Mittal eyeing more Chinese steel firms

Lakshmi Mittal is eying more steel companies in China even as the communist nation's steel sector may see dwindling profits this year due to weakening prices.

india Updated: Jan 27, 2006 03:14 IST

NRI industrialist Lakshmi Mittal is eying more steel companies in China even as the communist nation's steel sector, one of the biggest in the world, may see dwindling profits this year due to weakening prices, the state media reported on Thursday.

The dwindling profits could spark mergers and acquisitions in the fragmented sector starting from 2007, analysts said.

Zheng Dong, from Beijing-based Guosen Securities, predicted that the sector's 2006 profits would plunge by 60 per cent this year compared to 2005 as a result of over production capacity, as well as slowing demand because of the government's measures to prevent the economy overheating.

Statistics from the China Iron and Steel Association show the nation's top 68 steel makers reported 73.1 billion yuan (nine billion US dollars) in combined profits during the first 11 months last year, down 1.01 per cent from a year ago.

Analysts anticipate the sector's full-year profits fell last year compared to the previous four years.

Zheng said many Chinese steelmakers would face financial troubles this year as low steel prices further erodes profits.

"As a result, we will witness a lot of mergers and acquisitions in the sector, led by foreign steel giants and domestic heavyweights, or driven by government, Zheng said.

UK-based Mittal last October acquired a 36.7 per cent stake of Valin Steel Tube & Wire Co Ltd in China's Hunan Province, marking the first equity merger between a foreign steel giant and a local firm.

According to sources, Mittal is also in merger talks with other Chinese steel mills.

First Published: Jan 27, 2006 03:14 IST