Iron ore majors ramp up supply even as China faces challenges
Iron ore is one of the year’s worst performing major commodities, slumping by almost a quarter as China’s property crisis drags on.
ArcelorMittal (NYSE: MT) has agreed to buy Brazilian steelmaker Companhia Siderurgica do Pecem (CSP) from Vale (NYSE: VALE) and South Korea’s Dongkuk and Posco for $2.2 billion.
The deal gives ArcelorMittal, itself created through one of steel industry’s biggest ever takeovers, CSP’s installed capacity of 3 million tonnes a year of steel slabs.
Analysts backed the transaction, with Bloomberg Intelligence metals analyst Grant Sporre saying the price ArcelorMittal will pay was “very competitive”. He added that the build cost of “such a cost-competitive” facility would likely be higher than the $2.2 billion acquisition price.
The market didn’t seem to agree, as shares in ArcelorMittal, the world’s second-largest steelmaker, fell 1.7% in early trading in New York to $23.14 a piece. They recovered slightly mid-afternoon at $23.50 each.
“In CSP, we are acquiring a modern, efficient, established and profitable business which further enhances our position in Brazil and adds immediate value to ArcelorMittal,” the steelmaker’s chief executive, Aditya Mittal, said in the statement.
He noted the buy will Allow for further expansions, such as the option to add primary steelmaking capacity (including direct reduced iron) and rolling and finishing capacity.
Founded in 2008, CSP is located in the northeastern Brazilian state of Ceará. It began operations in 2016 and required an investment of $5.4 billion.
The deal comes as ArcelorMittal posted second-quarter profit in line with analyst expectations and announced a new share buyback of $1.4 billion.
Second-quarter earnings before interest, taxes, depreciation and amortization were $5.2 billion.
The Luxembourg-based company did not give a specific forecast, but highlighted threats from spiralling inflation, the war in Ukraine and China’s covid-19 restrictions.
(With files from Bloomberg)
