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

 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

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

 World largest mining companies in 2005

Businesses

Coking Coal Iron ore Others

Companies
Sales in
Country
2005 (M$) Market Market
Ranking Raking
share share

BHP Billiton England- Copper,

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

Anglo Platinum,
England-
American 29 400 3 7,8% - - Diamonds,
South Africa
Copper

Rio Tinto England-

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

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

Xstrata 4,5%
Switzerland / 3 500 + 2
Falconbridge* 4 (avant - - Chromium
Canada 400
fusion)

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.

© CCMP – 2007 – Arcelor-Mittal – Edouard ETIENVRE et Frédéric PREVOT – EUROMED Marseille 2

 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

© CCMP – 2007 – Arcelor-Mittal – Edouard ETIENVRE et Frédéric PREVOT – EUROMED Marseille 3

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

Mechanical
Contruction 43% Industries 22%

Automotive 19%

Others 2%
Rails 2%
Oil & Gas 5%
Ship Yards 3%
Packaging 4%

Source: Mittal Steel, annual report 2005

© CCMP – 2007 – Arcelor-Mittal – Edouard ETIENVRE et Frédéric PREVOT – EUROMED Marseille 4

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

© CCMP – 2007 – Arcelor-Mittal – Edouard ETIENVRE et Frédéric PREVOT – EUROMED Marseille 5

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

© CCMP – 2007 – Arcelor-Mittal – Edouard ETIENVRE et Frédéric PREVOT – EUROMED Marseille 6

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%

Source: International Iron & Steel Institute

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 consequence s 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

© CCMP – 2007 – Arcelor-Mittal – Edouard ETIENVRE et Frédéric PREVOT – EUROMED Marseille 7

unable to extract themselves from the negative price spiral by producing steel with higher value
added. In additio n 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%

Source: International Iron & Steel Institute

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%

Source: International Iron & Steel Institute

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

© CCMP – 2007 – Arcelor-Mittal – Edouard ETIENVRE et Frédéric PREVOT – EUROMED Marseille 8

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%

Source: International Iron & Steel Institute

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.

© CCMP – 2007 – Arcelor-Mittal – Edouard ETIENVRE et Frédéric PREVOT – EUROMED Marseille 9

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

1200
Steel Production in mt

1000

800

600

400

200

0
50

70

90

96

98

99

01

03

05
60

80

95

97

00

02

04
19

19

19

19

19

19

20

20

20
19

19

19

19

20

20

20
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).

© CCMP – 2007 – Arcelor-Mittal – Edouard ETIENVRE et Frédéric PREVOT – EUROMED Marseille 10

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. Face d 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).

© CCMP – 2007 – Arcelor-Mittal – Edouard ETIENVRE et Frédéric PREVOT – EUROMED Marseille 11

 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.

© CCMP – 2007 – Arcelor-Mittal – Edouard ETIENVRE et Frédéric PREVOT – EUROMED Marseille 12

 Steel's demand trend in mt

1400
1200
1000
Rest of the World
In mt

800
600 China
400
200
0
2004 2005 2006e 2007e

Source : International Iron & Steel Institute

Worldwide distribution of steel demand in 2005

Other Asia Europe (EU 15)

15% 14%

China NAFTA
31% 14%

Japan
8%
Australia & New
Zealand
1%
CIS
4%
New EU Countries
2% Africa Other Europe
South & Central Middle East
2% 3%
America 3%
3%

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,

© CCMP – 2007 – Arcelor-Mittal – Edouard ETIENVRE et Frédéric PREVOT – EUROMED Marseille 13

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 82% 89%

production capacity

Source: Mittal Steel website

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

800

700

600

500
In USD / Tonne

400

300

200

100

0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

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.

