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More mergers, steady growth ahead in steel: BCG

As per a study by BCG, moderate valuations and high earnings will stimulate more mergers and acquisitions, reports Prerna K Mishra.

india Updated: Mar 09, 2007 03:01 IST

Moderate valuations and high earnings will stimulate more mergers and acquisitions in the global steel industry and even large, successful companies whose shares win high valuations are in danger of becoming acquisition targets, says an industry report by management consultant Boston Consulting Group (BCG), released on Thursday.

BCG says like the Arcelor-Mittal union that created a market leader three times the size of the nearest competitor last week is a pointer towards more such deals.

The report predicts that the worldwide steel industry will achieve significant growth of 3 to 4 per cent per year through 2015, reaching 1.55 billion to 1.7 billion tonnes annually. Over the same period, sustained high prices for raw materials and increasing consolidation will help to stabilize steel prices.

The trend towards inter-regional mergers is expected to continue. There is a clear motivation for steel makers in both developed and developing countries to strengthen their international presence, according to the report titled, “Beyond the Boom: The Outlook for Global Steel."

“India is currently among the top 10 steel producers in the world and is in a very good position to leverage the trends shaping the global steel industry. We believe that the local demand has entered a strong growth phase on the back of robust growth in underlying drivers in addition to a strong global demand. Also, the global steel industry structure is changing in India’s favour and Tata Steel’s acquisition of Corus Group, and Posco/Arcelor-Mittal’s interest in setting up new integrated operations in India should accelerate development of India’s steel industry significantly,” said BCG Director Sachin Nandgaonkar.

The report forecasts that through 2015 the global market will split more sharply into mass markets on the one hand and high-end markets on the other.