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Jul 04, 2008

World may be facing steel shortage

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By Stewart Bailey and Dale Crofts (Bloomberg News)



ArcelorMittal Chief Executive Officer Lakshmi Mittal said the world may be facing its first steel shortage in decades because of accelerating demand and a lack of investment when the metal was trading at lower prices.

"There is short supply; all steel companies are running at full capacity," Mittal said last week in an interview in New York. "We're facing for the first time in decades a potential shortage of steel."

Steel prices have surged as India and China build more bridges and houses and their increasingly affluent populations buy more cars and appliances. Steel production has failed to keep pace with the demand gains because of rising costs and a lack of investment in new plants in the past decade.

Hot-rolled steel sheet, the benchmark product used in cars and appliances, climbed to an average $1 020/t in the US in May from $850/t in April, Purchasing magazine said on May 30. Prices have gained 76% since January and are about 86% higher than a year ago.

The "volatile years of boom and bust" in steel prices have been relegated to the past, Mittal said. Users of steel will have to "adjust to the new reality and the new pricing environment."

Higher prices for iron-ore and energy have raised the costs of making and transporting steel. A shortage of the metal in the US, partly because of lower imports, has allowed producers to increase prices. Inventories at US service centres were 15% lower at the end of April than a year earlier, the Metal Service Center Institute said in a May 16 statement.

ArcelorMittal will continue its strategy of buying producers of the raw materials it uses to make steel, such as coal and iron ore, Mittal said. The company wants to control about 80%of the iron-ore it uses in its mills, compared with about 45% currently.

"We will not spend blindly," he said. "We are looking at each and every acquisition that creates synergies for us. Not only looking upstream, we're also looking downstream."

ArcelorMittal is digging iron-ore mines in the West African states of Mauritania, Liberia and Senegal and has bought a 14,9% stake in Australia's Macarthur Coal.

The company also is seeking to increase the portion of its production from emerging markets to as much as 60%, from the current level of 45%, he said. The company will try to expand output in South Africa, Brazil, Turkey, Kazakhstan, India and Eastern Europe, he said.

Attempts to boost production from Russia and China may be stymied by those governments' unwillingness to allow foreign companies to control steel output, which is viewed as a strategic industry, he said.

 


Edited by: Bloomberg
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