Out in front

Mark Millett, who along with Keith E. Busse and Richard P. Teets Jr. founded Fort Wayne, Indiana-based Steel Dynamics Inc. (SDI) in 1993, currently serves as president and CEO of the company. Throughout the years, Millett has held a number of senior management positions with SDI including executive vice president for metals recycling and ferrous resources and president and CEO of OmniSource Corp., the metals recycling business SDI acquired in late 2007 from the Rifkin family.

Millett also led SDI’s ferrous technologies team, creating and implementing SDI’s iron making initiatives Iron Dynamics and Mesabi Nugget.

When Millett was responsible for SDI’s flat-roll steel business from 1998 to 2008, he and his team initiated a plan to increase the mill’s production capacity to 3 million tons per year and add significant coating capacity, resulting in SDI operating six galvanizing lines and two coil-coating paint lines. As a result, according to SDI, the company now operates one of the most productive and profitable flat-roll minimill operations in the country.

Before forming SDI, Millett worked for Charlotte, North Carolina-based Nucor Corp. for 12 years. While at Nucor, he served in technical and management roles, including the design, construction and operation of the melting and casting facility at the world’s first thin-slab flat-roll minimill at Crawfordsville, Indiana.

In the following Q&A, Millett shares his outlook on the U.S. scrap and steel industries as well as the factors that have contributed to SDI’s success over the years.
 

Recycling Today (RT): How do you see 2014 shaping up in terms of demand for SDI’s steel products? What economic barometers do you watch most closely?

Mark Millett (MM): We have come into the year very optimistically. Our economy is growing and certainly in areas that will support the steel industry. We all took a beating early on because of the brutal winter, and I think that tended to soften things momentarily. Apparent demand seemed to drop off for a moment. I don’t think there is any structural change in demand growth. We have seen over 2012, 2013 and so far this year an incremental upward movement in our economy and in our order books, and I think that is going to continue throughout 2014 and into 2015.

If you look at what really drives our business, it is principally the automotive arena. Actually, automotive is incredibly strong right now. They still predict 16.5 million units in production this year, and that is projected to continue for the next two to three years, at the very least. I think that is a great indicator.

The second largest consumer of steel goods is the construction sector—both residential and nonresidential construction. And, as we look forward, we see continued signs of growth in that arena as well. In residential, the macro market indicators are generally good, as is the nonresidential arena.

We look at the ABI (Architecture Billings Index) for nonresidential construction [and the] PMI (Purchasing Managers Index) for manufacturing.

But, in all honesty, a wise man told me many years ago that your order book tells all. It is one thing to see market indicators on a macro basis, but when you actually start seeing the orders come in those sectors, you can be assured of some positive growth, and we are seeing that across our order book.

RT: What do you see so far in 2014 in terms of scrap generation and demand?

MM: On the prime side, generation is very strong. Obviously, the bulk of that comes from the automotive arena, and some of it comes from manufacturing. We feel that the manufacturing sector is continuing to improve, so prime scrap is in ample supply.

On the obsolete side, it is a little tighter. Obviously the winter weather didn’t help; the brutal weather across most of the nation tended to slow that up a little bit, but not as much as I anticipated.

Demand has been quite healthy from the domestic mills. The export arena has dropped off a little. I think that tends to be in part because the global economies tend to be somewhat weak, which affects demand flow. Also, there are currency changes, particularly in Turkey, where scrap for them has been more attractive to import from Europe than from America, and so their demand from the States has dropped off a little.
 

RT: Margin compression appears to be a major concern for the scrap industry. Is this an issue with the finished steel products sector as well? Are there steps that SDI can take to protect and maintain its margins?

MM: For sure. Steel is a global market. You have a world where growth has been exponential in China, and most of the world’s economies are in dire straits and are lacking demand; so, you have a very large overhang of global excess capacity. It is difficult to count the numbers, especially in China, but some would say its 300, 400 or 500 million tons. When you put that in perspective, it is three or four times the domestic demand in the United States—it is quite considerable.

That overhang obviously creates a headwind for domestic pricing that tends to suppress margins or keeps them in check.

On the scrap side, you have a very competitive marketplace, particularly for obsolete material. You have had a fairly substantial increase in [domestic] shredding capacity over the last six or seven years, and you also have had an increase in the export market relative to a few years back, when we exported 10 million or 12 million tons, and now we are exporting in the 22 million and 23 million ton range. Those markets—the increased [domestic] shredder capacity and the export market—are both competing for the same obsolete flow, which is a predefined reservoir.

