Mittal's Bad Bets

July 13, 2005
Another view on steel's future.

In so many words, Peter Morici, a professor of logistics, business and public policy at the University of Maryland's Smith School of Business in College Park, says Mittal Steel is making a bad bet about the future of the steel industry.

"I don't think that further consolidation and globalization are essential to its existence," asserts Morici, a former director of the office of economics at the U.S. International Trade Commission. "It was never the case that a country had to have a steel mill or a national airline. It was just that governments behaved that way-and continue to."

For example, he says as the European Union has expanded eastward to include such countries as Romania, it's not scrapping steel production but working to make it more efficient. "They are talking about continuing steel production." At the same time, "the Chinese subsidize their steel production in a variety of ways and are expanding it at a pace that will inevitably lead to global excess capacity," he says.

See Also...

Unconventional Mettle: With a unique strategic vision and distinctive operating practices, Mittal Steel Co. NV is the leader in defining a truly global steel market. Only a few producers will survive, contends COO Malay Mukherjee. And China, he believes, won't be a market spoiler.
"The real issue with adequate competition in the steel industry-efficiency driving competition-is going to be government intervention in terms of unfair business practices and subsidies. There is nothing fundamental to the making of steel that requires that there be very few players," says Morici.

And he also believes Mittal is wrong about China. "We are going to see changes in the composition of steel that China makes as well as the quantity," predicts Morici. "We're going to see China becoming part of the global market as an exporter. And given its sheer scale and the fact that prices don't drive decisions in China the way they do in other places, I am quite fearful that China is going to be dumping steel, selling subsidized steel abroad, and disrupting global markets." How soon? "Certainly over the next five years China poses a threat to the stability of global markets."

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