification (Conglomerate).

JFE Holding (Japan)

Revenue: 97% Asia, 3% NAFTA.

Flat Products (66% of the EBITDA), Long Products (14% of the EBITDA), Other (20% of the EBITDA)

Automotive, Construction, ShipBuilding.

BHP Billiton and CVRD (LT supply). Japanese Car Makers.

NANO HITEN and BHT (steel products for the Car Industry).

Conglomerate. Strategy of diversification.

Posco (South Korea)

Revenue: 92% Asia, 3% NAFTA, 5% Other.

Flat Products (80% of the EBITDA), Long Products (7% of the EBITDA), Special Steel (7% of the EBITDA), Other activities (6% of the EBITDA).

Automotive, construction, Ship Building and Consumer Goods.

Korean Car Makers.

Several Innovations (Steel Sheets) and production process (FINEX).

Organic Growth. High Value Added Products and Markets.

Evraz Group (Russia)

Prod: Russia and Europe (Italy and Czech Rep. ). Revenue: 60% CIS, 30% Asia, 5% NAFTA, 5% Europe.

Flat Products (24% of the EBITDA), Long Products (59% of the EBITDA), transportation (17% of the EBITDA).

Construction (30% of the prod.), rails (10% of the prod. – leader in Russia).

n/a

n/a

Further Development in construction and railway (Russia and CIS). International Dev. (flats products, mining) through acquisitions.

NLMK (Russia)

Prod: Russia, Danemark. Revenue: 58% CIS, 23% Asia, 13% Europe, 6% NAFTA.

Flat Products (100% of the EBITDA). N°3 in flat products in Russia.

Automotive (12% Revenue), metallurgy.

n/a

n/a

International development through acquisitions. Vertical integration (Mining).

Source: Presentations and annual reports FY 2005


Appendix 5bis: Main global steel-producing companies in 2005.

Group Prod. in mt Country Group Prod. in mt Country

1 Mittal Steel 63,0 Netherlands 21 Jiangsu Shagang 10,5 China

2 Arcelor 46,7 Luxembourg 22 Shougang 10,4 China3 Nippon Steel 32,0 Japan 23 Jinan 10,4 China

4 POSCO 30,5 South Korea 24 Laiwu 10,3 China5 JFE 29,9 Japan 25 China Steel 10,3 China

6 Baosteel 22,7 China 26 Maanshan 9,6 China7 US Steel 19,3 USA 27 IMIDRO 9,4 Iran

8 Nucor 18,4 USA 28 Techint 8,7 Italy9 Corus Group 18,2 GB-Nether. 29 Usiminas 8,7 Brazil

10 Riva 17,5 Italy 30 Novolipestsk (NLMK) 8,5 Russia

11 ThyssenKrupp 16,5 Germany 31 Hyundai 8,2 South Korea12 Tangshan 16,1 China 32 Kobe Steel 7,7 Japan

13 Evraz 13,9 Russia 33 Handan 7,3 China14 Gerdau 13,7 Brazil 34 Salzgitter 7,1 Germany

15 Severstal 13,6 Russia 35 Baotou 7,0 China16 Sumitomo 13,5 Japan 36 Ilyich 7,0 Ukraine

17 SAIL 13,4 India 37 Bluescope 6,8 Australia18 Wuhan 13,0 China 38 Benxi 6,5 China

19 Anshan 11,9 China 39 Voestalpine 6,4 Austria20 Magnitogorsk 11,4 Russia 40 Panzhihua 6,2 China

Total 20 435,2 Total 40 602,2 Source : World steel in figures - IISI

© CCMP – 2007 – ARCELOR-MITTAL – Edouard ETIENVRE et Frédéric PREVOT – EUROMED Marseille 21

Financial Statements: Profits & Loss Accounts (2005)

ARCELORMITTAL STEEL CORUS ACERINOX US STEEL NUCOR DOFASCO

NIPPON STEEL JFE Holding POSCO EVRAZ SEVERSTAL NLMK

46,7 49,2 18,2 2,7 19,3 18,4 4,2 32 29,9 30,5 13,9 13,6 8,5

40 764 28 132 18 556 5 267 14 039 12 701 3 802 31 561 26 108 26 041 6 508 7 973 4 469

1 618 829 562 140 366 375 195 1 682 1 674 1 597 243 256 284

36 0 -73 0 -21 0 0 -461 1 652 0 -32 17 -12

5 470 4 746 1 244 322 1 439 2 053 252 3 561 3 018 6 023 1 584 1 873 1 822

5 434 4 746 1 318 322 1 460 2 053 252 4 022 4 670 6 023 1 617 1 856 1 834

-318 -43 -183 -37 -127 -37 -27 -102 -191 -589 -65 -146 84

5 513 4 703 1 061 285 1 312 2 016 225 3 459 2 828 5 434 1 519 1 727 1 906

201 818 236 94 365 706 79 1 278 1 319 1 468 476 436 496

3,7% 17,2% 19,0% 29,2% 27,8% 35,0% 35,0% 36,9% 46,6% 27,0% 31,4% 25,2% 26,0%540 520 2 0 37 0 4 109 19 -6 137 3 29

