Heat Treat Industry News

December 28, 2009

ArcelorMittal may buy mines to boost iron ore supply

ArcelorMittal, the world’s biggest steel-maker, may buy more mines in 2010 to increase its supply of iron ore as prices for the raw material used to make the metal are expected to rebound.

Acquisitions "will be part of the mix next year," according to ArcelorMittal’s head of strategy, Bill Scotting, who joined Mittal Steel Co in 2002 from management consulting company McKinsey & Co.

Expanding mines and developing projects will also be part of its drive to be more self-sufficient, said Mr Scotting. The Luxembourg-based company supplies about half its iron ore needs and plans to raise the share to 75-85% by 2014, he said.

Lakshmi Mittal, ArcelorMittal’s chief executive officer and 41% shareholder, has added mining assets in Brazil and Russia since Mittal Steel Co bought Arcelor SA in 2006 in the steel industry’s biggest takeover. His strategy of adding raw material supplies, which helped swell ArcelorMittal’s debt to as much as US$32.5 billion in 2008, may be vindicated next year as iron ore and coking coal prices gain.

"ArcelorMittal is really setting its self aside from the rest of the European steel industry by focusing on vertical integration," said Gavin Wood, an analyst at Nomura Holdings Inc. in London who has a 'buy' recommendation on ArcelorMittal’s stock.

ArcelorMittal shares have increased 84% this year, valuing the company at €48.8 billion (US$69.6 billion).

ThyssenKrupp AG and Salzgitter AG, Germany’s two largest steelmakers, and Sweden’s SSAB Svenskt Staal AB are among European competitors that don’t own mines.

Annual iron-ore contract prices may rise 30% next year after sliding 33% in 2009, according to Nomura. The gains in iron are translating into higher steel prices. The price of hot-rolled steel coil imported into Europe may climb as much as 43% in 2010 as producers pass on higher raw-material costs, Nomura forecast.

ArcelorMittal is also seeking to bolster its self-sufficiency in coking coal to 20% to 25%, from 15%. Coking coal prices will advance 40% next year, Nomura predicted. Macarthur Coal Ltd, the world’s biggest exporter of pulverised coal used by steelmakers, said yesterday it bid A$656 million (US$575 million) in cash for rival Australian miner Gloucester Coal Ltd to add two mines.

Brazil’s Vale SA, the largest iron-ore producer, Australia’s BHP Billiton and London-based Rio Tinto account for almost 69% of iron ore transported by sea, according to the Brussels-based World Steel Association.

BHPB and Rio agreed earlier this month on details of their proposed 50-50 joint venture to combine iron-ore mines, rail, ports and workforces in Western Australia’s Pilbara region, saving at least US$10 billion a year. The plan faces scrutiny from regulators including the European Commission and the Australian Competition & Consumer Commission.

ArcelorMittal produced 37.1Mt of iron ore in the first nine months of 2009. It has iron-ore projects in countries including Brazil, Liberia and Senegal.

"For a large company, you don’t want to be dependent on your suppliers," said Tom Muller, an analyst at Theodoor Gilissen Bankiers in Amsterdam who has a "hold" recommendation on ArcelorMittal shares. "With only three large suppliers for iron ore worldwide you have to be a bit self-sufficient."

ArcelorMittal’s debt rose to US$32.5 billion in September 2008 after it bought mines and steel-making assets. Steel prices plunged in the fourth quarter of last year, spurring the company to reduce production by as much as 50% and announce 9,000 job cuts.

The company raised US$11.4 billion in the second quarter of this year to accelerate its debt-reduction plan. In July, it renegotiated banking covenants on about US$32 billion of facilities. Net debt was US$21.6 billion as of September 30.

Publishing Date 23 Dec 2009 12:56pm GMT Author Mining Journal

Bloomberg (December 23)

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