ArcelorMittal sees obstacles in China expansion

By Daryl Loo

SINGAPORE (Reuters) - ArcelorMittal (ISPA.AS), the world's top steelmaker, said on Monday emerging markets will continue to drive global demand for steel, but it faces obstacles in China where it wants to expand through acquisitions.

Lakshmi Mittal, chairman and chief executive of the firm, said he expects the steel industry to grow at a rate of 3 to 5 percent per year despite the ongoing credit crisis, thanks to demand from markets such as Brazil, India, Eastern Europe, and China.

"The fourth quarter prices will be sustained as the demand is good, and prices have gone up. And if prices are soft in some markets, ArcelorMittal plans to cut volume," Mittal told Reuters on the sidelines of the Forbes conference in Singapore.

But Mittal also highlighted the problems his company is facing in China, where it tried to take over steel firm China Oriental (0581.HK) last year, but had to pull back to a 47 percent stake as the Chinese government restricts ownership in steel assets.

"I wish China would let us do more. We tried to expand by acquiring more in China, but so far have not been lucky enough, said Mittal in a speech at the conference, where he accepted a lifetime achievement award.

Other steel-makers like Russia's Evraz Group (HK1q.L) also encountered similar problems. Evraz bought into Delong Holdings (DELO.SI), a Singapore-listed Chinese steelmaker, but cannot clinch the $1.5 billion acquisition without China's blessing.

"The Chinese government is not encouraging foreign investors to come in a big way. Now their priority is consolidating their own fragmented steel industry," said Mittal, adding that he expects more consolidation among Chinese steelmakers.

India-born Mittal, 58 and ranked the world's fourth-richest man by Forbes magazine, said the Indian government's inability to move as quickly as the Chinese has created a disadvantage for his company, even though he sees potential for growth in the future.

"The existing political system cannot move faster. It's actually the biggest disadvantage working in India, that things are slow and the government has not been prepared to carry out actively infrastructure development," he said.

SELF-SUFFICIENT

ArcelorMittal currently produces 45 percent of its own iron ore, and is targeting to grow this self-sufficiency to 75 percent in five years, Mittal said.

The company also wants to boost its own coal supply up to 60 percent over the same period, up from 50 percent currently.

"We implemented this model a couple of years back and it has really paid off," said Mittal, adding that he expects prices of coal to stay strong in the next 3 to 5 years, while iron ore prices will remain steady.

"We don't comment on any of our merger and acquisition activities," Mittal said, when asked about the company's interest in buying U.S. coal miner Alpha Natural Resources Inc (ANR.N) in a deal possibly worth $8.7 billion [nN01518855].

Mittal voiced his opposition to the potential merger of BHP Billiton (BLT.L) and Rio Tinto (RIO.AX) (RIO.L).

"The steel industry has to understand the implications of such a merger. And the steel industry believes at this time that this merger is not in the interest of the industry," he said.

"The industry will continue to follow it up with the regulatory bodies of the world."

BHP's bid for Rio includes a pre-condition that it must gain approval from regulators in Europe, the United States, Canada, Australia and South Africa before sending out offer documents to shareholders. It has said it expects those approvals by the end of the year.

(Reporting by Daryl Loo; Editing by Saeed Azhar and Andy Bruce)