Steel prices seen shrugging off Corus deal
By Michael Shields, European Auto and Steel Correspondent
FRANKFURT (Reuters) - Tata Steel's blockbuster deal to buy Corus Group for $12 billion (6.2 billion pounds) won't have more than psychological impact on steel prices despite the latest step forward in the sector's merger wave, analysts said.
"It's not likely to change things. There is not much overlap or material moving from one place to another," Peter Fish, managing director of British-based steel consultancy MEPS, said.
Corus officials stressed in a conference call with reporters that the deal on Wednesday to create the world's fifth-biggest steelmaker was about growth, not closing mills or cutting jobs, a key reason why no impact is expected in steel prices.
Tata Steel also trumpeted how the purchase -- clinched in an overnight auction that pitted the Indian group against Brazil's CSN -- provided an extra 19 million tonnes of manufacturing capacity at half the cost of building new plants.
That deal triples Tata's annual manufacturing capacity to almost 28 million tonnes, still dwarfed by Arcelor Mittal , which makes more than 100 million tonnes a year.
"It's so small that it won't have a significant impact," said one steel sector consultant who asked not to be named, given his ties to a company involved in the deal.
"If you look at the geographical distribution there is no overlap," he added. "It won't really give one or the other more pricing power in their home market."
In the medium-to-long term, however, the transaction shows how steelmakers are bulking up as a way to win more power to set prices for big customers in the construction, automotive and white goods sectors.
End-customers -- and the three major iron ore companies that supply this crucial raw material -- are far more consolidated than the steelmakers themselves squeezed in the middle.
But led by Mittal and Arcelor -- companies built up by consolidation in the sector so far -- producers have shown of late that they have the discpline to cut output when demand is weak and thus help defend prices from collapse.
"Tata Steel's victory is a clear positive for the European sector in our view, said Sylvain Brunet, head of steel and mining at Exane BNP Paribas.
"With such an amount of debt on its balance sheet we would expect Tata Steel-Corus to make every effort to participate in production discipline in the sector and fight imports from Asia," he added.
After peaking last year, steel prices have slipped amid Asian imports to North America and Europe that offset production discipline by local manufacturers.
Well placed by control of their own raw material supplies and a series of overseas share listings, Russian steelmakers are also waiting in the wings to push consolidation forward.
And CSN is still on the hunt after its efforts to buy Corus and U.S. group Wheeling-Pittsburgh Corp were thwarted.
"CSN must have a bagful of money just waiting to spend," Fish said, suggesting it was mostly likely to eye targets in Europe, South America or the United States.
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