© CCMP – 2007 – Arcelor-Mittal – Edouard ETIENVRE et Frédéric PREVOT – EUROMED Marseille 14

 World Production and Exports of Steel Products since 1975

1000
900
800
700
600
In mt

500
400
300
200
100
0
75

81

87

97

03
77

79

83

85

89

91

93

95

99

01
19

19

19

19

20
19

19

19

19

19

19

19

19

19

20
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 58,9
Railway 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 19,4
Concrete 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 9,9
Wire 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 4,8
Hot-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 4,5
Hot-rolled sheets and coils 2,7% 49,4 43,9 48,9 50,1 54,9
Plates 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 31,2
Galvanised 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 26,8
Steel 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 0,4
Castings 15,8% 0,5 0,5 0,5 0,6 0,9
Forgings -7,5% 1,5 0,8 0,8 0,8 1,1
Others 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

© CCMP – 2007 – Arcelor-Mittal – Edouard ETIENVRE et Frédéric PREVOT – EUROMED Marseille 15

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%

Source: International Iron & Steel Institute

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.

© CCMP – 2007 – Arcelor-Mittal – Edouard ETIENVRE et Frédéric PREVOT – EUROMED Marseille 16

Appendix
Appendix 1: Industrial process.
Pig Iron
Cast Iron Process
(from Pig Iron)
Coking Coal Electric Process
(From Steel Scrap)

Steel Scraps

ContinuousCasting

Rolling Mill

Rolled Products

Source : Usinor

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

In % of the Arcelor Mittal Corus Acerinox Us Nucor Dofasco Nippon JFE Posco Evraz Severstal NLMK
consumption Steel Steel Steel Holding

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

© CCMP – 2007 – Arcelor-Mittal – Edouard ETIENVRE et Frédéric PREVOT – EUROMED Marseille 17

Appendix 4: Main mergers and acquisitions in the steel industry since 2004
Type of EV of the target EV/tonne EV / EBITDA
Date Assets/Co Products Country Prod. Cap. In mt % acquired Buyer (mUSD) Funding (USD) (année N-1)
Cash (50%) -
10-2004 ISG Long & Flat USA 19 100% LNM Holding* 4 381 Scrip (50%) 231 4,9
United Financial Group of
12-2004 MMK Long & Flat Russia 11,5 40,80% Russia 1 660 Cash 354 -
Hunan Valin Steel Tube
01-2005 & 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
Fundia / Imatra Steel / Rautaruukki (47%)/Wartsila
02-2005 Ovako Steel Long Finland 2 Fusion (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 -
Corrugados Azpeitia &
05-2005 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
Gerdau (40%), Santander
11-2005 Sidenor Long Spain 1,3 100% (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
Cash (52%) -
06-2006 Smorgon Steel Long Australia 0,923 100% Onesteel 1 200 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
Homberg / WP de Pundert
07-2006 Oyj Ovako Ab Long Finland 1,6 100% Ventures & Pampus Ind. 700 Cash 438 3,3
Source : Brokers’ notes

© CCMP – 2007 – Arcelor-Mittal – Edouard ETIENVRE et Frédéric PREVOT – EUROMED Marseille 18

