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Sims Considers Expanding Scrap Business

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Australian-based company primed to grow its scrap business outside Australia.

October 25, 2004

Sims Group Ltd., the world's biggest recycler of scrap metal, may spend as much as $370 million expanding its Australian recycling business through acquisitions, Chief Executive Jeremy Sutcliffe said.

 

``An acquisition of half a billion dollars (Australian), if it was the right one, we wouldn't be deterred by that,'' Sutcliffe said in an interview on the Australian Broadcasting Corp.'s Inside Business program. ``If we're going to grow the business it will be offshore.''

 

``If there is consolidation at the global level, it offers opportunities similar to those in the iron ore industry, where they have a certain degree of market leverage'' because ``about 80 percent of seaborne iron ore is controlled by only three companies,'' Sutcliffe said. The U.S. has a fragmented scrap metal industry and prospects for consolidation, he said.

 

In May, 2004 Sims purchased Bay Bridge Enterprises LLC, which runs a metals recycling plant in Virginia, and Devote Pty, Australia's biggest collector of used tires, both for undisclosed prices. The company last month paid around $47 million) for Mirec Group, a Dutch recycler of electronics and electrical equipment.

 

Sims this month said its first-half profit may treble because of rising scrap steel prices. Benchmark scrap steel prices in South Korea rose to a record $340 a metric ton in February. It sold in September for $294 a ton, according to Japanese newsletter the Tex Report. Prices have more than doubled from an average of less than $130 a ton in 2002.

 

Chinese prices for hot rolled coil, a flat steel that can be turned into products such as refrigerators, are ``still very strong and they can sustain the current level of scrap prices and maybe even higher in coming months,'' Sutcliffe said on the program.

 

Uncertainty about whether Chinese economic growth can be sustained means Sims's share price doesn't reflect its increase in earnings or profit forecasts, Sutcliffe said.

 

``It prices in the view that investors see uncertainty surrounding China and the steel sector, and that gives them a certain degree of nervousness,'' he said. Chinese steel demand is likely to remain strong until the Beijing Olympics in 2008, Sutcliffe said. Bloomberg

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