Steel Industry Update Forecasts Rising Imports and Prices in 2005
1. Steel Industry Update/194 March 2005
Locker Associates, 225 Broadway, NY NY 10007 Tel: 212-962-2980 Fax: 212-608-3077
Frustrated by recent bankruptcies and shrinking Table 2: U.S. Steel Shipment Forecasts
profit margins, U.S. auto and equipment manu- Firm/Forecaster (mil tons) '04 '05 '06 '07
facturers are raising a ruckus about steel prices.
AIIS/von Bulow.................. 112 110 111 --
In a report released February 17, 2005 funded by
AMM Research/Daswani... 112 115 111 --
the Motor and Equipment Manufacturers Associa-
E&E Corp/Rhody ............... 112 109 110 --
tion (Mema), auto parts manufacturers claim that
Global Insight/Anton .......... 113 109 110 117
“U.S. steel consumers are suffering from a dis-
GMP/Wu............................ 112 113 -- --
torted market”. The report pushes for a “level”
McDonald Inv/Parr............. 112 116 115 --
playing field, blaming steel trade restrictions for
Prudential Sec/Tumazos ... 111 107 108 --
their financial difficulties. Mema, along with Con-
Purchasing Mag/Stundza .. 112 109 111 112
suming Industries Trade Action Coalition (Citac)
TN Consulting/Mueller....... 112 113 110 --
and the Precision Metalforming Association
World Steel Dyn/Kirsis....... 112 112 -- --
(PMA), has also endorsed a House resolution
Locker Associates ............. 112 113 111 110
which calls for an ITC review on the impact of
Consensus Forecast ..... 112 111 111 113
duties on steel consumers and gives formal
Compiled by Locker Associates Forecast as of 3/05
standing to steel consumers in trade cases.
Unfortunately, by focusing on steel trade re-
But steelmakers see it very differently. A re-
strictions, domestic steel consumers are missing
port funded by the AISI and SMA issued on Feb-
the main point. As we see it, globalization is
ruary 16, 2005 points out that steel makes up, on
deeply impacting all areas of manufacturing,
average, only 3% of the total costs for the eight
squeezing profits and intensifying competition.
major industries which purchase nearly 90% of
U.S. manufacturers of all types are under siege,
domestic steel. Even though this percentage of
increasingly battered by lower priced imports,
costs related to steel ranges from 0.7% to 14%
rising healthcare and environmental costs and
across the industries, the share is low enough
other factors that hurt American firms’ competi-
that even significant price increases should not
tiveness relative to lower cost foreign players.
prove crippling to manufacturers.
The question is: How much of a role are steel
As for prices from June to December 2004,
prices playing in U.S. manufacturers’ financial
steel prices rose at a faster pace outside of the
problems?
U.S. than in the U.S. In addition, steel consum-
According to the Mema report, market factors
ers in Japan, Europe and China, just like the
including China’s surging growth and consolida-
U.S., have faced supply crunches due to heavy
tion of the U.S. steel industry have benefited
demand and raw materials shortages. As for im-
steelmakers at the expense of steel consumers.
ports, it is important to note that they jumped 55%
The report argues that capacity reductions and
in 2004, returning to higher levels experienced a
lower import levels have led to skyrocketing
few years ago. Finally, it is important to note that
prices that have cut profits and shortages which
the Mema report does not distinguish between
have curtailed production.
Table 1: Selected U.S. Steel Industry Data, December & Year-To-Date
Month of December Year to Date
(thousand tons)
2004 2003 % Chg 2004 2003 % Chg
Raw Steel Production ............... 8,958 8,414 6.5% 109,069 99,693 9.4%
Capacity Utilization ................. 91.5 81.9 -- 93.8 82.2 --
Mill Shipments........................... 8,447 9,038 -6.5% 112,085 105,625 6.1%
Exports...................................... 692 591 17.1% 7,933 8,220 -3.5%
Total Imports ............................. 2,924 1,707 71.3% 35,808 23,125 54.8%
Finished Steel Imports ............ 2,398 1,335 79.6% 28,389 18,309 55.1%
Apparent Steel Supply*............. 10,153 9,782 3.8% 132,541 115,714 14.5%
Imports as % of Supply*.......... 23.6 13.6 -- 21.4 15.8 --
Iron Ore Shipments+ (metric) ..... 5,110 4,540 12.6% 50,790 42,710 18.9%
Average Spot Price** ($/ton) ...... 691 369 87.0% 612 350 75.0%
Scrap Price # ($/gross ton).......... 408 192 112.5% 323 150 114.7%
Source: AISI & Purchasing Magazine & US Geo. Survey *Excludes semi-finished imports **Avg price of 8 carbon products
+November iron ore shipments #auto bundles
3. Steel Industry Update/194
Table 4: Performance of Major North American Steel Producers, 4Q04 & 4Q03
Shipments Sales Oper Income Sales/Ton Oper Inc/Ton
(thousand tons) ($ millions) ($ millions) ($ per ton) ($ per ton)
4Q04 4Q03 4Q04 4Q03 4Q04 4Q03 4Q04 4Q03 4Q04 4Q03
U.S. Major Mills
AK Steel........... 1,631 1,564 1,434 1,054 99 (28) 879 674 61 (18)
California Steel. 452 488 340 192 61 8 752 393 134 16
Int’l Steel Grp ... 3,828 3,501 2,554 1,418 242 53 667 405 63 15
Ispat ................. 1,285 1,351 811 567 127 (1) 631 420 98 (1)
U.S. Steel* ....... 3,747 3,970 2,334 1,679 376 23 623 423 100 6
U.S. Totals ....... 10,943 10,874 $7,472 $4,910 $904 $54 $683 $452 $83 $5
Canadian Integrated (C$=US$0.82)
Algoma............. 524 512 490 268 180 17 935 523 344 34
Dofasco............ 1,207 1,266 1,113 871 162 71 922 688 134 56
Canada Totals. 1,731 1,778 C$1,603 C$1,139 C$342 C$89 C$926 C$641 C$198 C$50
N.A. Minimills (US$)
Gerdau-Amer ... 1,460 1,405 978 556 115 62 670 396 78 44
Ipsco ................ 896 897 780 382 267 30 870 425 299 33
Nucor ............... 4,446 4,467 3,089 1,661 548 23 695 372 123 5
Steel Dynamics 846 772 600 279 140 22 710 362 165 28
NA Mini Totals.. 7,648 7,540 $5,447 $2,878 $1,070 $137 $712 $382 $140 $18
Service Centers/Processors (US$)
Novamerican…. 466 454 215 141 37 12 462 310 79 27
Ryerson Tull.…. 696 636 904 548 4 4 1,298 861 5 6
Samuel Manu… na na 175 129 24 8 -- -- -- --
Steel Tech……. na na 254 131 22 4 -- -- -- --
Total…………… 1,162 1,090 -- -- -- --
$1,547 $948 $87 $28
Source: Company documents. Note: Steel segment, except Ipsco & Nucor. Includes profit-sharing; excludes non-recurring charges.