In turn, that same competitive pressure has appreciated the costs. Margins have moved upstream or back stream, depending on what you like to call it, from the scrap processor back to the dealer.
 

RT: Do you think the proliferation of shredders has done more to help or to harm scrap processors?

MM: It has had a significant negative impact on their margins for sure. I think we’re in a time when many of the shredder operators are under financial distress, and over time—it won’t happen overnight—the industry will rationalize itself.
 

RT: SDI has invested significantly in an alternative iron facility in Minnesota with Mesabi Nugget. What is the long-term future for Mesabi Nugget with SDI?

MM: We invested in our Ferrous Resources Group, to eliminate our dependence on imported pig iron.

Actually, before Mesabi Nugget, we had an enterprise called Iron Dynamics. They are currently producing about 240,000 tons of liquid iron per year. That has been a great benefit for us, not only on a cost basis, but also because we are utilizing steel mill waste as our raw material, so it is not dependent on the iron ore market. Secondly, the liquid iron boosts the productivity of our electric arc furnaces quite significantly. So, Iron Dynamics has been quite a success.

Mesabi Nugget is a pioneering effort and is still in its developmental stages today.
 

RT: During the ISRI conference Ferrous Spotlight, there was a debate about the role of DRI and other materials that are commonly termed scrap alternatives. One gentleman said they are not alternatives at all but help to adjust chemistry. Do you have a view on that?

MM: Generally, you are looking for iron units in the electric arc process, whether that comes from scrap or DRI or pig iron. Different types of scrap all have different qualities and attributes to contribute to an electric arc furnace. Basically, [scrap, DRI and pig iron] are all electric arc furnace raw materials.

In combination, the more DRI or the more pig iron in domestic production in North America will, from my perspective, have a positive impact because, for any commodity, if you have additional supply and constant demand, the market price will drop, and that is good for the electric arc furnace industry.
 

RT: SDI has had to shutter some of its OmniSource locations, especially in the South. Additionally, the company has had to idle some auto shredders (as have many other companies). Do you think most of the OmniSource closures are done or do you see more consolidation of operations?

MM: We continue to assess our business and the market conditions in the Southeast, and we are going to continue to act accordingly to make sure we have a sustainable business model down there.

I think the team is doing a good job focusing on its cost pressures and its market activities to improve the margin.
 

RT: Are there other regions of the U.S. where OmniSource may look to grow?

MM: I don’t think so—not appreciably anyway. I think our strategic objective, which was originally to develop a secure source of scrap, is pretty complete. We have today 7.8 million tons of steelmaking capacity, and we have around 7 million tons of scrap collection, processing and supply capacity. Strategically, we are reasonably balanced.

Not all that OmniSource scrap goes to our own mills—only about half does. Because scrap tends to be a fairly freight-sensitive commodity, it makes sense for some of our scrap to flow to our own steel mills, while the rest is sold to third parties. Nonetheless, I think we have a pretty good balance of supply, and I don’t anticipate any appreciable growth outside our existing geographical footprint.
 

RT: Several steel companies have criticized trade policies of other countries and have complained that the domestic steel industry is at a distinct disadvantage to other countries (especially China). Can you comment on this opinion and what role, if any, SDI should take with helping to educate policymakers on the global steel industry?

MM: We don’t believe in protective trade, but we certainly believe in fair trade. I think we have a responsibility to educate our policymakers as to the impact and effect of unfairly traded goods coming into this country.

We actually don’t do a great deal of lobbying independently; we work through an entity called the Steel Manufacturers Association (SMA, www.steelnet.org) to gain a greater voice.

RT: You’ve been personally involved in considerable technology advances for EAF steel production. Do you see further advances that will increase EAF steel production and thus the demand for steel scrap?

MM: If you look at America, it is one of the only mature economies that is actually steel short. In a normalized economy, America needs 130 million tons or more of steel, and we have the steelmaking capacity for 100 million or 105 million tons. In that environment, although it is difficult to envision today given where the steel economy currently is and where the markets are, you can see room for additional capacity. With time, some of the older capacity will continue to come offline, and any growth, given the environmental concerns of today, is likely to be electric arc furnace, and that will increase the demand for scrap and for pig iron.

RT: But there are no advances that you know of that could result in additional efficiencies?

