After

Winning Ilva, ArcelorMittal Sets Sight on Next Goal

By Mark O'Hara
May 08, 2018. 05:01 PM

After Winning Ilva, ArcelorMittal Sets Sight on Next Goal

Ilva

On May 7, ArcelorMittal (MT), the world’s biggest steel producer, announced that it had received
permission from the European C ommission to acquire Ilva. The acquisition is expected to enhance
ArcelorMittal’s presence in Italy, Europe’s second-largest steel-consuming region. Despite getting
most its revenue from Europe, ArcelorMittal had a limited presence in Italy prior to this deal. The
European C ommission’s final permission was largely expected after ArcelorMittal agreed to divest
some of its assets in Europe.

Mergers and acquisitions

ArcelorMittal is no stranger to mergers and acquisitions. ArcelorMittal was preceded by Mittal

Steel, founded in 1976 by Lakshmi N. Mittal. Some of the company’s major acquisitions have
included Siderúrgica Del Balsas in Mexico in 1992, Sidbec in C anada in 1994, and Karmet in
Kazakhstan and Hamburger Stahlwerke in Germany in 1995. In 2006, Mittal Steel acquired
Arcelor, the biggest steelmaker at that time.

While ArcelorMittal has been pushing for inorganic growth, US steel producers such as Nucor
(NUE) are investing in organic capacity. U.S. Steel C orporation (X) is working on revitalizing its
existing assets, and AK Steel (AKS) completed a major acquisition last year.

https://marketrealist.com/2018/05/why-arcelormittal-is-focusing-on-essar-steel
Series overview

While ArcelorMittal looks set to grab Ilva, the company also has its eyes India’s (EP I) Essar Steel’s
assets. In the next article, we’ll see how Essar could fit into ArcelorMittal’s portfolio.

Why ArcelorMittal Is Focusing on Essar Steel

ArcelorMittal

ArcelorMittal (MT) subsidiary ArcelorMittal India P rivate has bid to acquire Essar Steel. According
to ArcelorMittal C EO Lakshmi Mittal, “Essar provides a compelling opportunity for ArcelorMittal to
enter the high growth Indian steel market.”

Many steel industry observers see India as the next growth driver for global steel markets, as
C hina’s steel appetite is perceived to have peaked. The Indian government also intends to triple
the country’s steel production over the next decade. Recently, India surpassed Japan to become
the world’s second-largest steel producer.

Indian steel market

ArcelorMittal has made several attempts to gain a foothold in Indian steel markets. In the last
decade, there have been reports of ArcelorMittal setting up a multibillion-dollar project in India.
P reviously, ArcelorMittal acquired a stake in Indian steelmaker Uttam Galva Steels. However,
after nine years, the company exited its investments at a massive loss. The exit was planned to
enable ArcelorMittal to bid for Essar Steel under Indian bankruptcy laws.

ArcelorMittal is even considering paying off Uttam Galva’s debt to strengthen its eligibility for
Essar Steel. According to BloombergQuint, ArcelorMittal executive vice-president Brian

https://marketrealist.com/2018/05/why-arcelormittal-is-focusing-on-essar-steel
Aranha said, “Our fundamental position is that we are eligible and in reality were never the
promoters of these companies. So any discussion about repayment of any dues would be a
gesture of goodwill.” Despite these efforts, ArcelorMittal’s bid for Essar Steel looks like it could be
far from smooth.

Meanwhile, U.S. Steel C orporation (X), AK Steel (AKS), and Nucor (NUE) looked confident on US
steel industry’s outlook during their 1Q18 earnings calls, despite uncertainty over Section 232
tariffs. Donald Trump’s Section 232 tariffs received an upvote from Berkshire Hathaway (BRK-B),
as we’ll explore in the next and final article of this series.

Berkshire Hathaway Upvotes Section 232 Tariffs

Berkshire Hathaway

US-C hina trade war tensions were mentioned at Berkshire Hathaway’s (BRK-B) annual meeting.
During the closely followed event, Warren Buffett noted that “we’ve seen steel costs increase
somewhat,” according to Reuters. Notably, US steel prices have spiked this year, and we’ve seen
a widening of spreads between US and international steel prices.

Higher steel prices

While higher steel prices benefit US steel producers such as U.S. Steel C orporation (X) and AK
Steel (AKS), they raise input costs for downstream manufacturers such as General Electric (GE).
Arconic, which produces value-add products such as Berkshire-owned P recision C astparts, gave a
profit warning recently amid rising physical aluminum premiums in the United States.

Section 232 tariffs and the subsequent escalation in US-C hina trade friction have taken a toll on
broader equity markets. The SP DR S& P 500 ETF (SP Y) has pared its 2018 gains and was trading
flat this year as of May 4.

https://marketrealist.com/2018/05/why-arcelormittal-is-focusing-on-essar-steel
Charlie Munger

Meanwhile, while some economists have raised concerns over the Section 232 tariffs, C harlie
Munger upvoted the tariffs during Berkshire’s annual meeting. According to Reuters, Munger
stated that “the conditions in steel were almost unbelievably adverse to the American steel
industry. Even Donald Trump can be right on some of this stuff.”

Meanwhile, Donald Trump has extended Section 232 exemptions for another month. While the
news triggered a sell-off in US steel stocks, they recovered afterward. To learn more about the
exemptions, read Will P resident Trump’s P ressure tactics Work Out?

https://marketrealist.com/2018/05/why-arcelormittal-is-focusing-on-essar-steel