* Does not include Slovak operations
Operating income remained very healthy for American mills by generating a jaw-dropping
major mills in the U.S. and Canada, as well as $299/ton in operating income, thriving on high
North American mini-mills (see Table 4). Note plate and sheet prices. Steel Dynamics and Nu-
that results do not include Wheeling-Pittsburgh, cor, which showed the greatest improvement
Oregon Steel or Stelco, which all failed to report over prior year, also generated healthy income of
Q4 results by press time. $165 and $123/ton, respectively.
CSI led U.S. major mills, with $134/ton in oper- Steel service centers and processors did not
ating income, more than eight times its operating have the same blow-out results as mills, but re-
income for the same period in 2003, but down mained healthy in the 4th quarter. Novamerican
$21/ton from Q3 2004. AK Steel brought up the nearly tripled its operating income per ton on tons
rear, with a respectable $61/ton in operating in- produced and processed over the prior year. Ry-
come, on par with Q3 2004. AK’s outlook for erson Tull’s operating income dropped substan-
2005 is very positive though, as its 2005 contract tially compared to 3Q 2004, due to greater inven-
prices will increase substantially to catch up with tories of higher cost hot-roll and a larger percent-
spot price growth. US Steel actually saw the only age of lower margin hot-roll in its product mix, but
quarter-to-quarter operating income increase, remained in line with the prior year.
despite a slight decrease in its average selling
PRICES AND SHIPMENTS
price. By contrast, International Steel Group’s
operating income per ton dropped by $21 per ton
Sheet: Although many sheet producers and cus-
to $63 per ton from Q3 to Q4 as costs rose by a
tomers had expected prices to begin rising again
hefty $42/ton.
this year, the sheet market has remained fairly
In Canada, Algoma continued its wild ride with
flat, the result of high inventory stocks at many
operating income of C$344/ton (US$282/ton),
service centers. In fact, some industry watchers
topping all other North American mills except for
have observed that with inventories at these lev-
Ipsco. Dofasco more than doubled its operating
els, the only thing that is keeping sheet from fal-
income/ton over Q4 2003, but saw income drop
ling drastically has been industry consolidation.
by 16% compared to Q3 2004.
Flat-rolled has been falling in price since last July
Minimills outperformed integrated players once
but seems to have reached a plateau over the
again in the 4th quarter. Ipsco led all North
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4. Steel Industry Update/194
past two months, settling in the neighborhood of 2.5 percent in January, compared with Decem-
$620 to $640/ton for HR, $700/ton for CR and ber. Sparking the increases was a healthy 5.4
$720/ton for hot-dip galvanized. Steel buyers do percent jump in alloy electric resistance-welded
not anticipate any big upturn in prices for several tubing, from $1,515 to $1,597/ton. Other OCTG
months until the inventories begin to deplete. price changes in February included:
• Alloy electric-resistance-welding (ERW) pro-
In another sheet development, Mexican steel
manufacturers have expressed concern about a duction casing from $1,422 to $1,447/ton, up
recent surge of HR sheet imports from the United 1.8 percent.
• Carbon seamless surface casing from $1,333
States. In December, U.S. HR exports to Mexico
jumped to 52,200 tons. Some Mexican steel- to $1,360/ton, up 2 percent.
makers are grumbling about taking some retalia- • Carbon ERW surface casing from $1,220 to
tory trade action if the trend continues but steel $1,231/ton, up 0.9 percent.
trade between Mexico and the U.S. is not subject
• Alloy seamless tubing from $1,656 to
to tariffs since both are members of NAFTA.
$1,741/ton, up 5.1 percent.
And in two seemingly contradictory price
• Alloy seamless production casing from
moves, AK Steel has raised its surcharge on car-
$1,523 to $1,573/ton, up 3.3 percent.
bon sheet products by $18 to $214/ton, effective
• Carbon ERW tubing from $1,323 to
with March shipments. At the same time, how-
$1,362/ton, up 2.9 percent.
ever, it lowered the surcharge on electrical steel
• Carbon ERW production casing from $1,202
products by $70 to $340/ton. According to AK,
to $1,220/ton, up 1.5 percent.
the moves were based on January prices for raw
• Carbon seamless production casing from
materials and energy used to make the two prod-
uct lines (AMM 2/3, 2/17). $1,318 to $1,330/ton, up 0.9 percent.
