March 2003 Metal Industry News

Court Picks U.S. Steel as National’s Buyer
The contest is over and U.S. Steel won. The U.S. Bankruptcy Court in Chicago approved U.S. Steel’s purchase of National Steel Corp.’s integrated steel assets on April 21. AK Steel, initially the lead bidder, put more money in front of National, but U.S. Steel successfully negotiated a labor agreement for workers at both National and U.S. Steel.

“We are extremely pleased that we have emerged as the successful bidder for National’s world-class assets,” says U.S. Steel Chairman and CEO Thomas J. Usher. “The acquisition of these assets will be a significant step forward in our strategy to grow profitably and to strengthen our position as a leading global provider of high value-added steel products.”

He credits the Bush administration’s steel trade program as a key in allowing the American industry to consolidate.

“We can now direct our full attention toward closing the transaction as soon as possible and ensuring a seamless integration of our domestic businesses. We look forward to welcoming the skilled workforce of National as we begin this new era in our company’s history,” Usher says.

Under the terms of the agreement, U.S. Steel is buying substantially all of National’s steelmaking and steel finishing assets and the assets of National Steel Pellet Co. for $1.05 billion, including $850 million cash and the assumption of $200 million of National’s lease and contractual obligations. The agreement provides that net working capital will be at least $450 million on the closing date. Though AK Steel had submitted a higher bid at $1.125 billion, it was unable to reach an agreement with the Steelworkers.

U.S. Steel will finance the cash component of the acquisition through a combination of existing cash balances, credit facilities and by issuing debt securities. U.S. Steel will assume no liabilities related to National’s pension plans, which were terminated by the Pension Benefit Guaranty Corporation, nor will it assume National’s defined benefit retiree medical and life insurance plans. The transaction is expected to close later in the second quarter and is subject to customary closing conditions.

Usher says that U.S. Steel’s new five-year contract agreement with the United Steel Workers of America sets the framework for the company to operate the combined facilities with a more variable and world-competitive cost structure. The new labor pact provides for a workforce restructuring through which U.S. Steel expects to achieve productivity improvements of at least 20 percent at both U.S. Steel and National facilities.

U.S. Steel will record liabilities related to current active National employees primarily for future retiree medical costs, subject to certain eligibility requirements. These liabilities are broadly estimated at $290 million and include at least $35 million for early retirement incentives and lump sum payments to the Steelworkers Pension Trust.

The trust is a multi-employer pension plan to which U.S. Steel will make defined contributions per hour worked for all National union employees who join U.S. Steel.

Based on a preliminary assessment, the company expects annual acquisition synergies of at least $200 million within two years of closing, plus the elimination of costs related to National’s pension and retiree medical and life insurance plans.

These savings are expected to result from several actions, including increased scheduling and operating efficiencies, the elimination of redundant overhead costs, the reduction of freight costs and the effects of the new labor contract as it relates to active employees at the acquired National facilities. Savings related to application of the new labor contract to existing U. S. Steel facilities are in addition to this synergy amount.

The new labor agreement enables U.S. Steel to reduce its employee and retiree health care expenses by introducing variable cost-sharing mechanisms. U.S. Steel will soon realign its non-represented staff to achieve further gains.

“We’re extremely pleased that the progressive labor agreement our union reached with U.S. Steel for the purchase of National apparently played a crucial role in the court’s decision,” USWA President Leo W. Gerard remarks.

In reflecting on the negotiations that led to U.S. Steel’s successful bid, Gerard says that although the company had a long history of hard-nosed bargaining with the union, it somehow managed to “see the shape of a more enlightened approach to labor negotiations and to address the changes that our members found absolutely essential for a humane consolidation of the industry.”

In its order approving the sale, the court found that:

National Steel had filed for reorganization under Chapter 11 in U.S. Bankruptcy Court in March 2002. Headquartered in Mishawaka, Ind., National produces about six million tons of flat-roll steel annually, with mill and finishing operations in Ecorse, Mich.; Portage, Ind.; and Granite City, Ill.

Nucor Acquires North Star’s Kingman Plant
Nucor Corp. has purchased North Star Steel’s Kingman, Ariz., mill for $35 million, though the timing of its restart is uncertain.

Nucor formed a new subsidiary, Nucor Steel Kingman LLC, to operate the facility, which has an annual melting capacity of 650,000 tons. The melt shop has not operated since January 2000, however. The rebar and wire rod rolling facility was idled by North Star in early March. Annual rolling capacity exceeds 500,000 tons.