4 771 3 365 824 191 910 1 310 146 2 181 1 509 3 972 905 1 289 1 382

4 375 3 365 897 191 931 1 310 143 2 534 3 142 3 972 938 1 271 1 393

649,532 687 889 261,4 113,47 157,1 77,2 6734,7 587,2 87,2 112,7 551,9 5993,2

688,493 687 963 261,4 129,97 158,6 77,6 6734,7 587,2 87,2 112,9 551,9 5993,2

Diluted 7,35 4,90 0,93 0,73 8,02 8,34 1,90 0,32 2,57 45,56 8,03 2,34 0,23Ordinary 6,93 4,90 0,85 0,73 7,00 8,26 1,89 0,32 2,57 45,56 8,02 2,34 0,23

Asia Russia

Revenue

Depreciation

Europe North America

Tax

Tax Rate (declared)Minorities

EBIT (declared)

EBIT (Current)

Financial Result

Profit Before Tax

FY 2005 in US$m

Production mt

Ordinary

EPS (declared)

Non Recurring Items

Net Profit (Current)

Number of Shares

Diluted

Net Profit

Source: Annual reports 2005

© CCMP – 2007 – ARCELOR-MITTAL – Edouard ETIENVRE et Frédéric PREVOT – EUROMED Marseille 22

Financial Statements: Balance Sheet (2005) FY 2005 US$m

ARCELORMITTAL STEEL CORUS ACERINOX US STEEL NUCOR DOFASCO

NIPPON STEEL

JFE Holding POSCO EVRAZ SEVERSTAL NLMK

Inventories 9 475 6 036 3 576 1 615 1 466 945 1 165 5 270 4 745 3 755 964 993 27Debtors 4 645 2 287 2 767 650 1 598 1 001 537 4 261 4 827 3 015 375 460 660Other Current Assets 2 224 1 392 199 61 288 288 67 988 1 142 4 109 665 624 718

Cash & Equivalents 5 806 2 035 1 594 102 1 479 1 838 102 1 188 560 647 641 1 819 1 897Total Current Assets 22 150 11 750 8 136 2 428 4 831 4 072 1 871 11 707 11 274 11 525 2 644 3 897 3 302

Tangible Assets 17 209 15 539 5 161 1 984 4 015 2 856 1 849 15 591 17 191 12 150 2 960 5 985 2 394

Other Fixed Assets 5 536 3 901 1 237 147 976 212 137 8 758 5 583 3 560 1 047 867 355Total Non Current Assets 22 745 19 440 6 398 2 131 4 991 3 067 1 987 24 350 22 774 15 710 4 007 6 853 2 749

44 895 31 190 14 534 4 559 9 822 7 139 3 857 36 057 34 048 27 235 6 651 10 749 6 051

Liabilities

LT Financial Debt 5 426 8 056 2 394 330 1363 922 487 7640 9429 1251 1545 1418 0Other LT Debt 4 923 5 579 1 444 307 2354 487 727 2951 2732 491 325 1114 356Creditors 6 535 2 504 3 375 428 1256 502 452 4487 4083 1327 398 318 508

ST Financial Debt 2 029 252 703 808 249 1 225 4299 4043 1898 835 556 0Other ST Debt 3 941 2 815 437 121 1244 753 59 4761 4391 2598 663 253 41Total Liabilities 22 854 19 206 8 352 1 994 6466 2665 1951 24138 24678 7565 3766 3659 904

Shareholder's Equity 18 886 10 150 6 134 2 431 3324 4280 1871 11066 9020 19287 2695 7004 5054

incl. Reserves nd 7 887 2 194 1 752 1605 4709 1184 4734 1833 15998 1738 2801 4749Total Equity 18 886 10 150 6 134 2 431 3324 4280 1871 11066 9020 19287 2695 7004 5054Minority Interest 3 155 1 834 48 133 32 194 36 852 350 383 190 85 93

44 895 31 190 14 534 4 559 9822 7139 3857 36057 34048 27235 6651 10749 6051

96 256 227 000 48 200 6 695 46 000 11 300 7 200 20 432 52 503 19 004 110 000 52 919 52 461

Europe North America Asia Russia

ASSETS

Fixed Assets

Actif circulant

TOTAL ASSET

LIABILITIES & EQUITY

Equity

TOTAL LIAB. & EQUITY

Employees Source: Annual reports 2005

Steel Industry Case

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