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  1. 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
  2. 2. Steel Industry Update/194 Table 3: U.S. Steel Import Forecasts Inside This Issue...... Firm/Forecaster (mil tons) '04 '05 '06 '07 Steel Forecast ........................................... 2 Fourth Quarter Results .............................. 2 AIIS/von Bulow ................. 36 30 32 -- Prices and Shipments ............................... 3 AMM Research/Daswani .. 36 31 33 -- End-Use Markets....................................... 5 E&E Corp.......................... 36 33 32 34 Raw Materials............................................ 5 Global Insight/Anton ......... 36 38 35 36 Labor/Management ................................... 7 GMP/Wu ........................... 35 31 -- -- Capacity/Technology ................................. 8 McDonald Inv/Parr ............ 36 36 33 -- Worthy of Note........................................... 9 Prudential Sec/Tumazos... 36 27 30 -- Moreover, any adjustments to Asian currency Purchasing Mag/Stundza.. 36 29 33 36 levels could lead to a run on the dollar, as foreign TN Consulting/Mueller ...... 36 32 31 -- governments that currently fund the U.S. trade World Steel Dyn/Kirsis ...... 36 33 -- -- deficit through their purchases of dollar denomi- Locker Associates............. 36 32 34 34 nated investments quit buying U.S. assets. 36 32 33 35 Consensus Forecast ..... Compiled by Locker Associates Forecast as of 3/05 STEEL FORECAST spot and contract business. Many auto suppliers Our latest forecast poll of major steel experts re- have chosen to buy on a spot basis -- risking veals steel-watchers expecting demand and pro- price volatility -- and have benefited from histori- duction to stay healthy in 2005 –2007, although cally depressed spot price levels. By not utilizing slightly down from 2004. As expected, there was supply contracts, steel consumers accept the risk a general consensus on 2004 shipments, at ap- of price spikes and supply shortages. In 2004, proximately 112 million tons, which was also in contract customers faced much less price volatil- line with AISI preliminary results. Tom Stundza of ity than spot customers. Purchasing Magazine and Hans Mueller of TN However it is the impact of low priced foreign Consulting were right on the money in their July imports that has especially hurt U.S. manufactur- 2004 shipment predictions. No one was able to ing companies more than any other phenome- accurately predict total 2004 import levels, which non. China, with its low wage, skilled workforce, should hit 35.8 million tons. July estimates rang- has drawn more and more world production to its ed from 22 to 30 million tons (Mueller was closest shores, and increasingly sets the world price for with 30 million tons). manufactured goods. Currency manipulation by The 2005 shipment consensus is approxi- China and other Asian countries has contributed mately 110.8 million tons, led by Mark Parr of to even lower prices in the U.S. market. This has MacDonald Investments at 116 million tons, with also contributed to the soaring U.S. trade deficit, Tom Stundza the most bearish at 108.8 million up from $143 billion in 1995 to more than $600 tons. Predictions for 2006 shipments show little billion now. In order to compete, many U.S. firms change from 2005, with another potential in- have moved offshore, especially to China. crease to 113 million in 2007. The majority of For those manufacturers who have remained in experts expect a decline in imports in 2005, with the United States, their best bet is to first focus only John Anton of Global Insight predicting an their efforts on improving productivity to lower increase. Imports are forecast to rise again in ‘06 their unit labor costs. Because of the significantly and ‘07. Our experts predict little change in ex- higher wage and benefit costs in the U.S., do- port levels or the break-out of semi-finished and mestic producers must be able to constantly im- finished imports, except for a dip in semi-finished prove their efficiency and productivity in order to in 2006. remain competitive. U.S. based producers would also benefit from FOURTH QUARTER RESULTS a revaluation of Asian currencies, which are presently at artificially low levels. However, most The fourth quarter gave steelmakers another rea- U.S. multinational firms and their lobbyists op- son to celebrate in 2004, although results for pose a revaluation because a large portion of many mills were slightly off their Q3 2004 highs. their production capacity is located in China. Steel Industry Update (ISSN 1063-4339) published 10 times/year by Locker Associates, Inc. Subscriptions $395/yr; $725/two yrs; Multiple copy discounts available. Checks payable to Locker Associates in U.S. dollars drawn on a U.S. bank. Copyright © 2005 by Locker Associates Inc. All rights reserved. Reproduction in any form forbidden w/o permission. Some material in this Update is excerpted from American Metal Market (AMM), which is available by subscription by calling 800-247-8080. Locker Associates, 225 Bdwy, # 2625, NY NY 10007. email: -2-