“North Star stopped operating this facility because it could not find a way to make the facility economically viable,” says Dan DiMicco, Nucor’s vice chairman, president and CEO. “We will immediately begin discussing issues with state and local authorities, as well as with potential suppliers to find the most effective solution for profitably operating the plant.”

Nucor has made no decisions on restarting the melt shop and won’t begin operations until the proper engineering, financial, operating and state and local tax issues have been settled, DiMicco says.

“In our search for a reputable buyer of this facility, we are very pleased to have reached agreement with Nucor,” remarks Jim Thompson, president of North Star Steel. “Throughout the entire process, we appreciate the support that the greater Kingman community has shown us, and we share in their hopes for the opportunities that new ownership may bring.”

Alcoa to Supply Bombardier Aerospace
Alcoa was selected to supply Canadian aircraft manufacturer Bombardier Aerospace with aluminum flat-rolled products and metallic solutions for its regional and business jets.

As part of a multi-year agreement, Alcoa will supply Bombardier with structural components, and wing and fuselage skins for all Bombardier aircraft products, including its Bombardier CRJ series and its Learjet, Challenger, and Global Express families of aircraft.

The agreement establishes a new level of supply chain management and services between the companies, integrating Bombardier’s needs with Alcoa’s products, services and knowledge of materials, structural design, engineering, quality and delivery performance to customers. Alcoa also will pilot a finished goods facility in Montreal as part of its customer service program to Bombardier.

Deliveries to Bombardier manufacturing locations in Montreal and Belfast began in the first quarter. Aluminum products delivered to Bombardier’s Montreal facility are made at Alcoa’s Davenport, Iowa, facility using ingot produced in Quebec as one of its principal sources.

European Commission Gears Up for Sanctions
The European Commission reportedly is preparing countermeasures against the United States’ Section 201 steel safeguard, if the World Trade Organization rules negatively on a U.S. appeal, to put pressure on the Bush administration to rescind the tariffs without delay.

Sources in Brussels reportedly told London’s Steel Business Briefing that the EC is expected to base its sanctions on the so-called “long list” of U.S. imports, which has a value of about 600 million euro. This targets a range of American carbon and stainless products, among other items. The commission said last year it would use the long list, once the WTO has ruled on the case. This is likely to occur toward the end of September.

The sources are also apparently of the view that once the WTO has ruled on the appeal, the Bush administration cannot pass the issue back to the International Trade Commission, and will be forced to make a decision. In recent weeks, U.S. steel producers have lobbied the White House and Congress to keep the Section 201 measures in place for the full three years.

U.S. Steel to Acquire Serbian Steel Company
U.S. Steel Balkan d.o.o., a wholly owned Serbian subsidiary of U.S. Steel Corp., agreed April 1 to purchase out of bankruptcy Serbian steel producer Sartid a.d. and six of its subsidiaries for $23 million.

The purchases, targeted for completion during the third quarter, are subject to an anti-monopoly review by competition authorities in several countries.

John Goodish, U.S. Steel executive vice president for international and diversified businesses, says the company is confident it can transform Sartid into a profitable and competitive steel producer and a long-term contributor to the economic development, stability and success of Serbia and the communities in which Sartid operates.

“The acquisition will enhance U.S. Steel’s ability to service its steel sheet and tin mill products customers in our European markets, especially in the Balkan region,” says Thomas Kelly, managing director, U.S. Steel Balkan.

Sartid’s facilities in northern Serbia include an integrated mill with a raw steel capacity of 2.4 million net tons. Sartid primarily produces sheet products. Its tinning facility has an annual capacity of 130,000 net tons.

Production from these facilities has been substantially below its design capacity during the past several years due to Sartid’s financial difficulties. U.S. Steel’s leaders believe the design capacity of these facilities can be realized with rehabilitation and investment.

In an associated agreement, to go into effect when the acquisition closes, U.S. Steel Balkan committed to spending up to $150 million over five years for working capital and the repair, rehabilitation, improvement, modification and upgrade of the facilities.

A portion of this spending is subject to certain conditions related to Sartid’s commercial operations, cash flow and viability.

In addition, U.S. Steel Balkan has agreed to refrain from layoffs for three years.

Following a model used by U.S. Steel Kosice, U.S. Steel Balkan will conduct economic development activities over the course of three years, spending no less than $1.5 million on these efforts. The program will focus on publicizing to global investors the benefits of establishing manufacturing businesses in the Republic of Serbia.

U.S. Steel Balkan also agreed to spend $5 million to support community, charitable and sports activities for three years following the buyout.