Appendix 5: Profile of the main global steel-producing companies
Groups Geographic Type of Type of Partnerships Technologies Strategy
Positioning Products Clients
USA, Mexico, Flat Products (86% Automotive in JV with Posco in Galvalume® Devlopment in
Germany, Eastern of the EBITDA, n°2 the US, California. (galvanized flat Europe. High
US Steel Europe. in the US), Constrution of products ) from Quality and High
(USA) Revenue: 80% Seamless Pipes the US, Dofasco. Value Added
NAFTA and 20% (n°1 in the US). Containers, Oil Products.
Europe. (NAFTA), Acquisitions.
LT Contracts.
East Coast of the Flat Products (54% Automotive and JV with CVRD Castrip® Profitable every
Nucor US, Trinidad. of the EBITDA), construction in (Cast Iron from (continuous year since 1966.
(USA) Electric Mills only. Long Products the US. charcoal in casting), Hismelt® Small
Revenue: 100% (46% of the Brazil), JV to (direct conversion of Acquisitions.
NAFTA. EBITDA, n°1 in the access Pig Iron into Cast Organic Growth
US). technologies. Iron) (new mills).
Canada, USA. Galvanized flat Automotive « Solutions in Galvalume® High Value
Dofasco Revenue: 100% products (42% of (33%of the steel » (galvanized flat Added products
(Canada) NAFTA. the prod.), other prod.) n°4 in partnership and products). Zyplex® for the
Flat Products (53% North America, development of (sandwich steel Automotive
of the prod.), Pipes Construction solutions with its sheets ) industry.
(5% of the prod.) (12% of the clients (Ford).
Revenue), Partership with
Packaging (10% Arcelor
Market share in (Extragal®)
North America).
UK, Netherlands Flat Products (77% Automobile DAF trucks , Magnashield®, Integrated
Corus Group (Europe 100% of of the EBITDA), (16%), Europe: Ford, Galvatite® solutions,
(UK – the production). Long Products aéronautique, Jaguar, Land (galvanized design of new
Netherlands) Revenue: 80% in (17% of the génération Rover. products ), Protact® products. High
Europe (o/w UK EBITDA), électrique, Aerospace (BAe, (Packaging). Silent Value Added
27%), 11% Other/Aluminium construction, Rolls Royce…) tracks (rails) 576 Products.
NAFTA, 9% Other. (6% of the biens de patents . Downstream
EBITDA). consommation , business
pétrole offshore exposure.
Spain, USA, South Prod: 92% Flat N°2 in the world High Value
Acérinox Africa. Products, 8% Long for special steel Added Special
(Spain) Revenue: 42% Products. products n/a n/a Products.
Europe, 39% Special Steel (stainless). Involved in
NAFTA, 14% Asia, (stainless) : 100% Retail Business .
5% Other . of the EBITDA.
Revenue: 100% Flat Products (62% Automotive Japanese Car NSGP-1 (High High Value
Nippon Steel Asia (o/w 70% of the EBITDA), (50% Market Makers, Standards Steel Added Prod ucts.
(Japan) Japan). Long Products share in Japan), Japanese Ship Sheets for Oil Organic Growth
(11% of the Ship Building, Yards. Rio Tinto. Tankers). and
EBITDA), Special Construction Alliance with GA-TRIP (Carbon Diversification
Steel (3% of the (30% of the Arcelor and Steel Sheets), (Conglomerate).
EBITDA), Others prod.) Posco on the HTUFF ( High
(construction). Consumer R&D side (steel Temperature
Goods. sheets for resistant steel
Automotive). sheet), STEN-1.
Revenue: 97% Flat Products (66% Automotive, BHP Billiton and NANO HITEN and Conglomerate.
JFE Holding Asia, 3% NAFTA. of the EBITDA), Construction, CVRD (LT BHT (steel products Strategy of
(Japan) Long Products ShipBuilding. supply). for the Car diversification .
(14% of the Japanese Car Industry).
EBITDA), Other Makers.
(20% of the
EBITDA)
Revenue: 92% Flat Products (80% Automotive, Korean Car Several Innovations Organic Growth.
Posco Asia, 3% NAFTA, of the EBITDA), construction, Makers. (Steel Sheets) and High Value
(South Korea) 5% Other . Long Products (7% Ship Building production process Added Products
of the EBITDA), and Consumer (FINEX). and Markets.
Special Steel (7% Goods.
of the EBITDA),
Other activities
(6% of the
EBITDA).
Prod: Russia and Flat Products (24% Construction Further
Evraz Group Europe (Italy and of the EBITDA), (30% of the Development in
(Russi a) Czech Rep. ). Long Products prod.), rails construction and
Revenue: 60% (59% of the (10% of the n/a n/a railway (Russia
CIS, 30% Asia, 5% EBITDA), prod. – leader in and CIS).
NAFTA, 5% transportation Russia). International
Europe. (17% of the Dev. (flats
EBITDA). products,
mining) through
acquisitions.
Flat Products Automotive International
NLMK Prod: Russia, (100% of the (12% Revenue), development
(Russia) Danemark. EBITDA). metallurgy. through
Revenue: 58% N°3 in flat products n/a n/a acquisitions .
CIS, 23% Asia, in Russia. Vertical
13% Europe, 6% integration
NAFTA. (Mining).

