The Turnaround of Ispat Karmet

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Introduction

By 1996, L N Mittal (Mittal), chairman Ispat International, had come a long way from a wire rod manufacturer with a single plant in Indonesia in 1976 to being the owner of a steel company with a market capitalization of roughly $3 billion and net sales of $2.7 billion. This impressive growth, which had attracted media attention all over the world, had been driven by a series of acquisitions in Mexico, Canada, Trinidad, Germany and Ireland between 1992 and 1996. Most of these acquisitions followed a similar pattern. As governments around the world privatised their steel industries, Ispat bought underperforming mills at bargain prices, maximized production, and upgraded the product mix.

A major reason behind Mittal's success had been his anticipation that the price of steel scrap, the main raw material for mini-mills, would rise as more mini-mills were constructed. He had therefore invested in a substitute for scrap known as direct-reduced iron (DRI), and was soon producing more of it than any one else. DRI cost about $95 a tonne in 1996, compared with $155 a tonne for the high-quality scrap that mini-mills mostly used, and $125 a tonne for the pig-iron used to make steel in blast furnaces.

Mittal had developed a tremendous reputation as a turnaround artist. His turnaround strategy revolved around cutting purchase costs, laying off workers and making necessary investments to eliminate production bottlenecks. In addition to the quality of technology and management, Ispat's geographical spread enabled Mittal, as soon as he acquired a firm, to redirect sales and purchasing internationally in order to strike the best deals. Analysts believed that Mittal had a remarkable eye for a bargain and had figured out the art of turning around rundown steel mills. Also, he was willing to walk away from a deal if the price was not right...

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