U.S. Steel Kosice’s spending under similar agreements, exceeding $50 million, has helped sustain and improve Sartid’s operations in Smederevo and Sabac, prevented layoffs, and benefited businesses serving these facilities and Sartid’s creditors, Goodish notes.

The company “strongly supports Serbia’s progress in its democratic, legal and economic reforms,” he adds. “The purchase of Sartid reflects our commitment to the future of this country, its economy and its people.”

TIMET Gets Funds to Develop New Technology
Titanium Metals Corp. (TIMET), Denver, has been selected by the United States Defense Advanced Research Projects Agency (DARPA) to receive approximately $12.3 million in government funding over the next four years to lead a program aimed at commercializing the “FFC Cambridge Process.”

The FFC Cambridge Process, developed by Dr. Derek Fray and others at the University of Cambridge, represents a potential breakthrough technology in the process of extracting titanium from titanium-bearing ores.

As part of the program, TIMET will lead a team of scientists from major defense contractors, including General Electric Aircraft Engines, United Defense Limited Partners and Pratt & Whitney, as well as the University of California at Berkeley and the University of Cambridge. In connection with the program, TIMET negotiated a development and production license for the FFC Cambridge Process technology from British Titanium plc. TIMET will conduct the development work at its technical laboratory in Henderson, Nevada.

J. Landis Martin, TIMET’s chairman, president and CEO, says the company has a great deal of work to do and “success is by no means a certainty. We see this as a very significant opportunity, working with some of the leading minds in titanium metallurgy, to achieve a truly meaningful reduction in the cost of producing titanium metal.”

If successful, titanium may become a more attractive material choice within the aerospace industry, and open the doors to many new opportunities to use titanium in other non-aerospace applications where its cost might have been an obstacle, Martin says.

Global Steel Output Expected To Grow
2 Percent This Year
MEPS International Ltd., a steel industry consulting firm in Sheffield, England, forecasts world crude steel output in 2003 at almost 918 million metric tonnes—up by just over 2 percent on the year earlier figure.

Blast furnace iron production is expected to rise by 15.4 million tonnes to 622.4 million tonnes, a 2.5 percent increase. Direct reduced ironmaking is forecast to expand from about 42.1 million tonnes in 2002 to almost 44 million tonnes this year. First-quarter steel manufacturing was expected to reach 228 million tonnes and equates to an advance of 15 million tonnes, year on year (7 percent). This rate of increase is not sustainable in the long term, MEPS notes.

During the first quarter of 2002, many steel enterprises cut back output due to the uncertain economic picture and before the price hikes.

Raw steel production in the European Union is forecast to decline by about 0.75 million tonnes this year. In contrast, blast furnace ironmaking is expected to be slightly higher. Demand for products from the integrated sector is better than that for electrically melted items.

Real demand in Germany continues to be weak. Activity in France is declining. Italian consumption is only fair. Little change is anticipated in Spain for the full year.

Steel production in the rest of Western Europe in 2003 is expected to be almost 350,000 tonnes higher than in the previous year. Most of the increase will come from Turkey. However, the gains in the first half are expected to be reversed in the second half. Some of the export volumes are likely to be curtailed.

Steel production in Central and Eastern Europe this year is expected to hold up at near to the figure recorded in 2002. Blast furnace output is likely to be higher. Modest gains in steel production are anticipated in both the Slovak Republic and Romania. Significant decreases are forecast in Poland and Hungary this year.

Crude steel production in the former Soviet Republic is forecast to expand by 1.3 million tonnes in 2003. A similar escalation in blast furnace iron production is anticipated. All the increase is expected to occur in the first half.

The buoyant export markets are likely to weaken between June and December. MEPS predicts raw steel production in North America at 127.4 million tonnes in 2003, up by almost 4 percent compared with a year ago. The principal reason for the boost is the return to production of several plants in the U.S., closed earlier for financial reasons.

Canadian steel output is forecast to rise by 500,000 tonnes this year. Mexican steelmaking should also grow substantially. U.S. steel production is expected to expand by 3 million tonnes.

Crude steel production in South America is projected to reach 41.7 million tonnes in 2003. This represents a growth rate in excess of 2 percent. Blast furnace iron production will expand by almost 1.3 million tonnes. Most countries will report a rise in output of steel, with the exception of Venezuela. Argentinian steel manufacturing will be higher.

Brazilian steel output is forecast to increase by 1 million tonnes in 2003, up more than 3 percent on the record outturn in the previous 12 months. The political difficulties in Venezuela have caused serious reductions in steel output in recent months. This may continue into the second half.

