Monday, September 12, 2005

Mittal Steel Group - Top Assets

According to a report in today's Business Day (see http://www.bday.co.za/articles/companies.aspx?ID=BD4A90557) Credit Suisse First Boston has ranked steelmaking operations in South Africa amongst the best assets in the Mittal Steel Group. The original article follows...

Mittal SA seen as ‘real jewel’ in group’s crown

INVESTMENT banking group Credit Suisse First Boston (CSFB) says the South African arm of the Mittal Steel group is among the best assets in the world number one steel maker’s portfolio.

The South African plants are among three “ultra-low-cost”, high-quality assets, according to the investment banking group’s initiation report on Mittal Steel last month.

The Newcastle plant in SA rates as the lowest-cost producer in the group at about $255 a ton of slab. The Vanderbijl- park plant is the third-cheapest producer at about $267 a ton. The global average slab cash cost is about $314 a ton.

“Within the Mittal Steel portfolio, we see some real jewels in the crown,” says the report, naming South African and operations in Kazakhstan, Mexico, Algeria and Romania, among others.

In addition to its low-cost structures, Mittal Steel SA rates among the top assets in the group also because it has a share of about 72% of the domestic market.

The global Mittal group has dominant domestic market shares in four other countries. These include Romania, Czech Republic, Poland and Kazakhstan.

CSFB says the South African operations also have significant room for expansion. The global Mittal group has about 13-million latest capacity of which 1,6-million tons resides in SA.

Mittal Steel SA has more than 7-million tons a year of steel-making capacity, and is expanding to about 9-million tons by 2007.

The South African operations are also considered good assets as they have a large amount of backward integration.

Mittal Steel SA produces much of its raw materials and enjoys a favourable iron-ore supply arrangement with Kumba Resources.

The South African operations, formerly Iscor, improved significantly after Mittal Steel gained majority control of the company last year.

CSFB says Mittal Steel has achieved a 26% productivity gain across its core facilities since the respective dates of acquisition, with the most notable increases coming from some of the emerging market acquisitions — Mexico, Kazakhstan, Romania and SA.

South Africa is also among the higher-risk operations in the group, however. This is due to currency volatility and political risk in the country, the report says.

The CSFB report is bullish about Mittal Steel and the global steel market. The brokerage initiated coverage with an “outperform” rating and a price target of $40 per American Depositary Receipt (ADR). The ADRs are currently trading at $29,25. It says Mittal Steel has some of the highest returns in the industry.

CSFB expects US steel prices to rise from the last quarter of the year, with prices in Europe increasing in the first quarter of next year. Prices in Asia would rise from the second quarter of next year, onwards, it says.

“With the upside risk of a full-blown steel market recovery into next year, we believe momentum within the sector should be strong through at least early next year,” CSFB says.

blogger@steelonthenet.com

0 Comments:

Post a Comment

<< Home