JOHANNESBURG (Business Day) -- What a relief to have confirmation that Indian conglomerate Tata is looking at making a bid for Highveld Steel - or at least the steel part of Highveld, if not the vanadium side.
The prospect of Highveld [Nasdaq:HSVLY] getting together with the former Iscor, now Mittal Steel [NYSE:MT], is not a particularly comfortable one given that it would give an already dominant producer a near-stranglehold on South Africa's steel market. But until now, the UK-based Mittal group had been the only bidder on the horizon, since Anglo American [Nasdaq:AAUK] indicated a few weeks ago that it was keen to sell its controlling stake in Highveld.
It is possible that further interested parties will emerge to join Tata and Mittal in the race. There has been speculation, for example, about Xstrata, which is the world's second-largest vanadium producer after Highveld. Until any or all of these companies have put in offers, it's too early to talk about what might be for Highveld itself, its shareholders, or South Africa's steel industry. But Anglo American has long regarded Highveld as noncore and is clearly keen to sell at this high point in the cycle. And we don't want to see it accept a Mittal offer just because there is no other.
South Africa needs more competition in its steel sector, not less. Ideally, it could do with another player with the clout to give Mittal a go. That is most likely to be a foreign company. It's hard to imagine that such a player would be a domestic one. It surely would make some sense, though, to look at the potential to consolidate Highveld's steel interests with those of the other smaller South African steel producers in the market - one of which is Anglo's own Scaw - to form a more substantial entity.
The trouble is that in an industry where one player is as dominant as Mittal is, all smaller players have to do to make a good living is ride along, setting prices just a little below what the big fellow does. So they may not be tempted to complain or intervene even if Mittal proposes to take over Highveld to form a player that is even more dominant.
And though government has flagged the issue of import parity pricing in the steel industry as a problem, one it's discussing with Mittal, it might not necessarily intervene either. True, even though there is some overlap, Mittal and Highveld tend to focus on different steel products. And Mittal does plan to invest in expanding its South African steel production significantly.
But there would be serious competition concerns raised if it bid for Highveld, so with luck we will at least see some good rival offers.