MEPS forecasts a small but steady rise in iron and steelmaking in Africa this year. Most of the investment on plant and equipment is now in full production. Egypt’s steel manufacturing is likely to be consolidated this year at 4.4 million tonnes. The South African and Algerian steelmaking is expected to remain at or near the value recorded in the prior 12 months.

Steel output in the Middle East is forecast to rise by more than 700,000 tonnes (6 percent) this year. The last Gulf War did not seriously affect production in the region. Stronger rates of steel production were recorded in Iran, Qatar and Saudi Arabia during the first quarter.

The consultancy predicts a further significant rise in iron and steel production in Asia in 2003. Demand appears to be holding up quite well. The Gulf War does not seem to be having a serious impact on sentiment. Moreover, a large proportion of steel consumption is for construction, which cannot readily be stopped.

China’s insatiable appetite for steel continues. First-quarter production in 2003 will be substantially up on the same period a year earlier despite the closure of a 2 million tonnes-per-year integrated facility. New investments should facilitate an increase in output each quarter.

Japanese iron and steel production in the first three months of 2003 will be up on the amount recorded in the same period 12 months earlier. Despite this, MEPS believes the production for the year will be below the tonnage produced in 2002. Domestic demand is unlikely to improve. Exports are expected to slip during the second half.

Domestic demand is booming in South Korea, MEPS reports, predicting a rise in steel production in 2003 of 700,000 tonnes (1.5 percent). Business in the steel sector in Taiwan is solid. Further gains are anticipated this year.

Lastly, Indian steel manufacturing this year is expected to outstrip the figure for the equivalent period in 2002 by a significant amount.

Briefs
A bankruptcy court judge April 22 approved the sale of Bethlehem Steel Corp.’s assets to International Steel Group Inc. With the Bethlehem acquisition, ISG will produce nearly a quarter of the country’s flat-rolled steel, and be a major producer of steel plate and rail. ISG President and CEO Rodney Mott says, “We are consolidating the steel industry in a manner that is respectful of the contributions so many in our industry have made, while remaining focused on creating a globally competitive company for the long term.” ISG has already consolidated the liquidated assets of LTV Steel and Acme Steel.

Northwest Pipe Co. has landed two multimillion-dollar orders in recent weeks. Contri Construction of Las Vegas ordered about $9.5 million of welded steel pipe and fittings for the South Nevada Water Authority. Northwest Pipe will supply about 44,000 linear feet of 78-inch diameter steel pipe and fittings. Delivery is scheduled to begin in the third quarter. Northwest was also chosen to supply San Joaquin Irrigation District in California with about $5 million of welded steel pipe and fittings to be used to supply drinking water. The company will provide nearly 12,800 feet of 68-inch to 74-inch-diameter steel pipe and fittings. Delivery is scheduled to begin in the third quarter.

Century Aluminum Co. completed the purchase from Glencore International AG of the remaining 20 percent share in its Hawesville, Ky., aluminum reduction plant. Century financed the $105 million acquisition with about $65 million cash and a six-year note payable to Glencore. Century now owns 525,000 million tons per year of primary aluminum capacity.

In response to sharply higher energy costs, The Timken Co. raised prices March 31 on steel tubing products. Prices rose 5 percent for all sizes of carbon seamless steel tubing and 7 percent for all sizes of alloy seamless steel tubing. All spheroidize-anneal, and double and triple thermal-treated tubing products are priced 2 percent higher.

Wheeling-Pittsburgh Steel Corp.’s revised $250 million loan guarantee application has been approved by the Emergency Steel Loan Guarantee Board. The application included substantial additional contributions from company creditors, suppliers and the states of West Virginia and Ohio. The guaranteed loan will be used to finance W-P’s emergence from bankruptcy protection.

J&L Specialty Steel Inc. is expanding services offered to its customers through the Internet. Steeluser.com, a proprietary site developed by Arcelor, J&L’s parent company, will enable J&L’s registered customers to buy prime stainless coils and access a number of other services on-line. Philippe Baudon, vice president, commercial, says, “We are starting with simple functions, such as stock purchases, order status and electronic quality documents. Progressively, we will roll out new functions.”

Members of United Steelworkers of America Local 9443-01 at Commonwealth Industries Inc. recently ratified a five-year collective bargaining agreement that covers about 630 employees at the company’s aluminum rolling mill facility in Lewisport, Ky. This contract replaces one that was set to expire July 31.

U.S. Steel Corp. reached a settlement in a case in which a Madison County, Ill., state court jury on March 28 returned a verdict against the company of $250 million, which included $50 million in compensatory damages and $200 million in punitive damages. The asbestos liability case involved a former Gary Works employee. Terms of the settlement were not disclosed, but the total amount of the settlement was substantially less than the compensatory damages award.

