Analysis: Cuts keep coming for integrated steelmakers

Constituencies ranging from recycling advocates to stock analysts to executives of scrap-fed electric arc furnace (EAF) steelmaking firms have long held that the EAF sector is well positioned to compete in a fast-changing global economy. The roiling of global markets by the COVID-19 coronavirus seems to be bolstering that point of view.

In North America, steelmakers of all types have reduced output based on shifts in demand, but the cost competitiveness of EAF steelmaking versus integrated basic oxygen furnace (BOF) production is pointing to different outcomes and balance sheets between these two sectors in 2020.

The week of April 20 saw more cutbacks in the Minnesota Iron Range, with a taconite plant owned by ArcelorMittal laying off some 650 workers. According to the Minneapolis Star-Tribune, it brings to about 1,500 the number of workers known to be laid off in the iron ore-rich area, which supplies raw materials to BOF steel producers.

Global steelmaker ArcelorMittal itself announced the week prior that it had secured access to a $3 billion line of credit to “be used for general corporate purposes.” Added the Luxembourg-based steelmaker with facilities around the world, “While the company has no immediate need to draw on this new credit facility, it will provide additional financial flexibility in the current extraordinary circumstances.”

By late March, ArcelorMittal had reportedly scaled back integrated mill output in East Chicago, Indiana, and in Hamilton, Ontario, Canada.

Pittsburgh-based United States Steel Corp. has made no secret it too is struggling in the downturn. By late March, it was announcing actions made “to preserve [its] strong long-term future” that included idling blast furnaces in Gary, Indiana, and Granite City, Illinois. Tellingly, U.S. Steel also indicated it was adhering to its construction schedule to open its EAF tubular mill in Fairfield, Alabama, in the second half of 2020.

Steel industry consultant Becky E. Hites—who also is running for a House of Representatives seat in Georgia—is recommending government-backed funding programs for integrated steelmakers in the United States. In particular, Hites says the integrated steelmaking production of electrical steel used in motors and transformers passes the national security standard.

Meanwhile, all is not necessarily peaches and cream with the EAF sector. Some mills and production lines have been idled, such as the EAF mill in Cartersville, Georgia, operated by Brazil-based Gerdau. Australia-based BlueScope placed an expansion project at an EAF mill in Ohio on hold in early April.

But America’s largest EAF producers continue to make relatively bullish statements that they are serving remaining buyers in the spring of 2020 and they are preparing for an inevitable rebound in demand.

In comments accompanying the quarterly results of Fort Wayne, Indiana-based EAF steelmaker Steel Dynamics Inc. (SDI), Mark D. Millett, the firm’s president and CEO, states, “We entered this crisis in a position of strength with ample cash and available liquidity. Our differentiated business model and performance-driven culture has proven our ability to generate strong cash flow during challenging times such as these.”

Just as U.S. Steel has stayed on track in building its Alabama EAF mill, so too SDI has remained committed to investing $1.6 billion to build what Millett calls a “new state-of-the art, electric-arc-furnace (EAF) flat roll steel mill” in Sinton, Texas.

Charlotte, North Carolina-based Nucor Corp., America’s and perhaps the world’s largest EAF steelmaker, stated as of March 19, “Thus far the impacts of COVID-19 on our supply chains and operations have been minimal. However, more severe impacts are probable as economic activity is disrupted by construction sites being shut down in some major cities and other business interruptions.”

In the one month afterward, Nucor has not announced any mill closures, however. Media reports have indicated the company idled production at its direct reduced iron (DRI) plants in Louisiana and Trinidad, citing COVID-19 public and workforce health reasons. Nucor’s first quarter earnings are scheduled to be announced in late April.

How the global economy and the U.S. economy will fare in the rest of 2020 remains almost impervious to forecasts or statistics, with a microbial virus playing the leading role. In the short term, however, EAF steelmakers seemed to have shown a resiliency that is not as apparent on the integrated, BOF side.