Source: Presentations and annual reports FY 2005

© CCMP – 2007 – Arcelor-Mittal – Edouard ETIENVRE et Frédéric PREVOT – EUROMED Marseille 19

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 China
3 Nippon Steel 32,0 Japan 23 Jinan 10,4 China
4 POSCO 30,5 South Korea 24 Laiwu 10,3 China
5 JFE 29,9 Japan 25 China Steel 10,3 China
6 Baosteel 22,7 China 26 Maanshan 9,6 China
7 US Steel 19,3 USA 27 IMIDRO 9,4 Iran
8 Nucor 18,4 USA 28 Techint 8,7 Italy
9 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 Korea
12 Tangshan 16,1 China 32 Kobe Steel 7,7 Japan
13 Evraz 13,9 Russia 33 Handan 7,3 China
14 Gerdau 13,7 Brazil 34 Salzgitter 7,1 Germany
15 Severstal 13,6 Russia 35 Baotou 7,0 China
16 Sumitomo 13,5 Japan 36 Ilyich 7,0 Ukraine
17 SAIL 13,4 India 37 Bluescope 6,8 Australia
18 Wuhan 13,0 China 38 Benxi 6,5 China
19 Anshan 11,9 China 39 Voestalpine 6,4 Austria
20 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 20

 Financial Statements: Profits & Loss Accounts (2005)

FY 2005 in US$m Europe North America Asia Russia

MITTAL NIPPON
ARCELOR STEEL CORUS ACERINOX US STEEL NUCOR DOFASCO STEEL JFE Holding POSCO EVRAZ SEVERSTAL NLMK

Production mt 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

Revenue 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

Depreciation 1 618 829 562 140 366 375 195 1 682 1 674 1 597 243 256 284
Non Recurring Items 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
EBIT (declared)

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

Financial Result -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
Profit Before Tax
Tax 201 818 236 94 365 706 79 1 278 1 319 1 468 476 436 496
Tax Rate (declared) 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%
Minorities 540 520 2 0 37 0 4 109 19 -6 137 3 29

Net Profit 4 771 3 365 824 191 910 1 310 146 2 181 1 509 3 972 905 1 289 1 382
Net Profit (Current) 4 375 3 365 897 191 931 1 310 143 2 534 3 142 3 972 938 1 271 1 393

Number of Shares
Diluted 649,532 687 889 261,4 113,47 157,1 77,2 6734,7 587,2 87,2 112,7 551,9 5993,2
Ordinary 688,493 687 963 261,4 129,97 158,6 77,6 6734,7 587,2 87,2 112,9 551,9 5993,2

EPS (declared)
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 0,23
Ordinary 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
Source: Annual reports 2005

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

 Financial Statements: Balance Sheet (2005)
FY 2005 US$m Europe North America Asia Russia
MITTAL NIPPON JFE
ARCELOR STEEL CORUS ACERINOX US STEEL NUCOR DOFASCO STEEL Holding POSCO EVRAZ SEVERSTAL NLMK

ASSETS

Actif circulant
Inventories 9 475 6 036 3 576 1 615 1 466 945 1 165 5 270 4 745 3 755 964 993 27
Debtors 4 645 2 287 2 767 650 1 598 1 001 537 4 261 4 827 3 015 375 460 660
Other 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 1 897
Total 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

Fixed Assets
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 1 047 867 355
Total 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

TOTAL ASSET 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 & EQUITY

Liabilities
LT Financial Debt 5 426 8 056 2 394 330 1363 922 487 7640 9429 1251 1545 1418 0
Other LT Debt 4 923 5 579 1 444 307 2354 487 727 2951 2732 491 325 1114 356
Creditors 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 0
Other ST Debt 3 941 2 815 437 121 1244 753 59 4761 4391 2598 663 253 41
Total Liabilities 22 854 19 206 8 352 1 994 6466 2665 1951 24138 24678 7565 3766 3659 904

Equity
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 4749
Total Equity 18 886 10 150 6 134 2 431 3324 4280 1871 11066 9020 19287 2695 7004 5054
Minority Interest 3 155 1 834 48 133 32 194 36 852 350 383 190 85 93

TOTAL LIAB. & EQUITY 44 895 31 190 14 534 4 559 9822 7139 3857 36057 34048 27235 6651 10749 6051

Employees 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
Source: Annual reports 2005

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