Steel sector strong on takeover rumors
NEW YORK, Feb 16 (Reuters) - Shares of U.S. steel manufacturers soared on Wednesday amid speculation about a new round of mergers in the industry, which is currently booming.
In New York Stock Exchange trading, U.S. Steel Corp. (X.N: Quote, Profile, Research) stock closed up 7.33 percent at $56.55, Nucor (NUE.N: Quote, Profile, Research) was up 5.18 percent at $59.68 and AK Steel (AKS.N: Quote, Profile, Research) was ahead 6.33 percent at $17.30. On Nasdaq, Steel Dynamics (STLD.O: Quote, Profile, Research) closed up 7.49 percent at $41.50.
"The steel stocks are playing off a couple of positive articles that recently appeared in Forbes and Businessweek Online," said Herb Kurlan, president of MDNH Partners, an options market-making firm based in San Francisco.
"They indicate that mergers in the steel industry are not over yet and that it looks like prices can go higher."
In a Businessweek Online story, Guy Dolle, chief executive of European steelmaker Arcelor (CELR.PA: Quote, Profile, Research) , was quoted as saying the emergence of Mittal Steel (MT.N: Quote, Profile, Research) as the world's largest steel producer "is a very positive signal to the industry that it has to move and consolidate.
"In coming years, you will see a speeding up of mergers and acquisitions in the steel industry,' Dolle was quoted as saying.
The BusinessWeek article said Dolle was determined Arcelor will be among the steel titans surviving the merger wave. It said he wanted to continue the merger process in Asia and North America, possibly even striking a deal with U.S. Steel or Nucor.
Now, with steel prices soaring on economic growth in China and elsewhere, the time could be right for the next stage of global consolidation. Some analysts believe that over the next few years, the industry will evolve into one of 4 to 6 giants, each with 80 million to 100 million metric tons of capacity.
Mittal Steel, which quadrupled its profit in 2004, said last week it expects to complete its transformation into the world's biggest steel producer in six weeks. That's when it estimates it will close on its $4.5 billion acquisition of International Steel Group Inc. (ISG.N: Quote, Profile, Research) for $4.5 billion and merge the U.S. steel maker with the other assets of Indian-born steel magnate Lakshmi Mittal.
The purchase of ISG is the final step in the bid by Mittal to surpass Arcelor as the biggest steel producer and Arcelor may have to increase its size to compete.
Earlier on Wednesday, Arcelor, which was created in 2002 from a merger of Luxembourg's Arbed, Spain's Aceralia and France's Usinor, said it is in talks with Russian companies to expand its presence on the Russian steel market.
Charles Bradford, a steel industry analyst with Bradford Research/Soleil, said Arcelor was also very active in Brazil, looking for acquisitions and joint projects.
As for the U.S. steelmakers, "I know some companies are for sale," said Bradford, but he questioned the timing.
"You really want to buy at the peak of the cycle?" he asked, noting that many industry observers believe the current cycle of high prices will continue at least through the first half of 2005.
However, Nucor, which saw its 2004 net profit surge 15-fold, is certainly on the prowl for acquisitions, he said.
The largest U.S. mini-mill operator has set its sights on Mexico's No. 3 steelmaker Hylsamex (HYLSAMXL.MX: Quote, Profile, Research) and also Marion Steel, a small steel producer in Ohio.
In addition, Nucor has already announced it is in the process of acquiring the assets of Wisconsin-based Fort Howard Steel, another small steel bar producer.
And last month, Nucor said its Castrip process, which helps steelmakers make flat-rolled, carbon and stainless steel sheets at very thin gauges, was now commercially viable.
It said it was looking for a second location for a Castrip operation in the United States and plans to set at least one joint venture overseas in 2005 to use Castrip technology. (Additional reporting by Doris Frankel in Chicago)
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