• Only carbon seamless tubing declined in
Plate: Although steel prices in general have set- price for the month, from $1,494 to $1,488, a
tled down somewhat from the heights of their drop of 0.4%.
roller coaster ride last year, the plate market Prices for OCTG are being buoyed by the high
seems to be trying to buck the trend. As January energy prices which has sparked drilling activity
drew to a close, Ipsco told its customers it was and kept the market strong (AMM 2/2).
raising its plate base prices by $20/ton beginning
with April 3 shipments. Other platemakers are Beams: A sudden drop in the price of wide-
expected to follow suit as they have done five flange beams took the market by surprise last
times since last July, which would bring the price month. Nucor-Yamato cut its beam tags by
to about $820/ton. The last plate increase, a $40/ton in early February after offers to sell
jump of $30/ton took place with Jan. 1 shipments. beams were reported coming in from mills in
The increases are being sought even as declining Germany, Luxembourg and Spain. Nucor-
scrap prices have moved plate producers to Yamato’s action cutting prices was quickly fol-
lower the raw materials surcharges on plate from lowed by Steel Dynamics. It is not yet known to
$90/ton in November to about $53/ton currently. what extent the import overtures from Europe
One buyer described the base price hikes as a represent an aggressive drive to gain a larger
case of companies unwilling to lower their prices share of the U.S. market and therefore the indus-
as scrap prices have declined, and the healthy try is still not sure if the drop in prices represent
demand for plate seems to indicate that the new just a weak flutter or a long-term downward trend
base price increases will hold. (AMM 2/15).
That demand was apparent in the past month
Slab: A leading figure in Brazilian slab manufac-
on the West Coast as a growing plate supply was
turing predicted last month that international slab
offset by heavy demand. The area’s sole pro-
prices should hover at about the same levels for
ducer, Oregon Steel, notified its customers that
the first quarter of this year and then begin climb-
plate prices were going up $60/ton in March, on
ing up again in the second quarter. Cia. Siderur-
top of the $40/ton increase it got in January. This
gica de Tubarao (CST) President Leonardo Horta
would set West Coast plate tags in the neighbor-
made the forecast for a “promising” year despite
hood of $860/ton (AMM 2/1, 2/14).
caution in the face of high iron ore and other raw
material prices. Contract prices for iron ore with
OCTG: The prices for oil country tubular goods is
overseas producers are currently being negoti-
also expected to remain strong for the first six
ated by Brazilian ore producers and there is
months of 2005, according to Pipe Logix, pub-
much apprehension among slabmakers over a
lished by Spears & Associates, which monitors
hefty rise in iron ore tags. Horta said CST antici-
the OCTG market. Prices on average went up
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5. Steel Industry Update/194
pates an average 2005 price level for slab at the limit with which ore producers should be sat-
about $435 to $455/tonne f.o.b., about 30 percent isfied. Brazil’s CVRD is asking for a 90 percent
higher than the average price of $340/tonne last hike from its overseas customers while Australian
year (AMM 2/22). ore mines are demanding 50 percent.
The European Confederation of Iron and Steel
END USE MARKETS Industries also hit back sharply at the prospect of
excessive increases. Echoing the Chinese ex-
ecutive’s comments that pointed to the 18.6 per-
What’s to Blame for the Rail Bottleneck: Eve-
cent hike last year, the European steel group
ryone concedes that there is a rail car shortage
flatly rejected any contract that came close to
that is hampering the efficient shipment of steel
what CVRD was demanding. Such an increase,
and lots of other products, but there is a lot of
it said, “is totally unreasonable and disproportion-
disagreement over what’s causing the problem.
ate to market conditions, which are not funda-
Many point to the fact that the current stock of rail
mentally different from 2004.”
cars is aging and that manufacturers can’t keep
Meanwhile, although CVRD did not get its 90
up with the surge in replacement orders. But
percent rise from its negotiations with Japanese
others disagree. Its “not so much a shortage of
steelmakers, it was able to walk away with a
rail cars but they’re in the wrong place... and not
whopping 71.5 percent for ore shipments for the
enough empties,” says U.S. Steel’s President and
fiscal year beginning April 1. Itabira and Carajas
CEO John Surma. But Philip R. Bedwell, director
iron ore fines will now be sold to Japan for 55.34
of rail and barge transportation at the scrap sup-
cents/tonne and 56.18 cents/tonne respectively, a
plier Omnisource points to the fact that every
rise of 23.07 cents/tonne for Itabira fines and
week “there are 300 to 500 less cars than are
23.42 cents/tonne for Carajas fines. The new
needed.” Another observer noted that “there has
agreement was the first time that a Brazilian ore
been a shortage for the last nine to 12 months.”
producer has settled a contract ahead of its Aus-
One steel executive blamed the railroads. There
tralian counterparts. The contract also stunned
are rail cars available, he said, but “the railroads
S. Korean steelmaker, Posco, which has tradi-
are inconsistent in their offers of cars on a steady
tionally used the Japanese price settlements as a
basis. Cars tend to bunch up at their final desti-
guide to its own position on contract negotiations.
