Aditya Mittal deserves a little professional sympathy. The son of Lakshmi
Mittal, chairman and controlling shareholder of ArcelorMittal, is chief
financial officer of the world’s largest steelmaker. As of Tuesday, however,
he is also the boss of the group’s largest and most problematic division.
In the short term, ArcelorMittal’s recovery from the global economic slowdown
has been slow. Although the trends in 2011 are mostly positive, operating
earnings and the share price are both down about two-thirds from pre-crisis
levels.
China
In the long term, the younger Mr Mittal can do almost nothing about the most
important variable in the steel industry – China.
A significant slowdown in China would be a problem. But, as long as the
country continues its recent pace of development, its share of global steel
demand will probably stay at about the current 45 per cent (by comparison,
it consumes only 10 per cent of the world’s oil). In that case, the growth
rate of global steel production could well stay at the 5 per cent it has
registered for the past decade.
The Mittals could continue to lead the industry in calibrating production to
demand. They have been successful at this – losses were much lower in the
recent recession than in earlier, milder declines.
Golden period
In a decade or so, however, Aditya (or his father, if he remains in control)
must brace for a tough transition. The construction of Chinese
infrastructure has lifted the global intensity of steel use to levels not
seen since the postwar reconstruction of Europe and Japan ended in the
1970s. That golden period was followed by two decades of minimal growth in
global steel production - and dismal profits.
When China is built out, its steel demand should fall. Chinese producers, left
with spare capacity, would then be tempted to export into an already
well-supplied world. That implies another bad decade or two for the
industry. The two Mr Mittals should enjoy the relatively good times while
they last.
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