ArcelorMittal, victim or villain?

In order to answer these two questions, I decided to conduct a bit of research into the company. Permit me to start by a brief history of ArcelorMittal. The company was created aft er the takeover of western European steelmaker, Arcelor.by Indian-owned multi national steelmaker, Mittal Steel, in 2006, at a cost of approximately US$33 billion. Mittal Steel launched a hostile takeover bid that replaced a previous planned merger between Arcelor and Severstal, which had failed to garner shareholder approval. The merger of Arcelor and Severstal would have created a firm over three-ti mes larger than its nearest rival.However.the hostile takeover resulted in ArcelorMittal, which has been producing approximately 10 percent of the world’s steel, claiming the tille of being the world’s largest steel company.

This bold move positioned the Mitt al family as the largest single shareholder in ArcelorMitt al and earned Lakshmi Mitt al, Indian steel tycoon, the ti tle of “Business Person of 2006” from the Sunday Times. He was also named “Internati onal Newsmaker of the Year 2006”, by TIME Magazine as well as the “Person of the Year” by the Financial Times.

The tycoon’s net worth peaked at US$69.1 billion in 2008 which made him the third richest man in history. In 2011, he was hailed by Forbes as the sixth wealthiest person in the world. A year later, his rank dropped to #21 aft er his net worth sustained a massive decline of around US$10.4 billion; mainly due to share price depreciation and steep financial losses in the group’s world-wide operations.

ArcelorMitt al owns plants in 19 countries and significant investments in 60 others worldwide. It controlled assets of US$76.84 billion (approx TT$500 billion) in 2015 and revenue of US$63.57 billion (approx. TT$414 billion). The Luxembourg-based company has, however, continued to suffer significant losses from 2011 with net losses of US$7.9 billion in 2015.

Arising out of these significant losses, the group recently announced plans to raise US$3 billion through a rights issue from shareholders. The Mitt al family must therefore inject the value of US$1.1 billion from its personal wealth, in an attempt to give the Company some breathing room. Further, the group plans to sell a minority stake in Gestamp, the Spanish engineering group, for US$1 billion and to write down inventories by US$4.8 billion.

We have known for some time that the international steel market has been faced with depressed prices and falling demand compounded by a continuing glut and industry overcapacity. These worldwide conditions are driven by the economic and manufacturing downturn in China whose steel output is now far in excess of local demands and the outlet for which must now be the international steel market. This is compounded by the fact that the Chinese have been underselling its excess supply. The Chinese Companies are able to do so because their government has been subsidising production to enable their plants to operate, even if it does so while incurring losses. Though China has said that they would reduce their supply of steel on the market by 150 million tonnes over a 5 year period the pundits are saying that that is only half of what needs to be removed from the market.

A closer examination of ArcelorMittal’s fortunes revealed that its performance as the world’s largest steel maker became aff ected as worldwide demand began falling. In October 2011 the group announced some material cutbacks at its Liege faciliti es in Belgium in an att empt to deal with structural over-capacity. The management proposed a flexible work model to help the Company adapt to falling demands in the market, but this was rejected by the trade unions.

Having had no success with the unions and little support from the Belgium government the Group.according to Industry Week’s article published on January 24, 2013.closed six cold-pressing facilities in the Liege region of eastern Belgium hitting 1,300 jobs. It was also reported that the Belgian Prime Minister said that the decision was “incomprehensible” and that “he sided with the workers”.

These closures happened on the heels of the company already having been embroiled in controversy in France, due to the closure of two blast furnaces. Hundreds of jobs were lost as a direct result of this business decision. I would imagine that there were other negative fallouts from the decision. Further, between July and November 2015 the group closed down operating plants in Liberia and South Africa throwing over 1,800 employees on the “breadline”. In January 2016, the Briti sh Telegraph reported that ArcelorMitt al shut down its main Spanish plant and that the current international crisis in the steel industry had cost over 5,000 UK jobs.

Therefore, from 2011 until now the company has had to manage its affairs in light of the international threats to its global business and make tough decisions in a depressed economic climate and market conditions.

Indeed, ArcelorMitt al’s current fortunes are not unique. On a whole.global companies operating in the European business environment have had green levies added to their overall costs. It is expected that they will incur an extra €10 billion, based on the European Emissions Trading System. This will bring an increased business risk as they would have to carry disproportionate costs as against their competitors. In Germany a report from the IG Metall and their steel trade association claimed that political over-regulation and cheap imports would push plants away from the region.

But Europe is not the only place affected by this international phenomenon. Peter Brennan, a European editor for a steel industry data provider, was quoted in the Telegraph as saying: “ArcelorMitt al is the industry’s biggest producer by some distance so it’s quite likely it will be cutti ng capacity as the crisis goes on and could be looking at shutting down plants in the US. However, ArcelorMitt al is so large and important to several countries that it is seen as too big to fail.” Is Brennan’s statement one of prophecy or is he just being hopeful? The degree of importance of ArcelorMitt al’s operati ons in Trinidad certainly did not seem to place it in a “to big to fail” category. Or, to look at it another way, maybe none of the industry stakeholders, be they workers, trade unionists, government ministers or even the industrial court had the foresight to see the closure of the plant as a distinct possibility.not withstanding, that the signs were crystal clear.

The ArcelorMitt al group has clearly been struggling to survive, with the Mitt al family now having to pump billions of their personal wealth to keep the conglomerate afloat. This is what happens in any workplace society where its prices nose-dive and demand for products falls through the bott om of the bucket. It consolidates by closing plants terminating employees, and waiting for better economic conditions to re-emerge.

I have come to no conclusions here.but maybe you can, is ArcelorMitt al a victi m or a villain?