A turbulent year
The past year has been extraordinarily turbulent for the global steel industry. Indeed, the first six months of 2008 saw the continuation of a protracted period of growth in the global production of steel, sustained largely by high levels of demand in China and India (and masking falling demand in Western Europe and the US) and reflected in unparalleled increases in the global prices of iron ore and coking coal. However, in recent months the combined impact of the credit crunch and difficulties in securing lines of credit, the economic downturn, and the collapse of consumer confidence have meant that the fortunes of the steel industry have taken a dramatic turn for the worse, with global demand for steel falling rapidly, steel prices collapsing, and steel companies slashing production (for example ArcelorMittal, the world's largest steel company has cut steel production from between 30 and 50% for its various products in the 4th quarter of 2008).2 These turbulent times offer an important moment for reflection, particularly given the extraordinary transformation in the economic geographies of steel production over the last 3 years. Here, due to the limitations of space - but also reflecting our current research - we focus primarily on how changing economic fortunes are affecting two steel companies, Tata Steel (including its Anglo-Dutch subsidiary Corus) and ArcelorMittal. The organisation of these steel companies embodies shifting relations between the steel industry in Western Europe, and other parts of the Eurasian bloc (and particularly the Indian subcontinent and former Soviet states).
The changing economic geographies of steel production
The steel industry is no stranger to restructuring and reorganisation. The economic geography of steel making in Europe over the last 20 years, for example, has witnessed consolidation in the face of changing regulatory regimes and increasing global competition as formerly nationally-organised (often nationalized) companies merged to form transnational steel producers.3 For example Anglo-Dutch steelmaker Corus was created through the merger of British Steel and Koninklijke Hoogovens in 1999 or the formation of Arcelor through the merger of Arbed (Luxembourg), Aceralia (Spain) and Usinor (France) in 2002. However, the geographical reach, magnitude and origins of cross-border mergers and acquisitions in the steel industry have shifted fundamentally in the past 3 years. In particular, the high-profile and aggressive programme of acquisitions pursued by Indian entrepreneur Lakshmi Mittal that culminated in the hostile takeover of Arcelor in June 2006 to form the world's largest steel company, ArcelorMittal, alongside the takeover of Corus by Indian conglomerate Tata in April 2007 (an acquisition that catapulted Tata steel from 46th to 6th largest steel producer globally by volume), appeared to announce the arrival of India as a global steel power (although production in India currently accounts for a small proportion of Tata Steel's output and revenues and ArcelorMittal have no steel plants in the subcontinent). It ushered in a new era of consolidation in the industry (whose fragmentation is often contrasted with the dominance of the mining sector by 3 mining multinationals, BHP Billiton, Vale and Rio Tinto) and the emergence of the first truly ‘global' steel company in the form of ArcelorMittal, which operates plants in 14 different countries.4
The rise of ArcelorMittal and Tata Steel have been widely seen as evidence of a more general trend to transnational agglomeration and consolidation in the global steel industry. However, it is important not to overstate the extent of this consolidation. For example, the fragmentation of steel and continued existence of many small steel companies in China, despite government policies geared to rationalising steelmaking into large, world-class steel companies, like the Shanghai-based Baosteel, rather than pursuing overseas acquisitions or cross-border mergers, offers an important counter-example to excessive claims of consolidation. Moreover, the corporate strategies driving mergers and acquisitions differ significantly, with ArcelorMittal focusing on creating a single, unified corporate identity, while Tata envisions its merger with Corus as a marriage (their corporate literature describes the ethos of integration as ‘one enterprise, two entities') that also plays an important role in the conglomerate's strategies for vertical integration (for example in 2008 Tata acquired Jaguar and Land Rover, providing a captive market for some of Corus's UK steel production) . That said, these high-profile mergers and acquisitions - undertaken during an extended period of growth in the steel industry and at a time when credit was widely available - exemplify how new circuits of capital have become entangled with corporate strategies, international markets, state intervention and the activities of trade unions to produce new geographies of steel production. And as the global economic crisis has begun to bite these emerging economic geographies of steel will become more pronounced.
The credit crunch and economic crisis as catalysts for restructuring?
In Western Europe the privatisation of nationalised steel companies during the 1980s and 1990s, and the emerging need for steel companies to meet the expectations of capital markets, not only stimulated consolidation in the European steel industry, but also ushered in the market conditions under which the Mittal takeover of Arcelor and Tata's acquisition of Corus were made possible. Both takeovers ran into opposition, as anxieties about the future of steel production and employment in France, Luxembourg, the UK and Netherlands surfaced with the transferral of decision making overseas. However, while the global demand for steel remained high and credit remained cheap - Mittal's £13.7bn takeover of Arcelor and Tata's £6.7bn takeover of Corus were heavily financed by credit - concerns about the movement of steel production away from Western Europe to lower cost, greenfield sites near raw material deposits in ‘emerging economies' like India failed to materialise. Nevertheless, the need to reduce debt and respond to the global economic crisis has led to rapid reductions in outputs by both ArcelorMittal and Corus with both companies idling blast furnaces and reducing production by 30-50% from the last quarter of 2008 until at least March 2009, and seeking job cuts.5 Tata is even playing the Dutch and UK governments against each other to received state-support for employees while they are temporarily laid off work, and there are reports of UK unions negotiating pay cuts with Corus to avoid further job losses. While the long term impacts of the takeovers on the geographies of steel production are unclear, the economic crisis is already accelerating restructuring in ArcelorMittal and led to the mothballing of expansion projects in Eastern Europe and India. However, what is evident is that both ArcelorMittal and Tata steel are seeking to shift their production away from Western Europe. For example, both companies have projects to develop greenfield steel plants in the eastern states of Orissa and Jharkhand in India, to serve a domestic market where steel consumption per capita is currently low, but is expected to grow rapidly of the next 20 years.