nation, the steel mills. Then the mills want to
A big beneficiary in the CVRD deal with Japan
load the cars with billet and finished steel and
is expected to be Cleveland-Cliffs, the leading
they don’t come back to our area so that we can
U.S. iron ore producer which will inevitably see its
load them with scrap.” Some steelmakers have
prices go up considerably in the wake of the Bra-
even suggested that the railroads are less inter-
zilian deal. Last month, Cliffs increased its buy-
ested in steel business these days than they are
out offer for the Australian ore company, Portman
in shipping other metals. Worried about the sta-
Ltd., upping it to $3.85 a share in Australian dol-
bility of the steel market after the collapse and
lars (USD $3.03), a figure it says is final. It had
bankruptcy of many companies a few years ago,
previously offered $3.40 Australian (USD $2.67)
the railroads are fearful, they say. “They feel they
a share for a total of $605 million Australian (USD
can make more money in stable markets,” ob-
$465 million) for the company. Portman has
served Christopher Plummer, managing director
long-term supply contracts with Chinese and
of Metal Strategies (AMM Monday Edition 2/14).
Japanese mills (AMM 2/2, 2/10, 2/23, 2/25).
RAW MATERIALS
Hot-Briquetted Iron: A serious drought in Vene-
zuela has cut into the production of HBI this year
Mammoth Ore Hikes Have Buyers Screaming:
as low water levels in the Orinoco River make it
Steel manufacturers in China and Europe reacted
impossible to load cargo vessels for shipping.
strongly last month to the attempts by Brazilian
The situation has reportedly improved since No-
and Australian companies to extract price in-
vember but with the river still shallower than nor-
creases of up to 90 percent for iron ore in the cur-
mal, each ship must load 4,000 metric tonnes
rent negotiations on contract prices for the com-
less than usual to avoid grounding. Now with the
ing year. In China, one steel executive said that
traditional dry season coming up, producers are
a 30 percent rise was the highest that Chinese
worrying that the river will recede still further,
steelmakers would go, calling anything more than
making it necessary to transship HBI by alternate
that excessive that would lead to big price in-
methods to the mouth of the Orinoco, a much
creases. Another Chinese steel manufacturer
more tedious and expensive process.
pointed to the 18.6 percent price increase on iron
Elsewhere, Corus Group, the European con-
last year on top of a 9 percent increase the year
glomerate that is exiting the North American steel
before and said that 20 or 30 percent more was
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6. Steel Industry Update/194
market, has sold its two direct-reduced iron mills minimill costs and price surcharges are largely
in Mobile, Ala., to a Saudi Arabian company. The based on the movement of scrap. Officials of the
twin 400 Midrex DRI units will be crated and Steel Manufacturers Association last month
shipped to two facilities owned by the Al-Tawaiqi charged that scrap statistics published monthly
by AMM and Iron Age often are not up-to-date
Group; one unit to its 750,000 tonne-a-year wire
rod and rebar mill in Damman, Saudi Arabia, the because they rely on anecdotal reports from
other to a still undetermined location. Both units scrap customers and dealers. SMA Chairman
have an annual capacity of 500,000 metric ton- Keith Busse, who is also the president and CEO
nes. It will be the second time they have been of Steel Dynamics, said that not all sides were
shipped across the ocean. Initially built for British giving out truthful figures. Busse last year made
Steel’s mill in Hunterston, Scotland, they were headlines when he chartered a plane and flew it
never used after the price of North Sea natural over a number of scrapyards to observe what he
gas went so high that the operation was unprofit- said were large stockpiles of scrap being stored
able. British Steel, which subsequently merged as scrap dealers claimed there was a shortage.
with the Dutch company, Hoogovens, to form the Busse charged at the time that the scrap suppli-
Corus Group, transported the units to Alabama ers were deliberately holding back on shipments
seven years ago. But when the price of natural to artificially raise the price, something the deal-
gas again made the operation unprofitable a few ers hotly denied. Minimill operators have also
years later, they were shut down once more and charged that the scrap index is based upon scrap
have been idle for about three years. The price sold on the open market, but the bulk of scrap is
of natural gas in Alabama is $6.40 per BTU actually sold, they say, through a series of nego-
whereas in Saudi Arabia it is about $1 per /BTU tiated contracts with only a few thousand tons
(AMM 1/31, 2/23). openly bought and sold on the open market.
Thus the reported price is not really represen-
Scrap: Calls for More Credible Price Data: tative of the actual market price at any given time.
Industrial scrap prices declined again last month Several minimills have hired a private firm to col-
as minimill operators were calling for a more ac- lect better price data (AMM 2/9, 2/10, 2/14, 2/24; 2/25,
curate way of measuring scrap prices. Tags for AMM Monday Edition 2/14).
No. 1 bundles and No. 1 busheling dropped by
Vancouver Firm Hits Coal in Mongolia: A
$60 to $65/long ton at the beginning of February,
“massive source” of metallurgical coal used to
and Ford auto bundles for March were down an-
produce coke has been discovered in Mongolia, it
other $60/long ton. There were signs that
was reported last month. The cache was uncov-
minimills were cutting their purchases of industrial
ered by Ivanhoe Mines, a Canadian company
grade scrap in favor of the less costly shredded
based in Vancouver, British Columbia. The news
scrap and No. 1 heavy melt as well as imported
is particularly important at a time when coking
pig iron, DRI and HBI to shave their raw materials
coal is in seriously short supply around the world.
costs. In fact, the decline in industrial scrap
Ivanhoe said that it plans to carry out more drill-
prices over the past four months has brought it
ing this year near the Chinese Mongolian border.
more in line with the price of shredded scrap.
