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25. September 2007

Mittal upbeat as steelmaker hits $100bn mark

Sitting over breakfast in the conservatory of his opulent London home on Monday, Lakshmi Mittal did not let a steady downpour outside – and rain dripping through a gap in the roof – damp his spirits.

“We are the first $100bn [in market capitalisation] steel company in history,” enthused the Indian billionaire. “The fundamentals of this industry are so strong that they give us a huge number of opportunities to grow.”

Mr Mittal was discussing the prospects for Arcelor Mittal – the company formed 15 months ago through the €26.9bn ($37.9bn) take-over of Luxembourg-based Arcelor by Mittal Steel – of which he is chief executive and main owner.

Since the two companies combined to create by far the world’s biggest steel producer, shares in Arcelor Mittal have outperformed the composite price index of all the world’s listed companies by 98 per cent, giving it a market capitalisation of $109bn.

Investors’ interest in the company was boosted last month by figures showing net income for the second quarter rose to $2.7bn, an increase of 50 per cent when compared with numbers calculated as if the combined business had existed last year.

“In recent months, I’ve visited 25 Arcelor Mittal plants around the world,” said Mr Mittal. “I’ve noticed [among employees] a mood of excitement. They feel that we really are one company, not two. I’m glad to say that the sceptics who thought this merger would not work have been proved wrong.”

According to Michael Shillaker, an analyst at Credit Suisse, Mr Mittal’s optimism is backed by the hard logic of supply and demand in the steel industry.

Mr Shillaker also said he thought the sector would be affected “very little” by the credit squeeze that has gripped financial markets.

To capitalise on these conditions, Arcelor Mittal plans to spend $35bn increasing the capacity of its steel plants in the next eight years, with a particular focus on two new steel plants in India.

One country of particular interest to Mr Mittal – where Arcelor Mittal does not have any production – is Russia. He said that “as a long-term plan” he would like to build a “greenfield plant” in Russia as a way to gain a toehold there.

Arcelor Mittal has large steel operations in neighbouring Ukraine and Kazakhstan.

Another nation on which Mr Mittal keeps a watchful eye is China – which is responsible for more than a third of the world’s steel capacity but where his company is relatively weak.

One problem for him is that the Chinese government has yet to approve fully a plan for Arcelor Mittal to take a minority stake in Laiwu, a steel producer in Shandong province in eastern China.

However, a second joint venture by Arcelor Mittal with another Chinese steel producer, Hunan Valin, is fully operational.

In time, Mr Mittal wants Beijing to approve plans for foreign steelmakers to take majority stakes in steel producers, allowing his company to play a bigger role in the country. “But I don’t think this is going to happen soon,” he said.

In South Africa, where Arcelor Mittal has a large steel plant, events have not gone all Mr Mittal’s way since the merger.

This month, the company was fined R691m (about $100m) by the country’s competition authority for charging “anticompetitive” prices in the domestic market.

Mr Mittal said he was disappointed by the decision, against which Arcelor Mittal would probably appeal.

“My view is that we have been charging market prices when selling steel in South Africa,” he said.

Even with this setback, Mr Mittal said Arcelor Mittal’s South African steelmaking plants would also benefit from the company’s $35bn spending plan.

“The South African economy is one of a number that look like growing substantially,” he said.

Even with the rain beating down on his leaking London conservatory, the outlook for the steel industry – at least as far as Mr Mittal is concerned – is sunny indeed.

With a 45 per cent stake in Arcelor Mittal, the world’s biggest steel company, Lakshmi Mittal’s current stake in the business is worth $45bn, or nearly 70 per cent more than at the beginning of the year.

Arcelor Mittal’s surging share price has been driven by enthusiasm for steel company stocks, which have been among the best performing on global markets over the past four years.

Arcelor Mittal – of which Mr Mittal is chief executive – has outperformed the price index of all quoted steel makers by 38 per cent since June 2006.

Mr Mittal was named this year as the world’s fifth-richest by Forbes magazine.

He believes that the industry’s good times could easily continue for the next five to 10 years, on the back of strong demand for steel in countries such as India and China.

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