On February 23rd, ArcelorMittal and Votorantim announced that they will merge operations in Brazil. The resulting company, which will have an estimated production of 5.6 million tons of crude long steel per year, will be a subsidiary of ArcelorMittal Brasil. The Votorantim Group, however, will hold an ownership of 15% of the resulting operation.

Votorantim Siderurgia is a Brazilian steel company founded in 2008 by the Votorantim Group. ArcelorMittal, based in Luxemburg, is the largest steel manufacturer in the world, with revenues of $63.57 billion in 2015. According to a press release issued by both companies, the operations of Votorantim in Argentina and Colombia are not part of the deal.

ArcelorMittal Brasil currently has steel operations in the Brazilian cities of João Monlevade, Cariacica, Juiz de Fora, Piracicaba and Itaúna. Through the merger, it will absorb the operations of Votorantim Siderurgia in the cities of Barra Mansa and Resende, while also acquiring 50% of the stocks of Sitrel, a steel company of the Votorantim Group in Três Lagoas, that currently operates as a joint venture with Alexandre Grendene, producing reinforcement steel.

According to analysts from Itaú bank, the deal comes at an opportune moment, because the long steel sector needs to be consolidated, as new players have increased competition in a period of diminishing demands.

Credit Suisse also sees the deal as positive. Its team of analysts, led by Ivano Westin, believes that the merger will improve the price of steel, while also benefiting the conditions of the market.

The merger is yet to be approved by regulatory agencies, including the Administrative Counsel of Economic Defense (CADE). Until the transaction is authorized, both companies will continue to function as separated entities.