Metallurgical coal is currently selling in China for
Until the recent boom in industrial scrap the two
$120 to $130 per metric tonne (AMM 2/10).
grades have usually been fairly close. As of the
beginning of this month, the AMM Factory Bun-
SDI Weighs Buying Scrapyards: In an effort to
dles Index sunk to $250/long ton, a nine-month
cut fixed costs, minimills have shunned the idea
low and just about $200 per ton less than it was a
of owning their raw material suppliers, especially
few months ago.
scrap dealers, preferring to purchase on the open
Even as scrap prices were going way up last
market. Now, the high cost and volatility of scrap
year, exports were also climbing. Figures re-
over the past two years has many of the mills
cently released by the Department of Commerce
looking at backward integration. Steel Dynamics
show a 41% increase in scrap exports, which hit
is now said to be seriously considering the possi-
$4.5 billion in 2004. Although the Chinese share
bility of acquiring its own scrapyard, most likely in
of exports fell a bit last year, it still accounted for
a partnership deal with an existing yard. While
40% of the customers for U.S. scrap.
other minimills still maintain that acquisition of a
Meanwhile, minimills, which now account for
scrapyard by a steel company is unwise, SDI
about 60% of all steel production in the U.S.,
President Keith Busse says that the volatility in
have been increasingly critical of scrap price data
the scrap market makes it important to reconsider
provided by AMM. The price data is vital to
the question (AMM 2/11).
minimills since scrap constitutes 60-70% of
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7. Steel Industry Update/194
LABOR/MANAGEMENT Powerlasers, a producer of laser-welded auto-
motive blanks, is a subsidiary of Dofasco, the
ISG Mill Charged in Discrimination Suit: Fif- Canadian steelmaker that is the only non-union
teen African-American current and former work- integrated steel manufacturer in North America.
ers at the International Steel Group plate mill in Its Powerlasers subsidiary also has mills in the
Coatesville, Pa., have filed a lawsuit charging U.S. which a USWA spokesman charged had
racial discrimination at the mill. The suit, filed been found in violation of the National Labor Re-
against both ISG and the United Steelworkers of lations Act for using coercion to prevent workers
America Local 1165, alleges that they faced a from joining a union (AMM 2/4, 2/14, 2/15).
racially hostile environment from the plant man-
Two Killed in Rail Accidents: Two steelworkers
agement. The 15 employees claim that they lost
died on the job last month, both of them in rail
overtime, were rejected for training, denied work
accidents. In the first accident, John Novick, 50,
breaks, turned down for promotions, not permit-
a worker at the Brackenridge, Pa., mill of Alle-
ted to take sick leave, and were the recipients of
gheny-Ludlum for five years, died after being
stricter discipline. They also claim that the union
pinned between two rail cars. The president of
local acquiesced and participated in their treat-
the USWA Local 1196, representing the plant’s
ment and that they were confronted not only with
employees, said that the company had imple-
hostility from management, but also from the un-
mented new job cuts, forced overtime, new train-
ion and other employees after they complained.
ing programs and job combinations. Novick, rela-
They allege that some workers hung a noose
tively new on the job he was doing, wasn’t really
from a scrap crane and spray painted walls and
familiar with the work, he said. The second acci-
other surfaces with swastikas and racially offen-
dent involved David Prengle, 46, who had worked
sive language. They also say that while they
at the U.S. Steel Granite City, Ill., mill for 25
were hired only for entry-level jobs, Caucasian
years. He was pinned between a rail car and a
workers were consistently placed in higher paying
loading dock. (AMM 2/8).
jobs in management, maintenance, crafts and
electronics. The suit marks the second time
USWA Signs Alliances with Unions in Two
since the 1970s that allegations like this have
Countries: Reaching across international
been leveled at the mill. In 1986, Lukens Steel,
boundaries, the United Steelworkers of America
which then operated the mill, settled a similar
last month signed agreements for closer coopera-
lawsuit (AMM 1/28).
tion with steel and mine unions in Australia and
Mexico. The first move, termed a “strategic alli-
USWA and Dofasco Locked in Labor Battle:
ance” with the Australian Workers Union, comes
Workers employed at the Concorde, Ontario,
at a crucial time for the Australian labor organiza-
plant of Powerlasers were not on the job Febru-
tion which is currently locked in a dispute with
ary 10, but the company and the union differed
BlueScope Steel of Melbourne. The union
on the reasons why. The workers, members of
charges that the company is attempting to insti-
the USWA, say they were locked out by man-
tute a multi-tiered system of wages and working
agement after negotiations for a contract broke
conditions at its mills throughout Australia.
down a week earlier, hitting an impasse over
BlueScope also has facilities in the U.S.
wages, pensions and other issues. They charge
Just a little over a week after the Australian
that although a vote had been taken to authorize
agreement, USWA and the Union of Miners and
a strike if an agreement could not be reached by
Metalworkers of Mexico agreed to commit their
Feb. 10, its members would remain on the job as
unions to joint action in disputes involving com-
long as negotiations continued. Instead, they
mon employers. The agreement was not a
say, Powerlasers management locked them out.
merger, the unions said but a “working relation-
The union maintains that the company never had
ship.” Both unions are involved in labor disputes
any intention of reaching an agreement and is out
with Grupo Mexico, the third-largest copper pro-
to bust the union, a newly-formed USWA local
ducer in the world, since USWA members work at
which recently won the right to bargain for em-
mills owned by the Mexican company in Texas
ployees at the mill.
and Arizona. “Companies in our industries are
Powerlasers management denied that it had
increasingly forming regional and global strate-
engaged in a lockout or that it intended to break
gies,” said USWA President Leo Gerard at the
the union and said the workers had walked off the
signing of the joint agreement. “We must con-
job. It claimed that it was using its management
tinue our efforts across borders if we are to main-
and technical staff to supply its customers from
tain and build on our strength” (AMM 2/8, 2/18).
an inventory built up for such an emergency.