MM: I don’t see there being any technology on the horizon that would be considered a leap-frog technology. But the industry is pretty innovative, and things will continue to improve on an incremental basis.

RT: President Obama recently paid a visit to U.S. Steel. If he came to SDI and asked you for advice, what would you tell him?

MM: First and foremost, I would ask him to promote the shale gas industry. I think the shale gas phenomenon can lead to American prosperity going forward and to significant economic growth. If our country could become energy independent again, which shale gas properly developed would allow us to be, we would again be a world leader. I’d ask him to perhaps focus on that and not suffocate it through regulation.

I would also request that he assures our trading partners adhere to our and to WTO (World Trade Organization) trading policies.

I think I would also ask him not to suffocate basic industry by overregulation. I think everyone gets caught up in regulation, and regulation should be focused on those companies that don’t adhere to environmental and safety standards and not suffocate quality companies that make every attempt to do what is right.

And I’d say that all very politely.

RT: Is there room for more steel capacity to open in the U.S. in the near future?

MM: I think over time, yes. I think in the immediate market with 500 million tons of excess global capacity and slow growth in foreign economies, it will take a little while to absorb that capacity. But, thereafter, yes.

RT: What is one thing that gets you excited about working at SDI?

MM: I get impassioned and inspired by our people. We have a phenomenal culture, I do believe, and esprit de corps. When I go out and visit our guys and girls in our scrap yards and our fabrication plants and steel mills, I get energized. They are the ones who drive our success. It is an incredible team of people. … They are all driving our company forward.

RT: How does the copper smelting partnership with Spain’s LaFarga Group fit in with the overall SDI business strategy?

MM: I think in some respects it mirrored the evolution of the electric arc furnace industry in that the electric arc furnace industry used scrap, which was a relatively economical raw material compared to the iron ore integrated route.

SDI La Farga takes No. 2 copper scrap and produces a prime product. We thought that it presented a value-add downstream enterprise for us and that the LaFarga Group was a very high-quality organization—great people—and it gives us an outlet for our No. 2 copper scrap.

We are one of the largest nonferrous scrap companies in the States, and the No. 2 copper market has been pretty reliant on China, which has been a volatile arena and not a market that has the highest ethics, I would say. So, we wanted to get a consistent outlet for that No. 2 copper scrap.

RT: SDI LaFarga has been operating now for about a year and half. Have you realized the gains you expected to see there in terms of it being a reliable consumer of No. 2 copper scrap?

MM: Things never happen quite as quickly as one would like, but it is progressing quite nicely.

RT: Can the United States maintain and grow its manufacturing base in the global economy?

MM: I think so. I think America, particularly with its potential energy position, could have a phenomenal basis for growth. We are one of the most attractive countries to produce steel and manufacture goods. We are politically stable, our energy basis is very low, we have one of the most productive workforces in the world—one that may be paid a little more per hour—but our productively is second to none. I think there are quite a few things going for America.

RT: Do you ever think we’ll regain the position we once had in regard to manufacturing?

MM: One would hope. Again, as long as business is allowed to thrive, it will then in turn create jobs and continue to fuel the economy.

RT: What makes the SDI culture unique?

MM: I guess we believe in our people, first and foremost, and our people believe in us. It is one thing to have state-of-the-art equipment and technology, which is essential for us to compete today, but it is even more important to create a culture in which to leverage that equipment. I think we have a passionate team. It is their company; it is our company. We reward everyone’s efforts through profit sharing. If the company does better, everyone does better. There is an equity component; we use stock options, they are called RSUs (restricted stock options), which gives each and every employee ownership in the company—it’s not just a perk for the upper leadership. Building a spirit of ownership, I think, is crucial. We have a performance, incentive-driven company. As we all work hard or harder, we share in the rewards of the company.

I think you just have to treat people right in life. It may sound simple, but you have to have strong ethics, loyalty, respect and communicate well.

One has to promote innovation, and that comes, again, from all 6,700 employees. They are all creative people. They all come up with ideas, whether it be ways to improve safety, quality, customer service or just make things a little easier every day. But you have to listen to them. You can’t dismiss those ideas because then suddenly those ideas start drying up.

One of the principal roles of the senior management team is to listen, read between the lines and react and get back to our employees. Whether the answer is yes or no, whether it is good news or bad news, they need to know.

It is a whole conglomeration of simple things, but in the end you get a powerful, impassioned team that can do anything in life.