Mittal exploring alliance with Chinese steelmaker

Staff -- Purchasing, 2/3/2005

Mittal Steel, now the world's largest steelmaker, may grow even bigger through the acquisition of a stake in China's sixth-biggest steelmaker. Mittal is in preliminary talks with Hunan Valin Iron & Steel Group about a "potential business transaction" with Hunan's Steel Tube & Wire subsidiary. The move into China, if successful, could be the largest foray into that country's steel industry by a Western steelmaker and would continue a trend of global consolidation in the industry. Western steelmakers so far have a limited presence in China.

A deal would be yet another coup for the steel powerhouse, formed in late December when Ispat International completed its acquisition of another of U.K. billionaire tycoon Lakshmi Mittal's Dutch assets (LNM Holdings) for roughly $13 billion, in the first part of a three-way $18 billion deal. Mittal Steel is set to have 70 million metric tons of steelmaking capacity when a deal is finalized later this quarter for the purchase of International Steel Group Inc. of Richfield, Ohio.

At the time the deal was announced, Mittal said it would continue to make acquisitions. Analysts have said it is particularly interested in the Asian market. Valin group is among the top eight Chinese steelmakers, producing 7.13 million metric tons in 2004, up 37% from a year earlier, according to ChinaESteel, a website launched by the China Metallurgical Information Center.

Even while completing that $4.5 billion acquisition to gain significant assets in the U.S., the company's chairman and CEO, Lakshmi Mittal, has talked about furthering his company's position in China, which produces and consumes more than a quarter of the roughly one billion metric tons of steel that the world produces each year. A year ago, Mittal announced plans to build a $100 million cold-rolling and coating plant in Yingkou, a city in China's Liaoning province, which would process about 400,000 metals tons of steel a year. The company also sells significant amounts of steel into the Chinese market from its plant in Kazakhstan.