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8. Steel Industry Update/194
Algoma Continues to Cut Jobs: Algoma Steel CSI’s major suppliers are Brazil and Mexico but it
of Canada has made no secret of the fact that it has also purchased slab from China for the past
will continue to cut its work force over the next two years. It will continue to buy slab from China,
three years. Last month, Denis Turcotte, the a company spokesman said, but the increased
president and CEO of the Canadian company, availability of the product makes it easier to de-
based in Sault Ste. Marie, Ontario, said that em- cline some of the offers (AMM 1/28, 2/3).
ployee cuts were an integral part of his com-
Mississippi Eager to Lure New Correnti Mill:
pany’s plan to reduce costs. The company, he
said, is aiming at cutting its work force by 75 to State officials and legislators in Mississippi have
100 workers each year over the next three years, been offering up a bowlful of incentives to get
either by attrition or layoff. In the past three SteelCorr, a new company headed by John Cor-
years, Algoma has cut 700 jobs from its payroll, renti, to locate its planned $700 million flat-rolled
which now stands at 2,900 employees (AMM 2/14). minimill in that state even in the face of a study
that tends to cast some doubt on the mill’s eco-
AK and USWA Agree to Extend Contract: nomic boon for the region. SteelCorr has also
What a difference two years make! Two years been considering sites in Arkansas, Louisiana
ago, the United Steelworkers of America and AK and Missouri. Late in January, Mississippi legis-
Steel had been locked in a vicious four-year bat- lators were reported to be introducing a bill to
tle at the company’s Mansfield plant after AK provide $25 million in incentives for the mill to be
locked the union workers out and proceeded to located on 1,400 acres in Lowndes County. Cor-
hire replacements. Eighteen months ago, AK renti, the former CEO of Nucor and Birmingham
replaced its CEO and President with a manage- Steel, said that he had already secured about 80
ment that has proceeded to mend fences with the percent of the financing. Two weeks later, the
union, environmental groups and government incentive figure was increased to over $100 mil-
agencies which had broken down from the con- lion -- a $25 million state infrastructure grant, $12
frontational style of the old management. Last million in grants from the county for property and
year, AK signed a one-year agreement with site preparation and $85 million in contingent
USWA for its Mansfield workers and last month, loans if the cost of the project goes over budget
with a 77 percent affirmative vote, the union local during construction. The proposed mill would
ratified a two-year extension of the contract that turn out automotive grade sheet, principally for a
will not expire until Feb. 2007. The contract ex- Nissan auto plant in Mississippi and Honda,
tension provides for lump sum payments to em- Hyundai, and Mercedes-Benz plants in neighbor-
ployees on April 30 and Feb. 10, 2006. All other ing Alabama. SteelCorr has promised that it
provisions remain the same (AMM 2/24). would create 450 jobs averaging $70,000 a year.
However, a study done by Peter Morici, an in-
CAPACITY/TECHNOLOGY dependent consultant and professor at the Robert
H. Smith school of business at the University of
CSI May Get New Reheat Furnace: A new re- Maryland concluded that SteelCorr will not sell as
heat furnace proposed for California Steel Indus- much steel as it is projecting because of the flat
tries could boost the slab converter’s hot-rolled auto market. The study also questioned the ac-
capacity by up to a million tons a year if the deal curacy of SteelCorr’s cost estimates for construct-
goes through. The CSI board of directors have ing the mill. State officials, nevertheless, said
already OK’d a feasibility study for the project they stood by the project, noting that Morici’s
which now awaits the final decision of the com- study was sponsored by Nucor, a SteelCorr com-
pany’s owners, CVRD of Brazil and JFE Steel of petitor, a fact that Morici denies influenced his
Tokyo. If the parent companies approve the new findings. As if to emphasize their confidence, the
furnace, it would take about 18 months to 2 years Mississippi House of Representatives late last
to build at a preliminary estimated cost of $50 month took the first official step by passing an
million to $60 million. CSI is currently the largest economic incentive package of the $25 million
U.S. buyer of slab, bringing in more than two mil- grant and up to $85 million in contingent loans
lion tons a year. It is also the only manufacturer (AMM 1/28, 2/15, 2/17, 2/24).
of HR sheet on the West Coast. Its total produc-
Nucor Expanding Castrip Facilities: Pleased
tion of all sheet products last year –- HR, CR and
with the success of its pilot Castrip mill in Craw-
hot-dip galvanized -- hit a record 2.11 tons.
fordsville, Ind., Nucor is planning a second facility
Slab, which has been in short supply for the
in the U.S. The Castrip technology directly casts
past 18 months, is now apparently more plentiful.
sheet, eliminating the need for slabs. The Craw-
This fact that was illustrated last month when CSI
fordsville mill began using the process nearly five
turned down some offers of slab from China.
-8-
9. Steel Industry Update/194
years ago. Nucor said that it was exploring a site lion tonnes. About 40.6 percent of its exports
for the second mill on the West Coast. The com- were in high-value-added flat products.
pany also said it was looking for an overseas At the same time, Chinese domestic consump-
partner for a joint venture utilizing the technology tion of steel is also expected to hit a record high
(AMM 2/1). of about 340 million tonnes this year. From
January through October of 2004, the latest date
Dofasco Backs Out of U.S. Venture: A year for which the figures are available, the Chinese
ago, Dofasco, the Hamilton, Ontario, steel com- used 263.5 million tonnes. Its steel imports from
pany, announced plans to construct a plant that abroad are expected to remain flat through the
would turn out 500,000 tons a year of hot-dip gal- current year (AMM 2/3, 2/8, 2/22).
vanized steel for the automobile industry in the
southern part of the U.S. The galvanizing line Criminals Note: New Stainless Process Takes
was to produce a steel product called ExtraGal, No Fingerprints: A new stainless process mar-
using a process owned by Arcelor, the European keted by Allegheny Technologies and developed
steelmaker, to which Dofasco had the exclusive by Norcold is a fingerprint-resistant stainless steel
N. American license. It is said to be very good for called Al Clean. Norcold, which manufactures
exposed auto body parts. But the proposal came refrigerators for recreational vehicles, says that it
to an end last month when Dofasco announced will make stainless steel products even more at-
that it would not pursue its plan for the southern tractive by eliminating the fingerprint smudges
mill. The reason, it said, was that it could not find that usually accompany handling them. Al Clean,
any offers or partnership opportunities that were according to its maker is both stain and scratch-
economically advantageous (AMM 2/7). resistant (AMM 2/4).
US Steel to Build New Mill in Slovakia: US Legal Fight Over CR Duties Ends After Six
Steel, which acquired a big steel operation in Years: In 1999, eight U.S. steelmakers brought
Slovakia a few years ago, is now planning to an anti-dumping action against CR imports from
construct a new hot-dip galvanizing facility on the 20 countries. In March 2000, the U.S. Interna-
site. The new galvanizing line at US Steel Kosice tional Trade Commission ruled that the imports
will have an annual capacity of 350,000 tons to did not injure the domestic industry. But the
meet growing demand in central Europe for high- companies appealed and the case has been on
quality coated steel for the auto and construction the dockets since then. Last month, the plaintiffs
industries. The cost of the facility, on which con- finally decided to drop the case after a ruling by
struction is slated to begin this year, is projected the U.S. Court of International Trade upheld the
at $160 million (AMM 2/24). ITC decision. The eight companies who filed the
suit, half of whom are no longer in business, were
WORTHY OF NOTE Bethlehem Steel, LTV Steel, U.S. Steel, Weirton,
WCI, Steel Dynamics, National Steel, and Nucor
Chinese Steel Output and Consumption Hit (AMM 2/8).
Record Highs: New figures released last month
Severstal’s Rouge Hit with Anti-Pollution Suit:
give some insight into the major steelmaker and
A group of private citizens in Dearborn, Mich.,
consumer that China has become. According to
have brought a suit against Severstal North
preliminary statistics from the China Iron and
America, that calls upon the company to identify
Steel Association, the country turned out 273 mil-
the substance of the particles they allege are
lion metric tonnes of raw steel last year and is
coming from the plant. Charging that the com-
expected to come close to 300 million tons this
pany has not installed proper emissions control
year. Of the 2004 figure, HR accounted for 48.4
equipment since it acquired the former Rouge
million tonnes, CR totaled 12.5 million tonnes,
plant in Dearborn just over a year ago, they are
medium plate made up 20.7 million tonnes, heavy
also asking the court to assess damages and
plate accounted for 2.2 million tons and galva-
demand that the company control future emis-
nized steel hit nearly 5 million tonnes. Chinese
sions. Severstal NA, a subsidiary of the Russian
pig iron production increased by 24.1 percent
steelmaker, says that it cooperates fully with all
from 2003 to a total of 252 million tonnes and
government agencies on environmental controls.
finished steel products totaled 297 million tonnes,
Government agency reports appear to be am-
a 23.3 percent increase over the previous year.
bivalent on the matter. Michigan’s Department of
Its exports of steel products jumped to 14.2 mil-
Environmental Quality has issued four letters on
lion tonnes, an increase of more than 100 percent
air pollution to the mill in the past four months but
over 2003 while its imports actually declined by
the federal government EPA, which regularly
21.2 percent from the previous year to 29.3 mil-
-9-
10. Steel Industry Update/194
monitors the facility, says Severstal has not vio- a leading industry analyst. Eli Lustgarten, senior
lated pollution standards. vice president and director of industrial equity
In another legal matter involving environ- research for J.B. Hanauer & Co., made the pre-
mental issues, US Steel has settled an action by diction in an address to the Metals Service Cen-
paying a fine of $950,000 and agreeing to bring ter Institute last month. The prediction came
its Great Lakes Works plant in Ecorse, Mich., even as some in the industry were concerned
into environmental compliance. The mill was about the flattening trend in steel prices this
formerly owned by National Steel which went year. Lustgarten said that the current production
bankrupt and was bought out by US Steel nearly data is “consistent with a multi-year upturn” of
two years ago. In addition to the fine, the com- four to five percent, and while it does not match
pany has agreed to install and upgrade pollution the hot activity of last year, it marks a “shift to-
control equipment and conduct ongoing mainte- ward more normal growth.” Last year’s intensive
nance operations (AMM 2/8, 2/10, 2/16). upturn came after end users had spent the two
previous years in “massive inventory reduction”
and production was picking up at an abnormally
Steel Customers Renew Push to Repeal Byrd
high speed. The current situation is now the
Amendment: A group of steel users, formed
more normal one and should continue through
into the Consuming Industries Trade Action
2006, he said, with strong end use markets in
Coalition (Citac), has renewed a drive to repeal
construction, machine tools, trucks, mining and
the Byrd Amendment. Citac’s new executive
commercial aircraft.
director, Steve Alexander, calls it the main ob-
The view was not unanimous, however. Ad-
jective of his group this year. The law, named
dressing the same meeting, William Peluchiwski,
after its chief sponsor, Sen. Robert Byrd (D.-
managing director of Houlihan, Lokey, Howard &
W.Va.), disburses import duties collected under
Zukin, a Chicago investment banking firm, said
Section 201 anti-dumping actions to companies
that flat-rolled prices are likely to fall below the
harmed by the dumping, instead of putting the
level expected by most analysts this year be-
money into the general treasury. It continues to
cause of the high level of flat-rolled inventories
have strong support in the Senate, particularly
(AMM 2/22).
among those Senators from states with a heavy
concentration of steel production, even though it
has been found in violation of World Trade Or-
ganization regulations. The Bush administration
has also urged its repeal. Of the $284 million
NOTES ON STEEL TRACK EXHIBITS
distributed to companies under the law last year,
Performance data is from monthly AISI sources. Spot Prices (ex-
$58 million went to steel companies (AMM 2/18). cept OCTG) are from Purchasing Magazine and are FOB Midwest,
with no extras. Hot rolled sheet, 48 inch, temper rolled, ASTM 569;
Cold Rolled Sheet, 48 inch, AISI 366; HD Galvanized Sheet, 120
Steel Forecast Looks Good for Next Two inch AISI 525, G90; Coiled Plate, A36, 1/2x96x240 inch; Cold Fin-
ished Bar, SBQ 1018; Wide-Flange Beam, A36, W8, 18 lbs; Wire
Years, Says Analyst: The steel market looks Rod, low carbon; Rebar, carbon, no. 6. OCTG spot prices are from
very strong for the next two years, according to Pipe Logix, FOB Houston for J55 8REUE Seamless Tube.
11. Steel Industry Update/194
Locker Associates Steel Track: Performance
Raw Steel Production Capacity Utilization
100%
10.0
(mil net tons) 2004 2003 2004 2003
9.6
9.2
90%
8.8
8.4
8.0 80%
7.6
7.2
70%
6.8
6.4
6.0 60%
J F M A M J J A S O N D
J F M A M J J A S O N D
2004 8.7 8.4 9.3 8.9 9.2 9.0 9.2 9.3 9.2 9.5 8.9 8.9 2004 88% 91% 94% 93% 93% 94% 94% 95% 97% 98% 94% 92%
2003 8.6 8.2 8.8 8.7 8.3 8.5 8.2 8.1 8.0 8.5 8.5 8.4 2003 83% 87% 85% 88% 81% 86% 79% 78% 81% 83% 83% 82%
Locker Associates Steel Track: Spot Prices
Other Product Prices
Flat-Rolled Prices
850
940
CR Sheet
800 900
Plate
($ per ton)
($ per ton) 860
750
CF Bar (SBQ)
820
700
780
650 740
HR Sheet
700
600
660
550
620
Wire Rod
500 580
Beam
540
450
500
400
460
350 420
380
300
340
250
300
260
200
89 91 93 95 97 99 01 02 03 1st 2nd J A S O N D J F
89 91 93 95 97 99 01 02 03 1st 2nd J A S O N D J F
Spot Prices for Selected Steel Products, February & Year-to-Date
Month of February Year-To-Date
2004 2003 %Chg 2004 2003 %Chg
($ per net ton)
Hot Rolled Sheet………….. 622 420 48% 631 385 64%
Cold Rolled Sheet......…….. 715 480 49% 723 450 61%
HD Galvanized Sheet..…… 745 500 49% 755 473 60%
Coiled Plate................……. 755 420 80% 763 395 93%
Cold-Finished Bar (SBQ)….. 931 590 58% 930 570 63%
Wide-Flange Beams....…… 556 435 28% 561 410 37%
Wire Rod/Low Carbon.…… 563 395 43% 566 378 50%
Rebar.........................…….. 478 375 27% 484 368 32%
Average Spot Price+…….. 671 452 48% 676 428 58%
Stainless Sheet 304………. 2,589 2,282 13% 2,583 2,129 21%
OCTG Seamless Tube.…... 1,518 993 53% 1,503 952 58%
Scrap ($/gross ton)*....………. 305 255 20% 338 236 43%
Sources: Purchasing Magazine, PipeLogix +Composite price of 8 carbon products *auto bundles
Steel Update/194
12. Steel Industry Update/194
Locker Associates, Inc.
225 Broadway, Suite 2625 New York, NY 10007 Tel: 212-962-2980 Fax: 212-608-3077
To: Interested Parties
From: Locker Associates
Re: Multi-Copy Subscriptions to Steel Industry Update
The past few years have been remarkable ones for the steel industry. Surging demand from China for
steel and raw materials, continued restructuring and consolidation in North America and internationally,
the weakening dollar and the U.S. economic upturn all contributed to an extraordinary recovery in the
steel market in 2003-2004. However, after historically high profits in 2004, 2005 looks more uncertain, as
customer inventory levels have increased and steel prices have slid, raw materials costs have also
dropped some and imports have returned to the market in greater numbers. The sustainability of China’s
blistering growth rate and its internal steel supply-demand balance, further consolidation of the industry,
both domestically and internationally, price and supplies for raw materials, new technological develop-
ments and continued access to capital are just a few of the issues which will shape the industry in the
near future.
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