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Why ArcelorMittal Is Focusing on Essar Steel

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ArcelorMittal

ArcelorMittal (MT) subsidiary ArcelorMittal India Private has bid to acquire Essar Steel. According to ArcelorMittal CEO Lakshmi Mittal, “Essar provides a compelling opportunity for ArcelorMittal to enter the high growth Indian steel market.”

Many steel industry observers see India as the next growth driver for global steel markets, as China’s steel appetite is perceived to have peaked. The Indian government also intends to triple the country’s steel production over the next decade. Recently, India surpassed Japan to become the world’s second-largest steel producer.

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Indian steel market

ArcelorMittal has made several attempts to gain a foothold in Indian steel markets. In the last decade, there have been reports of ArcelorMittal setting up a multibillion-dollar project in India. Previously, ArcelorMittal acquired a stake in Indian steelmaker Uttam Galva Steels. However, after nine years, the company exited its investments at a massive loss. The exit was planned to enable ArcelorMittal to bid for Essar Steel under Indian bankruptcy laws.

ArcelorMittal is even considering paying off Uttam Galva’s debt to strengthen its eligibility for Essar Steel. According to BloombergQuint, ArcelorMittal executive vice-president Brian Aranha said, “Our fundamental position is that we are eligible and in reality were never the promoters of these companies. So any discussion about repayment of any dues would be a gesture of goodwill.” Despite these efforts, ArcelorMittal’s bid for Essar Steel looks like it could be far from smooth.

Meanwhile, U.S. Steel Corporation (X), AK Steel (AKS), and Nucor (NUE) looked confident on US steel industry’s outlook during their 1Q18 earnings calls, despite uncertainty over Section 232 tariffs. Donald Trump’s Section 232 tariffs received an upvote from Berkshire Hathaway (BRK-B), as we’ll explore in the next and final article of this series.

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