"The traditional way of thinking -- that you have to grow by increasing capacity -- just doesn't hold a lot of water for us," said Gordon Forstner, director of communications for Dofasco, based in Hamilton, Ont., which for the past six consecutive quarters has been the most profitable steelmaker in North America.

"The issue is not always how much tonnage you can produce, but the value you can generate from each ton," he said yesterday.

Mr. Forstner made his comments on the eve of the International Iron and Steel Institute annual conference, which starts tomorrow in Melbourne, Australia.

The industry has recently seen a flurry of acquisitions and alliances to reduce production capacity, cut costs and combat falling prices. The latest takeover came last week, when Finland's Outokumpu Oyj bought Avesta Sheffield AB to form the world's second-largest stainless steelmaker. Last year, British Steel Plc agreed to buy Royal Hoogovens NV to create Corus Plc, Europe's second-biggest steelmaker.

In Canada, Co-Steel Inc. and Slater Steel Inc., merged to become the country's third-largest steel producer.

In 1999, Dofasco stock rose on rumours it might be taken over, with Bethlehem Steel Corp. of the United States and France's Usinor SA named as bidders.

Charles Dednam, manager of economics at Iscor Ltd., South Africa's biggest steelmaker, said: "If you compare with other big industries, then the steel industry is very fragmented." He estimated there is between 10 million and 15 million tons of surplus capacity worldwide. As well, the world's 10 largest steelmakers account for 30% of production.

The price for stainless steel-sheet has fallen to US$1,655 a tonne from US$1,835 a tonne three months ago.

Ironically, Dofasco's Mr. Forstner said, the overcapacity and price issues come as demand for steel has never been higher. He added there has been relatively little consolidation in the steel industry in North America because "the synergies are often just not there." Even if synergies do exist, he said the best way of maximizing the advantages "may not be through an expensive exchange of equity."

He noted investors "haven't stood up and cheered" at the consolidations that have taken place.

Mr. Forstner said Dofasco has focused on technological innovation rather than consolidation, preferring to take part in joint ventures that make its steel more valuable to customers. For example, Dofasco is the only North American steel producer that uses hydroform tubing in automotive applications. It is a form of production that means less welding, and the finished product is lighter and stronger.

He said it was once easier for people to see growth in the steel industry, especially as the auto sector grew. "There is still a growth story, but fundamentally it's a technological growth story now," he said. As well, it is important to meet the global needs of the steel industry's best customers which have also been consolidating.

Mr. Forstner pointed to a recent joint venture with Usinor to bring that company's high-end galvanized steel technology to North America and South America. Mr. Forstner said the joint venture means this product can be offered to the auto industry on three continents, and the capital investment for Dofasco is far less.