  3. 3. Steel Industry Update/194 Table 4: Performance of Major North American Steel Producers, 4Q04 & 4Q03 Shipments Sales Oper Income Sales/Ton Oper Inc/Ton (thousand tons) ($ 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 -3-
  4. 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 -4-
  5. 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 -5-
  6. 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 -6-
  7. 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. -7-
  8. 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. 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. 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- $58 million went to steel companies (AMM 2/18). cept OCTG) are from Purchasing Magazine and are FOB Midwest, with no extras. Hot rolled sheet, 48 inch, temper rolled, ASTM 569; Cold Rolled Sheet, 48 inch, AISI 366; HD Galvanized Sheet, 120 Steel Forecast Looks Good for Next Two inch AISI 525, G90; Coiled Plate, A36, 1/2x96x240 inch; Cold Fin- ished Bar, SBQ 1018; Wide-Flange Beam, A36, W8, 18 lbs; Wire Years, Says Analyst: The steel market looks Rod, low carbon; Rebar, carbon, no. 6. OCTG spot prices are from very strong for the next two years, according to Pipe Logix, FOB Houston for J55 8REUE Seamless Tube.
  11. 11. Steel Industry Update/194 Locker Associates Steel Track: Performance Raw Steel Production Capacity Utilization 100% 10.0 (mil net tons) 2004 2003 2004 2003 9.6 9.2 90% 8.8 8.4 8.0 80% 7.6 7.2 70% 6.8 6.4 6.0 60% J F M A M J J A S O N D J F M A M J J A S O N D 2004 8.7 8.4 9.3 8.9 9.2 9.0 9.2 9.3 9.2 9.5 8.9 8.9 2004 88% 91% 94% 93% 93% 94% 94% 95% 97% 98% 94% 92% 2003 8.6 8.2 8.8 8.7 8.3 8.5 8.2 8.1 8.0 8.5 8.5 8.4 2003 83% 87% 85% 88% 81% 86% 79% 78% 81% 83% 83% 82% Locker Associates Steel Track: Spot Prices Other Product Prices Flat-Rolled Prices 850 940 CR Sheet 800 900 Plate ($ 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. 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. To keep abreast of these changes, you need Locker Associates’ Steel Industry Update. This concise monthly newsletter summarizes the trade press and charts timely industry data -- on U.S. and Canadian shipments and trade, production, forecast steel prices, raw material costs, and quarterly company per- formance -- in an easy-to-read format. And the Update looks beyond the data to examine their strategic implications for North American and global steel markets. To encourage and facilitate the direct distribution of the Steel Industry Update, we offer bulk subscrip- tions at a sizable discount. For example, every month we can forward five copies of each issue directly to your company for just $1,595 per year -- a savings of almost $400. Within days of publication, you will receive each fact-jammed issue, loaded with information on: Multiple Copy Subscription Rates • Product prices and shipments Number Annual • End-use market developments of Copies Cost • Raw material trends One .................................. $395 • Two .................................. 695 Quarterly company performance data • Three ............................... 995 Price and shipment forecasts Four ................................. 1,295 • Advances in steel technology Five .................................. 1,595 • Labor/Management relations Six.................................... 1,895 Seven............................... 2,195 Fill out the order blank below and begin supplying your lead- Each Additional Copy....... $300 ers with the best information source on the U.S. and Cana- dian steel industry. ---------------------------------------------------------------- Please enter my subscription to Locker Associates’ Steel Industry Update: Please send me issues every month, at an annual cost of $ [ ] Payment enclosed [ ] Bill me Note: Make checks payable to Locker Associates; payment must be in U.S. dollars drawn on a U.S. bank. Name: Title: Address: City: State: Zip: Country: Phone #: Fax #: Email: Return to: Locker Associates 225 Broadway, #2625, NY, NY 10007 Ph-212-962-29803077 email: website: