34 <strong>Arcelor</strong> <strong>Mittal</strong> <strong>Activity</strong> <strong>Report</strong> <strong>2006</strong>Company Profileand Global Business StrategycontinuedThe Group is now in a unique position to builda sustainable model for the future and becomethe benchmark for the global steel industry.<strong>Arcelor</strong> <strong>Mittal</strong> is leading theconsolidation process in the worldsteel industry. With a reputationfor producing high-quality steel productsfor the most demanding applications,the Group benefits from a strong marketposition with high-end customers.
<strong>Arcelor</strong> <strong>Mittal</strong> <strong>Activity</strong> <strong>Report</strong> <strong>2006</strong> 35Key strategic initiativesDelivering planned merger synergies andachieving full organisational integrationThe major focus of activity in the shortto medium term is on capturing plannedmerger synergies worth US$1.6 billiona year by 2008. Those synergies arisein three principal areas: manufacturingand process optimisation, marketingand trading, and purchasing. Quick wins arealready evident from cross-selling, betterlogistics, exchange of expertise and bestpractice, and increased internal sourcingof slabs and semi-finished products.Synergy targets allocated to eachbusiness segment have been validatedon a bottom-up basis by integrationtaskforces and incorporated in 2007budgets. Around three-quarters of the 2008target is already covered by action plans.Taskforces and business units are finalisingmilestones and plans for the remainder.Integration is on schedule. A new,deliberately flat organisational structurehas been in place since December <strong>2006</strong>.Human Resources policies are beingfinalised and implemented. The integrationprocess is expected to be 80% completeby the end of the second quarter of 2007.The new structure will then be reviewedand modifications made if necessaryto ensure it delivers the desired objective:a global but lean organisation andhomogeneous design between entities.Capturing market growth potentialin developing countriesThe steel markets of Central and EasternEurope (CEE) are forecast to grow atcompound annual growth rates rangingbetween 4.6% and 6.7% over the nextfour years as per capita consumptionof steel accelerates from current low levels.To capture that growth, the Group plansboth to leverage its strong asset basein the region and fast-track the expansionof <strong>Arcelor</strong> <strong>Mittal</strong> Steel Services andSolutions (AM3S), its distribution andservice centres business.A major investment programme to expandthe company’s low-cost operations inemerging markets is underway (see below).In addition, since the merger, <strong>Arcelor</strong> <strong>Mittal</strong>has announced a number of new initiatives:• The US$1.4 billion acquisitionof Sicartsa, the leading Mexican longsteel producer with annual productionof around 2.7 million tonnes.The combination of Sicartsa with<strong>Arcelor</strong> <strong>Mittal</strong>’s existing Mexicanbusiness, Lázaro Cárdenas, offerssignificant synergy potential and theopportunity to leverage the Group’sexpertise in value-added products.• The signing of a Memorandum ofUnderstanding to build a 12 milliontonne capacity greenfield steel plantin Orissa, India.• A joint venture with the Bin JarallahGroup of companies to constructa state-of-the-art seamless tube millat Jubail Industrial City in SaudiArabia. The mill will have a capacityof 500,000 tonnes a year.A US$1 billion investment programmeat the CEE mills aimed at enhancingproduct quality and mix, and improvingefficiency and productivity, is well advanced.Not only will this position help <strong>Arcelor</strong> <strong>Mittal</strong>to satisfy rising demand born of strongGDP growth in these countries butit will enable the company to meetthe anticipated trend towards moresophisticated products – as, for instance,auto manufacturers increasingly shiftproduction from Western to Eastern Europe.The biggest element of the investmentprogramme is in Poland, where themodernisation of a wire rod mill andthe construction of a new colour coatingline were completed in <strong>2006</strong>. A newcontinuous casting line is due to becommissioned in the first quarter of 2007.A new hot strip mill will be commissionedin the second quarter of the year.The second element of the plan – tofast-track the expansion of AM3S in CEEcountries – will be achieved through a mixof downstream integration, organic growthand