Vertical integration One significant component of the trend to consolidation within the steel industry has been movements to vertical integration. This is particularly evident in the corporate strategies of the Tata conglomerate. For example, against the background of massive inflation in the prices of iron ore and coking coal over recent years, and the relative strength of a highly consolidating mining sector, Tata Steel has entered a series of joint ventures with mining multinationals in Australia and Mozambique as well as the state-owned mining interest, Sodemi, in the Côte d'Ivoire to enhance the raw material security of its European subsidiary Corus and meet the increased raw material consumption arising from the expansion of Tata Steel's plant in Jamshedpur. However, the price of raw materials has fallen dramatically in concert with the collapse of steel prices and cuts in production, putting the short term need for hedging against market volatility and securing inputs in question. But Tata is not alone in seeking raw material security. For example, the Chinese steel industry has been trying to gain control of iron ore resources on a global scale through investments in African countries, and by actively stymieing the mining multinational BHP Billiton's hostile takeover attempt of Rio Tinto at the height of the raw materials rush in the first half of 2008. The full impact of the collapse of the global demand for steel on both the mining sector (which is already undergoing massive restructuring following collapses in demand for coking coal and iron ore)6 and for steel companies strategies of vertical integration remain to be seen.
Downstream the Tata conglomerate is also heavily invested in the automotive industry that consumes a significant proportion of the global steel production. For example, in the Indian subcontinent Tata Motors has recently launched the Tata Nano - heralded as the world's cheapest car - while Tata also acquired Jaguar and Land Rover in the UK during 2008, providing an ‘internal' market for some of Corus's products. However, the motor industry has been particularly hit by the global economic crisis. Demand for new cars has dropped severely, leading to significant cuts in production, redundancies and threats of further job losses in the face of uncertainty over the extent of any bailout for the industry that might be offered by the US, UK or other governments. Tata's massive expansion in both the motor and steel industries in recent years leaves it particularly exposed during these uncertain times.
Steel communities
The global ambitions of ArcelorMittal and Tata Steel are reshaping steel communities both in traditional steelmaking regions of Western Europe and in emerging regions of steel production. In Corus, for example, while early fears about plant closures and jobs losses were allayed, it is apparent that the company has been under pressure to further increase productivity and improve its margins per tonne of steel produced. But more importantly, it is as the steel industry enters a period of decline that the local impacts of changing geographies of ownership and different corporate strategies are likely to be most keenly felt. This is already the case within Corus, as blast furnaces have been idled at Ijmuiden, Port Talbot and Scunthorpe to cut production, over 400 jobs have been lost in the UK through cutbacks in the company's distribution and tubes businesses, whilst the UK and Dutch governments are being enrolled to provide financial support to workers to prevent permanent layoffs, and trade unions are reportedly being placed under pressure to accept pay cuts of up to 10%.7
Alternatively, the changing economic geographies of steel production are also having significant impacts on communities in so-called emerging economies. For example, it appears that in the next decade eastern India (and particularly the states of Orissa and Jharkhand) will emerge as a significant steel producing platform on the back of massive investments in greenfield steel plants by companies including ArcelorMittal, Tata and POSCO. While the short-term impact of the global economic crisis on these projects is uncertain, these investments are driven by desires for raw material security and an assumption that steel consumption per capita in India will be following a similar trajectory to increases witnessed in China. But even at early stages of development these projects are running into strong resistance. Indeed, one of the threats to the rise of Eurasian steelmakers could come in the form of community protests against sometimes heavy-handed tactics in land acquisition for steel plants and raw material extraction. In India for instance, Tata and Mittal's projects in the state of Orissa have been held up by a combination of red tape and local Maoist guerrilla movements, as well as by attempts by Avidasi groups (a heterogeneous collective of ethnic and tribal groups that are indigenous minority in the subcontinent) to put a hold to projects seen as destructive of natural and cultural heritage and not benefitting the community economically and socially. In China, there are reports of grossly polluting steel plants in some communities, while the minerals extraction industry has taken its toll many times, just as it has in Russia or Mittal's mines in Kazakhstan. The point here is that communities may increasingly rebel against these approaches to developing the steel industry in a fast-paced, brutal way.
Conclusion: uncertain shift towards the East?
