Up until last week, few Australians would have heard of ArcelorMittal, even though it is the world’s biggest steel maker.

But the group’s $A630 million raid on Macarthur Coal, which netted it a 14.9% stake, changed all that.

Controlled by Indian steel billionaire Lakshmi Mittal, ArcelorMittal’s bold move signaled that it is not just Chinese entities that are worried about supplies of the key steel-making ingredients: coking coal and iron ore.

Macarthur is a significant producer of metallurgical coals, namely pulverised coal injection material, a direct feed for blast furnaces.

It will be interesting to see how the Macarthur deal plays out.

Brokers are tipping a full bid at around $20 per share, marking the end of yet another Aussie mid-cap at the behest of the foreign raiders.

But to win full control, ArcelorMittal must come to terms with Macarthur major shareholder Ken Talbot and China's Citic Group, which has a 19.99% stake in the coal miner.

However the deal pans out, it will likely have a lasting impact on Australia’s bulk commodities sector, with the Indians having joined the Chinese, Japanese and Russian grab for Aussie mines.

Felix Resources, for instance, soared to record highs last week on the merger and acquisition speculation.

Brisbane-based Felix is one of the best performers on the Australian Securities Exchange this year, with a four-fold increase in its share price since mid-January.

Perth-based Aquila Resources has trebled in the same time, further confirmation that black is the new gold.

And behind these few glamour stocks, there may be more gems hidden in the ROM pile.

UBS expects further consolidation as steel producers globally recognise the increasing importance of securing supplies of iron ore, coal and manganese from Australia.

It believes that Felix and Gloucester Coal may be prime targets for predators.

While 70% of Felix’s share register is tightly held, UBS believes the large shareholders – including private group AMCI – “could be sellers at an appropriate price”

Gloucester, meanwhile, has the “most upside potential”, with multiples paid for the Macarthur stake suggesting a 30%-plus return on the current price is feasible.

Patersons Securities is another broker very keen on the black stuff, having just released its Coal Sector Report, “The Sun Rises in the East”

The Perth broker notes that coal prices are trading at unprecedented levels due to:

The rapid industrialisation of countries like China and India;

Infrastructure constraints among suppliers;

The rising price of competing energy sources adding pressure for more coal supplies; and

Major supply disruptions this year in China (blizzards), Australia (flooding) and South Africa (blackouts).

In the years 2001 to 2006 coal consumption grew at a compound annual rate of 5.3%, higher than all other conventional sources of energy, according to Patersons.

“The proportion of coal in the energy mix has grown over the past decade, even as concerns over global warming have increased,” the company says.

Seaborne demand for coal is expected to grow by 87 million tonnes by 2013 as more power and steel production capacity is added, with the majority coming from Asia.

China is expected to cease being a net exporter in 2008 while two other important suppliers, South Africa and Indonesia, are expected to experience “growing domestic demand that will limit their ability to export ever more coal”

Given the favourable conditions, Australian mid-cap coal producers have generally flourished, averaging total returns of 111% in the past 12 months, the broker calculates.

High contract prices and strong takeover activity are supporting share prices, but Patersons warns that “many appear to be fully valued”

Funnily enough, one of those overvalued stocks is Gloucester Coal, the same company that UBS believes could be in line for big M&A-driven gains.

“We have a sell recommendation on Gloucester Coal because we believe it is the most overpriced and least prospective of our companies under coverage,” is the damning comment from Patersons.

On the buy side, it likes two explorers, Cockatoo Coal and Northern Energy Corporation, while holds are recommended for MacArthur and Felix because of recent price appreciation.

Iron Ore, of course, is the other side of the equation for steel mills.

UBS notes that access to infrastructure is the key hurdle for iron ore wannabes.

Key stocks include FMG, which has recently started commissioning its $3 billion Pilbara venture, and Mount Gibson, which has infrastructure access to grow its production to 10 million tonnes per annum.

BC Iron, Atlas Iron, Brockman Resources and Murchison Metals are also on UBS’ watch list.

Murchison is right in the thick of things, having yesterday launched a revised merger offer for rival Midwest Corporation, topping a $1.36 billion all-cash offer from China’s Sinosteel.

Further proof, if any were needed, that “the bulks” are the hot spot for Australian rock kickers.