Ferrous Supplement -- Still No Rebound

Will the dawn of a new year bring assistance to the beleaguered North American steel industry? Although there is hope that Section 201 conditions established by the Bush Administration could allow American steelmakers to raise their prices, the bad news may not be over for some steel companies.

Even since Recycling Today ran a cover story on the steel industry’s woes just ten months ago (“A Matter of Survival,” March 2001), and another interview on steel industry conditions with Dan DiMicco, CEO of Nucor Corp., Charlotte, N.C., (“The Heat is On,” July 2001), more mills have shut down and more bankruptcy petitions have been filed.

It appears certain that North American ferrous scrap dealers will have fewer domestic destinations to sell scrap to after the steel industry battle against imports of 1999-2002 is concluded.

OVERCAPACITY IN THE SPOTLIGHT

Nearly all steel industry observers agree that there is more steelmaking capacity globally than is needed. Ironically, by the raw numbers the U.S. should not necessarily be a place where steel mills have to be shuttered, since so much steel is consumed here that the U.S. has been a net importer of steel for some time.

Steel industry executives throughout the world seem to agree, though, that there are too many mills pumping out too much steel, but naturally very few are reluctant to reduce their own market share voluntarily.

The solution to overcapacity has thus far been an unhappy slide toward bankruptcy for steel companies large and small, with many U.S. companies included in that slide. Large integrated steelmaker LTV Corp., Cleveland—with a lineage that traces back to steelmaker Jones & Laughlin—is in the process of liquidating, and it is uncertain that there will be an operator willing to re-start its idled integrated steelmaking facilities in Cleveland and East Chicago, Ind.

Bethlehem Steel Corp., Bethlehem, Pa., has also filed for bankruptcy re-organization, and it remains uncertain which facilities (if any) will be idled.

Not all the bankruptcies have led to shuttered mills, but between those that have been idled combined with greatly reduced melting schedules by solvent mills, production may finally be lining up closer to overall demand for steel.

While crude steel production has dropped regularly for the past 12 months in many nations, according to statistics kept by the International Iron and Steel Institute (IISI), Brussels, the cutbacks have been uneven.

 The North American steel industry considered together will have produced 14 million metric tons less steel in 2001 compared to 2000—a 10.9% decrease. This dramatic plunge in production occurred while European Union steelmakers made just 2.2% less steel and Asian mills actually pumped out 10 million metric tons more steel.

On the other hand, nations pumping out more steel include China (+11.2%), Slovakia (+9.7%), Ukraine (+7.3%), Spain (+6.1%) and Turkey (+6.0%).

According to the IISI, when all nations of the world are considered together, global steel production declined just 0.6% in the first 11 months of 2001, compared to the year before. If too much steel was pouring into the market in 1999 and 2000, the problem did not seem to be corrected significantly in 2001.

SHUTTING DOWN

Ferrous scrap recyclers who have been concerned about slack demand may be dismayed to learn that nearly as much steel was made in 2001 as in 2000, and thus the steel industry may not truly be any closer to lasting health than it was entering the year.

As the IISI numbers detail, a significant percentage of the mill closings and cutbacks that are occurring are affecting regional scrap markets in North America.

In addition to the idled LTV mills, Geneva Steel LLC idled its integrated steelmaking facility in Vineyard, Utah, in mid-November. The company is reportedly seeking to re-establish credit lines that will enable it to re-start production some time in 2002.

It is unclear whether other integrated steelmakers that have either petitioned for bankruptcy or are bleeding red ink will decide to close down some of their facilities. “Discussions with the United Steelworkers of America have already begun,” said Bethlehem Steel Corp. CEO Robert J. Miller when the company announced its bankruptcy. “Aggressive company-wide cost reduction initiatives are underway and we are also developing plans to further reduce our total workforce,” he added.

 The integrated mills are not the only ones suffering from the current steel industry dilemma. Several scrap-charged electric arc furnace (EAF) mini-mills in North America have also been unable to ride out the storm. Those that have shut down include GST Steel Co., Kansas City, Mo.; CSC Steel, Warren, Ohio; Laclede Steel, Alton, Ill.; Northwestern Steel & Wire, Sterling, Ill.; Acme Metals Inc., Riverdale, Ill.; Trico Steel, Decatur, Ala.; and Sydney Steel Corp., Sydney, Nova Scotia, Canada.

By and large, however, the EAF process is considered an efficient way to make steel in scrap-rich North America. Interest has already been expressed in some of the idled EAF capacity, with Nucor Corp. preliminarily agreeing to purchase the Trico mill.

Other EAF steelmakers that have applied for bankruptcy protection, such as Sheffield Steel, Sand Springs, Okla., are continuing to operate while they reorganize their finances.

Even in the midst of the current steel industry turmoil, new capacity is coming online in the EAF segment. IPSCO Steel held an official grand opening for its new Mobile, Ala., mill in November of 2001. The plant cost $425 to build, and will run at full capacity early this year.

Steel Dynamics Inc., Butler, Ind., is in the process of building a second mill in Columbia, Ind., that will churn out 1.1 million tons annually of structural steel and rail mill. That mill is expected to  be complete in the summer of 2002.

And even integrated steel giant U.S. Steel, Pittsburgh, is investing $86 million at its Lorain, Ohio, mill to produce specialized piping products for high-temp applications.

Some EAF steel executives are even feisty enough to spurn government aid.

“This industry needs comprehensive import relief . . . not a bailout of failing steel companies,” Nucor’s Dan DiMicco wrote in a December letter to U.S. lawmakers. “Consolidation of efficient and productive facilities is occurring without any federal bailout.”

The good news behind DiMicco’s feistiness is that the EAF operators who use ferrous scrap as their main charge are confident that they will compete just fine in the future, as long as someone somewhere is buying steel.

The author is editor of Recycling Today and can be contacted via e-mail at btaylor@RecyclingToday.com.