Corus looks vulnerable and in need of an ally — its British mills would quickly suffer in a downturn. Meanwhile, Arcelor is likely to seek a rival bidder, if only to deter Lakshmi Mittal, the Indian tycoon who, with a series of audacious takeovers, has turned upside down a conservative and parochial industry.

There are potential bidders of scale in Japan — Nippon Steel and JFE. The wildcards are in emerging markets, notably Russia, where the former Soviet mills have been turned into lean, privatised steel machines with their eye on access to the automotive markets in the US and Europe.

Shares in Russian steel companies soared yesterday, notably Evraz Group, which listed in London last year, and Severstal, controlled by Alexei Mordashov and which recently acquired Rouge, the century-old Michigan steel works established by Henry Ford.

Steel prices look good for now but capacity is growing — China is building more steel mills and when the building boom in the People’s Republic subsides, the new capacity will look for export markets, hurting steelmakers in the US and in Europe.

For all his bravado, Mr Mittal is really playing a defensive game, arming himself for a price slide. Even after a successful takeover of Arcelor, Mittal would have less than 10 per cent of the global steel market. That compares with the pricing power of the three mining giants that control the global iron ore trade or the steel buying power of a General Motors, Toyota or a DaimlerChrysler.

“Historically, steel has always been the ham between two slices of bread,” says Steven Burchell, at CRU, the commodities consultants. “The automobile industry squeezes them on the steel price and suppliers squeeze them on raw materials.”

Mittal’s expansion, involving the purchase and regeneration of clapped-out steel mills from Mexico to Kazakhstan, has been a quest for pricing power rather than a simple dash for growth.

The bid for Arcelor came as a shock, not least because it follows the $4.8 billion takeover of Kryvorizhstal, the Ukrainian steelworks — a deal widely viewed as expensive. Mr Mittal was sanguine about the price, suggesting that critics had failed to see the hidden prize: an iron ore mine with the potential to supply 40 per cent of the group’s needs.

Ukraine is useful in price negotiations with iron ore producers and greater scale gives Mittal an advantage in dealing with customers. In an industry known for Pavlovian behaviour — cranking up production in a boom and retreating in a bust — Mittal has shown restraint.

“Over the past 12 months he has constrained output and prices have stayed higher,” Mr Burchell says. “Overall, steel prices will be higher [if Mittal takes over Arcelor].”

That could interest the European Commission but a merger of the two companies would not necessarily be anticompetitive because the two companies are not direct competitors. Mittal has little flat-sheet steel production in Europe, while Arcelor is a leading supplier of flat steel to European carmakers.

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax