US Steel chief sees more consolidation

Surma however, declined to comment specifically on whether US Steel was in the crosshairs of Arcelor or any other steel rival.

india Updated: Feb 17, 2006 17:26 IST

The head of United States Steel Corp, which has been mentioned as a possible takeover target, said on Thursday that consolidation is good for the industry.

He declined to comment specifically on whether US Steel was in the crosshairs of Europe's Arcelor or any other steel rival, but said he viewed any speculation as a compliment and testimony to his company's recent revival.

"It shows we've developed, made ourselves competitive and we're attractive compared to where we were in 2001 when nobody would want to talk to us," said John Surma, chairman and chief executive of the Pittsburgh-based steel manufacturer.

"I take a lot of that as compliments," he said. "It's a sign of an industry that's got itself on a good competitive course. In North America in 2001 there wasn't the slightest prospect of any normal M&A (merger and acquisition) activity taking place.

"The fact that there's conversations about it now we find interesting and positive. In our own case, from 2000 until today, our company went from 11 million tons (annual production) to 27 million tons, so we know how to do it."

On Feb 6, stock in US Steel rose nearly 5 per cent on a German newspaper report that it might be a takeover target by Arcelor to defend itself from a $24 billion hostile takeover by the world's biggest steelmaker Mittal Steel.

Arcelor, meanwhile, is pursuing a bid for Canada's Dofasco as a North American foothold at a time when steel company profits have soared after decades of red ink.

In an interview on Thursday, Surma said the German newspaper report had been mistranslated and that the actual article said Arcelor was interested in "a United States steel company," rather than US Steel.

"Those are interesting stories about stories. There's really nothing we can or should say about it," he said.

However, in his capacity as chairman of the American Iron and Steel Institute, Surma was upbeat about consolidation.

"The US consolidation story's been a good one so far -- starting where we were back in 2000, 2001, to where we've gotten to, where we have a much smaller amount of companies with a more substantial part of the market.

"Consolidation has been good from an operating standpoint -- we all have much better cost synergies, done a better job of investing capital, serve customers and keep steel as the material of choice for automotive and appliances and all the key markets we're in," he said.

"The overall industry can still use more consolidation, whether it's the U.S. or the world. We're still less consolidated than our customer groups and far less consolidated than most of our suppliers -- iron ore, coal and the like.

"I think it is in our interest to continue that process," Surma said.

So far, in North America, Europe and Japan, consolidation has been regional and very effective from a cost standpoint, he said. "Fewer larger players in any industry is a good thing and I think we've done well in North America on that basis.

"The fact that the market is now populated with fewer, stronger players who have some flexibility to operate -- such a number of facilities makes sense in the marketplace."

Surma noted that in the steel industry, the top three companies represent 10 per cent of the world market, whereas in iron ore it was 85 per cent and in automotive, 70 per cent.

"So we're in between two very consolidated businesses and we're relatively unconsolidated. It's a matter of normal economics that we're going to move in that direction.

"Whether it's the US or Europe, there are some smaller companies that because of geography or product ranges, some niches, they have done fine and may continue to do fine.

"Others would be like Dofasco, which was an excellent company that's done well, yet was apparently of a size that others felt they would like to add to their portfolio."

First Published: Feb 17, 2006 17:26 IST