acquisitions. AM3S’s combination ofdistribution and service centres will delivernew commercial reach to complementthe Group’s strong production base in theregion. The initial focus of expansion will bethe Polish market, where AM3S will targetthe hot rolled and cold rolled sheet market(which is expected to grow by 20% over theperiod to 2010) and expand its distributionof long products and tubes.Consolidating leading position in high-endsegments in mature economies to builda global customer platformWith a reputation for producing high-qualitysteel products for the most demandingapplications, the Group benefits froma strong market position with high-endcustomers. As a consequence of themerger, it now enjoys a leading positionin the mature economies of North Americaand Western Europe.Many customers in the automotive,electrical and appliance manufacturingindustries are becoming increasingly globalin their activities. As such, they valuea supplier that is capable of deliveringthe same products everywhere.Automotive manufacturers, for example,can significantly reduce the cost ofdeveloping moulds if they can use globallythe same grades of steel in all their plants.With the company’s much expandedpresence in developing economies,there is a strong platform from whichto support customers in their worldwideproduct development programmes.As local market needs change, <strong>Arcelor</strong><strong>Mittal</strong> will increasingly transfer the capabilityfor manufacturing high-end products toits operations in the developing economies.Expansion of low-cost facilitiesin emerging marketsFacilities in Brazil, Mexico, South Africa,Ukraine and Kazakhstan rank amongthe most cost-competitive in worldsteelmaking, benefiting from low energyand labour costs and privileged access toraw materials. The brownfield expansionof all these operations – at relativelylow cost – is planned to lift productionby approximately 9.5 million tonnesa year by 2008.In Brazil, CST, the world’s largest supplierof slab steel, is engaged in an expansionprogramme that will lift capacity by2.5 million tonnes a year. This followsa major increase in capacity in <strong>2006</strong>.In South Africa, upstream expansionat both the Newcastle and Vanderbijlparkfacilities is set to provide an additional2 million tonnes of liquid steel productionover the next two to three years, to bedirected equally towards flat and long steelapplications. At Newcastle, this will beachieved through a reline of Blast FurnaceN5 and increased scrap melting capacity.At Vanderbijlpark, projects includethe reline of Blast Furnace D, additionalDRI capacity and the installation of anadditional sinter strand.Highlights of the expansion at Kryviy Rih,in Ukraine, are a US$90 million investmentin a new billet caster and wire rod millupgrade. These investments together withmining de-bottlenecking will allow capacityto increase from 7 million tonnes to 10million tonnes. Around 450,000 tonnesof long product output will be upgradedto value-added rod and bar. In Kazakhstan,major investments in the upstreamoperations were completed last year.De-bottlenecking work continues to allowthe plant to take maximum advantageof adjacent captive iron ore and coal.Further investments are planned in newcoating facilities, a new billet caster anda bar mill. Total production from Kazakhstanis set to rise from around 5 million tonnesa year to 6.5 million tonnes by 2008.The product mix will benefit from anadditional 570,000 tonnes of cold rolledcoil, 130,000 tonnes of galvanised,160,000 tonnes of tin plate and 80,000tonnes of colour-coated.Capturing growth in sub-Saharan Africa<strong>Arcelor</strong> <strong>Mittal</strong> continues to look atopportunities to build on its marketleadership on the African continentto capture anticipated growth in steeldemand in sub-Saharan Africa. In particular,the Group will investigate the scopeto establish a presence in East Africawhere it could leverage upstreamcapabilities by installing local rolling millfacilities. These would be fed with semisproduced at the company’s plant in Ukraine.Enhancing Research and Developmentleadership to drive innovation and growthWith 13 major research centres inEurope, the US and Canada, <strong>Arcelor</strong><strong>Mittal</strong> possesses an R&D capability uniquein the steel industry. The Group willcontinue to invest in R&D to continuouslydeliver the high-end products keycustomers require.
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