Alliance that Can Shake the World

POSCO ponders cooperative deal with Arcelor-Mittal for technology, raw materials

POSCO has decided to forge a cooperative tie-up with Arcelor-Mittal, the world's largest steel production concern in the area of overseas projects and the supply of raw material, POSCO sources said recently.
They said the two giant steel producers have set up a working-level task force to study the details of the deal, which is based on the condition that the world's steel giant will give up its attempt to takeover POSCO in a hostile merger.
POSCO's decision to set up a relationship with Arcelor-Mittal follows the similar move by Nippon Steel, the world's second largest producer of steel and their moves will change the current set up of the world steel industry, steel industry sources said.
Nippon Steel agreed to provide the technologies for the production of steel plates used for making automobiles and likewise, POSCO will provide Arcelor-Mittal the technology and marketing know-how in exchange for giving up attempts to takeover POSCO in a merger.
POSCO sources said the working group has been meeting often,
adding that the Korean steel giant will cooperate with the largest steel maker on overseas steel projects other than POSCO's India and Vietnam steel projects.
POSCO has been looking for ways to conclude cooperative tie-ups with foreign steel makers, other than Arcelor-Mittal and Nippon Steel, in recent months, especially, following the completion of its Finex steel plant, a unique to POSCO in terms of steel production technologies. Chinese steel producers have been showing a special interest in the Finex steel production technology.
The sources said POSCO currently plans to build additional steel plants overseas abroad other than India and Vietnam. They said the steel giant found a site good enough to build an integrated steel plant in Vietnam, but the site is located inside an economic zone and the Vietnamese government has to revise the laws and regulations to enable POSCO to build a new steel plant as projected.
POSCO's move in tandem with that of Nippon Steel is likely to bring a cease-fire in the world steel industry as the competition for mergers and acquisitions in the industry will taper off with Arcelor-Mittal suspending its attempts to acquire other steel makers.
The move also draws the steel industry's attention on how it will impact the competition pattern of the industry in the days to come because the tie-up among the three of the largest steel makers in the world, which will control 15 percent of total world steel output, would have a great impact on the world steel market in terms of price and supply of raw materials, among others.
On the other hand, the triangular tie-up among the three largest steel makers could the quite before a storm as they could set off a bigger war on M&As if their cooperative relations don't work out as projected.
The tie-up between them will form a strong network of steel makers with one dominating European and South American steel markets and the other a huge power over Asia. With their share of the world steel market coming to 15 percent, they have an enormous sway for raw material suppliers, iron ores, when they buy them jointly. Arcelor-Mittal shares some 10 percent of the world steel market, while Nippon Steel and POSC0 each take up 2.5 percent.
If the three makers develop the right mix of synergy from the advantages they have Arcelor-Mittal an extensive world marketing network, Nippon Steel, its competitive technologies to produce steel plates for automobile and POSCO'extensive experiences for undertaking overseas projects and top technologies for steel production, they could stabilize steel prices and boost their profits
Arcelor-Mittal has been after tie-ups with both POSCO and Nippon Steel to turn out better automobile steel plates and other high-quality steel products.
Both POSCO and Nippon Steel no longer have to jostle with hostile takeover attempts by Arcelor-Mittal with the cooperative tie-ups, perhaps, for a while. Securities analysts are not so sure that the giant steel maker would put behind its strategies to take over these two steel makers. Lakshmi Mittal, chairman of Arcelor-Mittal said he would like to show one day his steel company's presence in Asia and he will continue to push plans to take over these two Asian steel giants. nw

POSCO Chairman & CEO Lee Ku-taek

Chairman Lakshmi Mittal of Arcelor-Mittal Steel Corp.