There is no denying that emerging transnational steel companies operating across Europe, former Soviet States, the Indian subcontinent and parts of South East Asia and those that gravitate around the latter (such as raw materials producers) have come a long way towards achieving global prominence in recent years. Gone are the days when they were considered second-tier players in the global steel industry... In terms of quality and reliability as suppliers, and not just on price, these companies compete with their Western European subsidiaries, as well as competitors from the US and Japan. Indeed, the process of integrating steel companies following the Tata and Mittal takeovers has been characterised by two-way traffic in knowledge transfer, and in the case of Tata Steel production units in the UK, Netherlands and India have already achieved significant improvements in performance through the synergies of integration and sharing of tacit knowledge about production processes.
However, there are some potential threats to the rise of these Eurasian players, not the least of which is the freeze on credit and the mounting stranglehold of debt, which is pushing Tata, after its heavily-leveraged buyout of Corus, to seek government subsidies in the UK and Netherlands. Mittal has been pursuing similar tactics in France.8 Likewise, Russian steel companies are marked by the shadow of heavy-handed Kremlin tactics and talks of unfair business conditions.9 In other terms, what the Eurasian companies have gained in competitiveness in the field of production per se, they may be losing in terms of image and goodwill, and this of course also applies to issues impacting local communities in their countries of origin. Another issue of concern is how things balance out between short-term profit and long term investments. Indeed, in the case of India for instance, the steel industry is plagued by l poor quality infrastructure, which means deliveries of finished products and raw materials are unreliable. Transportation infrastructure, be it by road or rail freight, is not up to the task, and the required investments are too heavy for the national and regional/local governments. This was illustrated, for instance, by repeated tinkering on the part of Indian Railways with ore freight charges, and a general lack of haulage capacity or reliability10, translating into heavy financial, but also credibility, losses. On top of this, bureaucracy, and its fragmentation between federal and local levels, worsens the situation.11 Similar concerns are raised in Russia in the case of the oil industry where recent boom conditions masked insufficient investment in equipment and transportation.
The emerging global prominence of steel companies operating across Eurasia, and the projected growth of steel production in countries like India, do not signify the demise of the steel industry in Western Europe. Here steel companies have been and continue to invest heavily in increasing productivity, but also enhancing environmental protection and production efficiency, through programmes like the EU-sponsored ULCOS (Ultra-Low CO2 Steelmaking) project. While these companies cannot always compete on price, they are competitive in terms of logistics, product quality, innovation, and customer services. This last point reminds us of the importance of proximity to customers in this market, at least for the most demanding steel grades and applications.
Moreover, it is also worth emphasising the need to distinguish between countries and companies within this internally heterogeneous Eurasian bloc: China is not India, which is not Russia or Turkey. These countries' cultures, government policies and financial markets all play crucial roles, and therefore they will not be all necessarily winners in the new era of steel that is dawning after the credit crunch, and beyond.

Dr Dan Swanton and Dr Fionn MacKillop are Senior Postdoctoral Research Associates in the Department of Geography, Durham University, working on the ESRC funded ‘The Waste of the World' programme (ESRC RES 000-23-0007). Professor Ray Hudson is a Pro-Vice Chancellor at Durham University and a member of the Wolfson Research Institute and Department of Geography. He is also an investigator on ‘The Waste of the World' programme.
Steel Times International, November/December 2008, Vol. 32: 8, p.4;
Dawley, S., Stenning, A., Pike, A. (2008). ‘Mapping corporations, connecting communities: remaking steel geographies in Northern England and Southern Poland', European Urban and Regional Studies, 15: 265-287. See also Hudson, R. (2002). ‘Changing industrial production systems and Regional development in the New Europe', Transactions of the Institute of British Geographers, 20: 262-281.
While mergers and acquisitions involving Mittal Steel and Tata Steel have been especially conspicuous other steel makers have been aggressively growing their share of global steel production. For example, Russian steel maker Severstal has emerged as a global player through a series of mergers and acquisitions in Europe and the US; Brazilian steelmaker CSN was involved in a bidding war with Tata for Corus; while South Korean steel company POSCO (currently 4th largest steel maker by volume) has begun investing in steel production overseas, most notably in Orissa, India.
Sluggish demand forces us to pause: ArcelorMittal' (Asian news International, 3rd December 2008); ‘ArcelorMittal eyeing 1400 voluntary job cuts in France' (Dow Jones Newswires, 1st December 2008)
For example, the Anglo-Australian mining multinational is cutting 14,000 jobs (10% of its global workforce) and shelving $5bn of new projects in cut backs designed to reduce the company's debt burden by $10bn, all forced by the global economic crisis (The Guardian, December 11th 2008).
Tata to seek state aid to save Corus jobs' (Financial Times, " December 2008); ‘Corus union deny pay cut story', (The Guardian, 11th December 2008)
Gandrange: Mittal confirme la fermeture', Lexpress.fr, 2 April 2008. Mittal obtained assurances from the French government that subsidies would be available, whilst refusing to consider union proposals for alternative investment strategies instead of closing the Gandrange plant down.
Mechel pays for its ‘aggressive' prices, analysts suggest, Steel Business Briefing, 28 August 2008.
Indian Railways iron ore classification worries steel mills', SteelGuru.com, 12 December 2008.
Indian ore miners say export duty imperils new investments' (Steel Business Briefing, 18th June 2008).