SIGNAPORE â€“ Posco Ltd. is considering expanding its strategic partnership with Nippon Steel Corp., Tokyo, in what appears to be the latest move by north Asian steelmakers to protect themselves against any future hostile takeover bids.
The Seoul, South Korea,-based steelmaker might expand its existing cooperation with Nippon Steel, a spokesman said after a Japanese newspaper reported that the two companies could work more closely on raw materials purchasing and increase their cross-shareholdings.
Japanâ€™s Nihon Keizai newspaper reported Tuesday that the two companies had set up several joint project teams to look at ways of bolstering their alliance, citing unnamed Nippon Steel executives. The companies might work together to develop mines in Australia and cooperate on transporting raw materials, including iron ore, it said, without providing further details.
The Posco spokesman declined further comment, while Nippon Steel executives couldnâ€™t be reached.
Nippon Steel and Posco also have been discussing expainding their cross-shareholdings, the newspaper report said, Nippon Steel owns slightly more thatn 3 percent of Posco, while Posco owns about 2 percent of the Japanese company. The talks could result in the shareholdings rising by 1 to 2 percent, Nihon Keizai said.
The merger of Arcelor SA, Luxembourg, and Mittal Steel Co. NV, Rotterdam, is believed to have deeply concerned top executives at Posco, Nippon Steel and other leading Asian steelmakers, who fear it makes them more vulnerable to takeover bids. Nippon Steel, Sumitomo Metal Industries Ltd., Osaka, and Kobe Steel Ltd., Kobe, strengthened an existing anti-takeover alliance earlier this year in what was widely seen as a reaction to Mittalâ€™s bid for Arcelor.
American Metal Market
Wednesday, September 6, 2006
Volume 114, Number 35-2, P.6
Metals Run Hot
METALS mania could push the Australian dollar above US80c, analysts have predicted.
But the recent rise in prices, caused by a huge influx of speculative funds, have also sounded warning bells, with fears the sharp increases are unjustified. Base metals ended another frenzied session in London at near-record highs on Thursday night.
At their peaks for the day, copper rose 9 per cent to $8800 a tonne, zinc was up 8.5 per cent to $3970, while aluminium gained 6.9 per cent to a record $3310.
Speculative buying also pushed precious metals higher, with gold hitting $US726 an ounce. It was trading at $US718.90 late yesterday. And the frenetic buying continued in Asia, where copper and aluminium futures hit record highs. In early London trade last night, copper fell 1.5 per centâ€”its first setback in four days. The rush for metals pushed the Australian dollar up 0.56c to US77.69c, an 11-month high.
In a report this week, Citigroup said levels above US80c were achievable in the next 12 to 18 months. Commsec chief equities economist Craig James predicted that could happen in the next few weeks if the rise in metals continued. But the unsettled conditions caused by manic speculative buying have analysts concerned.
National Australia Bank analyst Gerard Burg said the level of metals prices was worrying, with no justification for the increases. He said price rises were based on speculation, fuelled by concerns about supply constraints.
Angus MacMillan, minerals strategist at London-based Bache Financial, said: â€œIt is becoming a very dangerous situation. The further up it goes, the more dramatic the reaction will be.â€?
â€œThe (London Metals Exchange) has to run markets that are orderly and liquidâ€”these markets appear to be neither.â€?
Copper and zinc prices have doubled this year as investment funds bet on rising prices caused by a shortage of supply. The price of gold is up 68 per cent in the past 12 months, with analysts predicting it could break through the record $US850 an ounce set in January 1980 within the next 18 months.
Independent analyst Peter Strachan, the author of StockAnalysis, said the resources sector was suffering from a lack of investment in exploration and infrastructure. â€œItâ€™s really come home to roost,â€? he said. But he warned the current boom could have disastrous consequences and would not rule out a crash on the scale of the October 1987 sharemarket meltdown. â€œThe markets for these commodities are now very strongly in the hands of hedge funds and speculative funds,â€? he said. â€œI think it will all end in tears.â€?
Australia is one of the worldâ€™s largest producers of natural resources. When the prices of commodities such as coal, iron ore, copper and gold rise, the value of our exports increases, which in turn gives the Australian dollar a boost. The stronger Australian dollar has the potential to cut the profits of Australian resource producers because their products are sold in US dollars. But Citigroup said the dollar would need to rise significantly before it eroded the stimulatory effect of high commodities prices on company profits.
Resources stocks had a mixed day yesterday, torn between profit taking and the metal price rises.
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Zonneveldt, M. (2006). Metals run hot. Retrieved May 12, 2006, from http://www.heraldsun.news.com.au/common/story_page/0,5478,19115271%255E664,00.html
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