Mittal Steel and the global steel industry

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Mittal Steel and the global steel industry

  1. 1. Mittal Steel and the global steel industry
  2. 2. Introduction  Steel has been made since 200 BC  Mass production of steel from iron ore, coke & limestone dated back to the 1850s  Important component for many industries  Buildings  Ship  Automobile  Home appliances  Possible replacement – aluminium, carbon fibre  Constant changes in the industry
  3. 3. Steel production process (Traditional method)  Large, vertically integrated complex  Iron ore is converted into molten iron & then into steel  High investment, large labour required  Competition from “Mini-mills”  Low cost, less labour and low grade metal  Located near customers
  4. 4. Turbulence & Consolidation  Mini-mills accounted for 1/3rd of steel production all over the world  Large firms in Europe & USA facing difficulties  Increased productivity led to over capacity in stagnant market  LTV steel filed for bankruptcy  Demand increased in 2003 due to economic expansion
  5. 5. Mittal Steel – the early days  Mittal steel started life in 1970s as “Ispat Industries” by M.L Mittal  Small scale steel production firm based in Bangalore & Kolkata  Expansion in India was difficult due to strict regulations  Ispat went to Indonesia as the market was unregulated  Company grew but found problems in acquiring good quality scrap  Alternative to scrap as raw material was “Direct Reduced Iron(DRI)”  Cheaper, few impurities & less energy in conversion  “Iscot” was leased to Ispat and within 12 months made it profitable  In 1994, Ispat acquired Iscot for $101 million
  6. 6. Growth in mature industry  Mexico invited Ispat to take over Sibalsa plant  In 1995, Ispat revived “Kannet” 3rd largest steel plant in soviet union  In 1994, Ispat business was split into two new companies  LNM Holdings  Ispat International  In 1997, Ispat International listed on NYSE and Amsterdam stock exchange
  7. 7. Becoming number one  Started to penetrate USA & Canada  Acquisitions  1998 – Inland Steel  2004 – International Steel Group  2005 – Arcelor  Buy out of LNM by Ispat International for $4.5 billion
  8. 8. Inside Mittal steel  Management of Dabrowa Gornicza steel plant  Simple, geographical based, divisionalized structure  Knowledge sharing programme  Expertise in DRI
  9. 9. Q.1 How well does the steel industry fit the life cycle model? Allocate rough dates to the different life cycle phases identifiable in the case. 200 BC – 1850 1850 – 1980 1980 – 2001 Market Small Growing Large Competition Low Moderate High Sales Low High Flattening Business Focus Awareness Market Share Customer Retention None
  10. 10. Q.2 How was Ispat/Mittal steel able to grow so strongly in a mature market? How well did its strategies fir with those normally recommended for this type of industry?  L N Mittal's faith in DRI (direct reduced iron) technology governed his choice of acquisitions  Starting in Indonesia in 1976, he bought mini steel mills using the DRI route in various countries  Lakshmi Mittal championed the practice of mini mills becoming integrated producers through the use of scrap alternatives  This faith created Mittal's reputation as a doctor of sick steel mills  In 1991, this reputation brought the Mexican government knocking at his door & invited to take unprofitable Sibalsa plant  Company renamed Ispat Mexicana achieved 110% capacity utilization within 4 years  Ispat makes further successful turnarounds in places like Canada, New Zealand  In 1995, Ispat bought Karmet steel of Kazakhstan  Become number 1 after acquisition of Arcelor, the 2nd largest steel maker
  11. 11. Q.2 How was Ispat/Mittal steel able to grow so strongly in a mature market? How well did its strategies fir with those normally recommended for this type of industry?  The company expanded from a wire rod manufacturer in Indonesia to the largest steel producer in the world, largely through an acquisitive strategy.  Capital intensive industries like Steel industries need a high volume of production and a high margin of profit to be able to provide adequate returns on investment  The acquiring companies have an advantage to lower their risks and exposures to volatile industry segments like steel industry  Such acquisition helps to achieve growth by broadening their product lines and increasing their market share  The company would be able to achieve maximum synergies in marketing, trading and purchasing  Another source of synergy involved is the integration of the technologies and research & development (R&D) processes.
  12. 12. Q.3 Where in the life cycle is the steel industry at the end of the case? Appraise Mittal Steel’s strategic moves in 2004 – 2006 in light of your conclusion?  At the end of the case the life cycle of steel industry is at “Growth Stage”  Demand for steel industry is increasing continuously
  13. 13. Q.3 Where in the life cycle is the steel industry at the end of the case? Appraise Mittal Steel’s strategic moves in 2004 – 2006 in light of your conclusion?  Acquisition of Arcelor for $33 billion  First company to produce 100 million tonnes of steel  Killing one of its competitor  Combined global market share of 10%
  14. 14. Thank You!

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