Business Daily from THE HINDU group of publications
Tuesday, Jun 27, 2006
Industry & Economy
Corporate - Mergers & Acquisitions
Steel prices will stabilise, say experts
`Consolidation good for fragmented industry'
Challenges ahead in reconciling work cultures
Benefits in supply chain management, input sourcing
Indian steel majors post losses at bourses
Mumbai , June 26
The steel industry's biggest takeover will have a sobering effect on volatile steel prices, according to industry members and analysts tracking the sector.
"This merger will directly impact steel's two big markets - Europe and the US. It would help strongly stabilise prices," said Mr Ankit Miglani, Director of Uttam Galva Steel.
Mr V.S. Jain, Chairman, SAIL, said the merger is expected to bring down the volatility in steel prices. "With such mergers and acquisitions, it is expected that the volatility of steel, with sharp swings in prices will come down. This is beneficial not only for manufacturers, but also for consumers,'' he said.
Consolidation is always good for industry, according to Dr B.N. Singh, Joint Managing Director and CEO of JSW Steel.
"We expect this consolidation to help in stabilising prices. The aluminium industry went through that phase. And it is better off with that."
Steel prices have been quite volatile over the past couple of years.
On anticipation that the merged entity would have a control over steel prices, Dr Singh ruled out such a possibility.
"Ten per cent of the global steel production is not that much of a critical mass that would give this entity an edge on price movements."
Industry representatives are of the opinion that this consolidation would help the steel industry, which is fragmented.
"Unlike other industries, the top five do not even have 20 per cent of the global market share. Volatility in steel prices should settle," said an industry representative.
The industry and customers are seen benefiting from this deal, he added. The deal itself will augur well for Mittal Steel as it will get access to a robust marketing network in Europe.
However, there are worries about how the actual merger of the two entities would play out.
"The style of management and work culture in both these entities are quite different. There would be challenges," said the industry representative.
Nevertheless, there would be benefits in the area of supply chain management and input sourcing, which would augur well for the steel industry.
"The consolidation in supplies and input sourcing would change the dynamics of the industry as it could result in huge logistics cost savings. Both Mittal and Arcelor would stop cross-selling," said Mr Miglani.
On Monday, the Tata Steel scrip fell by 6.88 per cent to Rs 495.75.
SAIL dipped by 7.64 per cent to Rs 75.55, while shares of JSW moved down by 1.97 per cent to Rs 268.90.
However, analysts said that the steel share price movement is more a reflection of the general market trend.
"If you look at Tata Steel's share movement today, it actually went up before edging down," said Mr Nitin Khandkar, Vice-President (Research), Keynote Capitals.
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