A century is too long a time for an industry to sustain itself. Hence, when The Economist, in its issue dated March22, 2001, commented that even by `old economy' standards steel-making is hardly a business that sets pulses racing, it gave enough indication where the future of the global steel industry lay. But it has not taken long for the industry to correct that perception. Steel like any other commodity is prone to the vagaries of cyclicality and was going through a cyclical downturn over the last few years. However, things changed for the better when, in 2004, steel prices revived globally (after experiencing severe recession from 1997 to 2001), backed by strong demand from China. And one man who is playing an important role in shaping the future of an almost written-off industry is none other than L N Mittal, the undisputed king of the global steel industry, whose steel empire spans across four continents and 14 nationsfrom Trinidad to Kazakhstan.
He is in the limelight once again as his war horse, Mittal Steel, makes an audacious bid to acquire his nearest rival, the Luxembourg-based Arcelor. Mittal, who has built his steel empire piece by piece, envisions an industry dominated by top 10 steel players. It is not difficult to understand why he thinks so. Steel industry is suffering on account of several problems, which are more internal than external. It is an industry which is notoriously fragmented. Of the entire global steel production of about one billion tons, the top 10 players control just 30% (in fact, despite significant consolidation and restructuring, in the last three decades, their share remains almost the same from the 1970 level of 29%). This is in contrast to other industries such as aluminum. Worse, there are hardly a handful of players who can boast of a global scale. Another problem facing the industry is that of the structural overcapacity that has led to intense competition. But then the industry's technology adoption record is awful, as most of the plants still rely on outdated technologies which have caused cost inefficiencies: A majority of the plants in countries like Russia and Ukraine still deploy old technologies like the open hearth process. Finally, most of the plants outside the European Union focus on low-end, `me-too' products which fetch terribly low margins.
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