""There is, however, the possibility that investors are betting the company could become the subject of corporate activity.
Tata Steel is viewed by some observers as a possible buyer with the highly acquisitive Indian company said to be looking to raise its borrowing levels in Mumbai.
There is an industrial logic to the deal. But it should be noted there are also plenty of factors that suggest the speculation is off the mark. Tata has its hands full fixing problems at the Corus Steel assets it acquired through a hotly contested bidding process in the United Kingdom in 2008.
The company also needs debt financing to complete its expansion to 10 million tonnes a year within India.
Still it has a comfortable balance sheet compared with many of its struggling steelmaker compatriots and Indian demand continues to grow with the country still a net importer of steel.
Any tilt at OneSteel would require firm conviction in management’s promise that it has made enough capacity cuts in its Australian steel production and distribution business.
Buying OneSteel’s 6 million tonne a year iron ore export operations, which will double to 12 million tonnes by next year, would still be cheap at current levels. But any buyer would need to have enough cash up their sleeve to either pay to close the blast furnace at Whyalla and the electric arc furnaces at Sydney and Laverton or enough faith in the long term prospects of developed world steel industry to keep them running at today’s slim margins.
OST Price at posting:
$1.15 Sentiment: ST Buy Disclosure: Held
