Full Text Of Lakshmi Mittal's Speech To Cbi Conference 2006

Good afternoon Ladies and Gentlemen.

It is my pleasure to be with you here today at this annual CBI conference. As Richard has said, he and I will be having a more informal discussion on some topical issues relevant to this gathering. By way of introduction to this conversation, I would first like to take a few minutes to share with you some thoughts about my own industry: steel.

Steel has scarcely been out of the business news this year. The companies dominating the headlines may change but the theme is constant: Consolidation. Even as we speak there is a new battle underway with the target none other than the former British Steel, Corus.

Today steel is a consolidating and globalising industry and I have been one of the biggest proponents of this. When I started my company in 1976, the landscape could not have been more different. Steel was a strategic industry, a badge of pride worn by each nation - albeit usually a rather unprofitable one. It was not run with a commercial focus, being focussed more on maintaining production levels than profits. Indeed many of the companies I acquired through privatisation during the 1990's were in a precarious financial position, often on the verge of bankruptcy.

No business can be sustainable on these terms as the severe downturn of 2001 demonstrated. During that downturn 40% of domestic steel-making capacity in the United States alone went into Chapter 11. It was the worst crisis the industry had suffered, which sounded a very loud warning bell. Without a significant restructuring the industry could not survive.

Where the steel industry is concerned, I have never had any doubts that globalisation is the right way forward and indeed the only way the industry can survive and re-invent itself as profitable and sustainable through the cycles. At the core of the industry's problems has been an inability to effectively manage supply and demand, leading to massive volatility and cyclicality. This fundamental issue could never be addressed against the backdrop of a fragmented industry, where both our major suppliers and customers were much more consolidated than steel.

Furthermore, steel is a global product. As such there are very sound operational reasons, not to mention financial synergies, for operating a global business model. For example the very same customers Mittal Steel produced for in the United States, Arcelor - the company we recently merged with - produced for in Europe.

The industry has also proved in recent years that it not only has considerable earnings power, but also very respectable margins by any industry's standards. Now the challenge must be to demonstrate that this can be sustainable through the cycles.

The steel industry will always suffer from some degree of cyclicality, but I see no reason why this cannot be reduced to more manageable levels, provided the industry keeps up the current momentum of moving forward with consolidation.

China of course has a big role to play in this. As they largest producer and consumer of steel, it must also be part of the consolidation process if we are to have any long-term success in creating a more stable operating environment. China today has around several hundred steel companies. Reassuringly though the Chinese Government has announced ambitious plans to consolidate its industry, with the target being to create national champions, each with a 20-30 million ton capacity, at the expense of smaller companies. It is important that a large step in this direction be achieved.

The strategy of Mittal Steel has always been to build a global business model leveraging operational and financial synergies across the globe to create a more sustainable company operating in a more sustainable sector. Our recent merger with Arcelor has enabled us to take another large step towards achieving this.

Consolidation and globalisation must continue to be the dominant industry trends of the future. Against a good economic backdrop the industry now has a real opportunity to demonstrate that it can build a healthy and sustainable model, with considerable benefits for all stakeholders. Clearly there are challenges ahead but we have a much larger chance today of achieving this than was the situation ten years ago.

I now look forward to continuing the discussion with Richard.

Thank you very much.