We’d never even have noticed the size of the opportunity that we had allowed to go by.
Lakshmi Mittal, however, didn’t sell the paddy fields. He decided to build a steel mill on them himself. No money? No problem! Back then the Indian government offered export loans equal to 85 per cent of the cost of the equipment and materials being exported. Mittal put together a deal where Indian export loans, plus some shares in the family company, plus some cash from a local partner, plus some more loans from an Indian bank in Singapore were somehow enough to make the whole thing float. He hadn’t quite separated himself from his family, but by starting out in an entirely different country, he was making the firmest possible statement of his independence.
He used the funds to build a mini-mill, a term which rather understates the scale of the enterprise involved. A modern integrated steel mill handles everything. It takes raw iron ore, melts it down in a blast furnace, extracts the now liquid iron, then starts to adjust the chemistry: removing impurities, controlling the carbon, adding alloying materials as required. Only then can the molten steel be formed into blooms, ingots, slabs and sheet. The scale of enterprise required to manage these things efficiently is colossal. A ‘small’ integrated mill will produce two million tonnes a year. A large one can produce as many as fifteen million.
Only when judged against these gargantuan standards is there anything ‘mini’ about a mini-mill, which are typically around one-tenth the size of their integrated cousins. The heart of the mini-mill’s method is to cut the raw iron ore out of the process altogether. Instead of the whole cumbersome process of melting metal out of rock, the mini-mill relies on the steel industry’s version of the ready-meal: a mixture of scrap metal and direct-reduced iron (a form of the metal which is about 90 per cent pure).
In mid-1970s Indonesia, this technology made perfect sense. Mittal couldn’t afford – and the market couldn’t sustain – a five million tonne monster plant. What’s more, at the time, the Indonesian market was dominated by Japanese companies importing steel from overseas. There was no domestic production at all and when Mittal did his sums, he realized that he could achieve a cost advantage of as much as 50 per cent.
Building the mill took two years. In its first year of operation, the plant made 26,000 tonnes of steel, which brought in revenues of $10 million. The plant made $1 million in profit. But profit and riches is not the same thing. Banks had to be paid. Further capital investment was scheduled. Mittal – by now a father – was paying himself just $250 a month. His car was second-hand and he worked all hours of the clock. But he had his steel plant and it was doing well. By the end of the 1980s, production had grown to 330,000 tonnes. Lakshmi Mittal was 39.
Again, life brought to the still young Mittal another tantalizing moment of opportunity, a sweet intersection of character and risk. It was a moment that you or I would probably not have noticed. If you’ve built one successful steel plant – and let’s face it, most of us haven’t – then the temptation would surely be to do the same again, and then again, and then maybe again. If Mittal had been in the business of talking to life coaches that presumably would have been the life-plan he’d have evolved. Mittal could’ve looked forward to a prospect of extraordinary success. He’d create and operate multiple plants as well as being the first Indian ever to have manufactured steel overseas. He’d be a hero.
However, Mittal didn’t want it. As he saw it, building steel plants from scratch was slow. Why build them, when you could buy them? The trouble was, in the world of steel, Mittal was still a very small player. His funds were meagre. He had no government or major institution backing him. He had no technological edge, no breakthrough invention, no special access to raw materials. But if you’ve already done the impossible once, you’re not that daunted by the idea of doing it again.
In the West Indies, the state-owned Iron and Steel Co. of Trinidad and Tobago (ISCOTT) was going bust and Mittal reckoned he could fix it. He promised the government that he would turn losses of $10 million a month into profits of the same amount. There was only one condition: if he did as he promised, then he’d win the right to buy the company.
The government agreed. Mittal fired the team of sixty German managers who had been running the plant, and brought in sixty Indians instead, thereby cutting the wage bill by almost $20 million a year. He slashed other costs and ramped up production. In just four years, by 1993, production had more than doubled and Mittal bought the company.
Which was his second, not first, major purchase, because in 1991 Mittal had gone to see a government-owned steel plant in Mexico. A plant running at 25 per cent capacity and losing $1 million a day. A year later, in 1992, he bought it.
In 1994, he bought Canada’s Sidbec-Dosco.
In 1995, he gobbled up Hamburger Stahlwerke and created a shipping company to handle the group’s increasingly global transport logistics.
In the same year, he also bought the Karmet Steel Mill in Temirtau (‘Iron Mountain’), Kazakhstan. This was a massive plant, one of the world’s biggest. Built by forced labour and prisoners of war in the evil old days of the Soviet Union, the plant was on an almost inconceivable scale. It boasted 1.5 billion tonnes of coal in its own reserves, 1.7 billion tonnes of its own iron ore and its own 435 megawatt power station. It was also, needless to say, a financial basketcase in a country whose economy faced massive issues of its own.
It’s hard to overstate how extraordinary all this is. The speed of it. The total lack of concern for geographical or political boundary. The confidence of it: the willingness to take on a Mexican business that was losing a million dollars a day. The willingness to acquire a huge, crumbling, loss-making empire in Kazakhstan, certain that the thing is fixable and that you’re the right person to fix it.
In this welter of extraordinaries, a few particular points are worth picking out.
First, the extraordinarily successful execution. The Kazakh plant in particular constituted an utterly unprecedented scale of industrial challenge. Take, for example, what is usually a fairly routine aspect of a company’s business: paying the workers. When Mittal bought the plant, he had promised to pay salary arrears in full, averaging about six months’ pay per worker. No problem. The funds were there to do it. But few of the workers had bank accounts, so they needed to be paid in cash. No problem. Mittal started to convert hard currency into local cash…until he got a call from the Central Bank. Whoops, sorry, Lakshmi, but if you bring that much hard currency into the country all at once, we’re going to have an inflationary problem on our hands. Would you mind stopping, please? So Mittal obliged. He continued to bring in hard currency, albeit in much smaller amounts, but meantime hired a plane to fly in suitcases of cash from the capital city Almaty.
Or take power. Not power for the plant, but for the town itself. It’s probably fair to say that there aren’t so many enterprises in the West where CEOs need to worry about how their workers are going to keep their homes warm through winter. But up in Temirtau, the temperature can fall to –40°C and the power company, like most things in Kazakhstan, was falling apart. So Mittal bought the power company too, and fixed it. And the local tram services. And the railway. And the TV station. And a few mines while he was at it.
This was Mittal. He didn’t simply solve these problems; he solved them in extraordinary fashion. Within a year, this appalling, decaying business was profitable again. Along the way, steel production had doubled. The Kazakh plant now produced in a month what Mittal’s first steel mill would have taken ten years to produce at its first year’s rate of output.
Given the sheer scale of the problems, it was extraordinary that Mittal managed it at all – but remember that he did it while also owning, managing and turning around steel companies all across the globe, and did it with an extremely young and self-created organization.
Secondly, Mittal was an