Geneva Steel LLC is seeking buyers for all of its assets, either as a whole or in separate parts. These assets include equipment, real estate, emissions credits and water rights. Geneva reached agreement with Casey Equipment Corp. to assist the company in pursuing potential buyers for the equipment to either be operated in place or relocated. The agreement between Geneva and Casey, together with any substantial sales of assets, is subject to bankruptcy court approval. Casey has created a web site featuring Geneva Steel’s equipment at www.genevasurplus.com. Geneva’s mill in Vineyard, Utah, produced steel plate, hot-rolled coil, pipe and slabs. The company filed for bankruptcy protection in January 2002, and decided to liquidate last November.

Macsteel, Jackson, Mich., has begun another phase of expansion to increase capacity and improve production efficiencies. A new infusion of $9.9 million for rolling, handling and cutting equipment and caster improvements will increase Macsteel’s total shipping capacity by 20,000 tons to 740,000 tons per year. “This particular phase of expansion will focus primarily on the Jackson plant although improvements in rolling schedules will also benefit our Fort Smith, Ark., operations,” President Mark Marcucci says

Steel Dynamics Inc. reports that its employees have received profit sharing awards totaling $6.9 million, based on the company’s record operating and financial performance during fiscal 2002. The awards average more than $8,500 per employee, according to SDI President and CEO Keith Busse. About 800 SDI employees received the bonus this year, a portion of which is paid in cash with the greater portion deposited in employees’ tax-deferred retirement accounts.

Nucor Corp. ordered two P&H overhead cranes from Morris Material Handling for its Crawfordsville, Ind., melt shop. One is a charging crane that pours ladles of scrap into the electric arc furnace. The second is a mill crane that handles coils coming off the hot mill. Installation is scheduled for the fourth quarter.

U.S. Steel Corp. was named General Motors' 2002 Supplier of the Year for Flat Steel products. The award recognizes U.S. Steel's overall excellence in supplying GM with sheet steel products throughout the year. GM says the steelmaker's performance and contributions "have been critical in helping GM to become the industry's low-cost producer of high quality vehicles, and serves as a role model for other suppliers."

People
The International Steel Group Inc. appointed V. John Goodwin to a newly created position as chief operating officer. The company also selected leaders for several transition teams to ensure the efficient integration of the Bethlehem Steel assets into ISG. Goodwin was president and CEO of Steel Consultants, Chicago. He was a special advisor to Cleveland Cliffs in matters related to the LTV Steel assets and to ISG in regard to the assets of Bethlehem Steel. Goodwin also was president and CEO of Beta Steel, and CEO of National Steel Corp. Before that, he was general manager of U.S. Steel’s Gary Works and Mon Valley Works.

The board of directors of California Steel Industries Inc. elected Vicente Wright as the new president and chief executive officer, succeeding Laurenco Goncalves, who left the company to head Metals USA Inc., the Houston-based service center chain. Wright joined CSI in 1998 as executive vice president of finance. He previously held positions as Steel Division general manager and iron ore sales general manager at Companhia Vale do Rio Doce, both in their Rio de Janeiro and Tokyo offices.

Titanium Metals Corp., Denver, appointed Bruce P. Inglis as vice president-finance and corporate controller. He was group finance director of Apollo Metals Ltd., a supplier of specialty materials and supply chain integration services to the aerospace industry. Prior to this, he was European finance director of TIMET and managing director of TIMET UK.

AK Steel appointed John F. Kaloski as vice president, operations. Kaloski joined AK Steel last October as director, operations technology. Prior to joining AK Steel, Kaloski was senior vice president, commercial and planning, for National Steel Corp., overseeing the Great Lakes and Midwest steelmaking operations. Before that, he worked for U.S. Steel Corp., including as general manager of the Gary Works, Mon Valley Works and Minnesota ore operations. Kaloski was named “Plant Manager of the Year” in 1996 by the former New Steel magazine for his work at Mon Valley.

E. Jack Gates was elected executive vice president-operations of Century Aluminum Co., Monterrey, Calif. He was vice president-smelting operations. He joined Century in 2000 after working 33 years at Reynolds Metals Co.

Greg Maindonald was appointed vice president, operations services, for IPSCO Inc., Lisle, Ill. Maindonald has been with IPSCO for nearly 30 years, most recently serving as president of subsidiary General Scrap. Initially, he worked in the primary steel area and in metallurgy. In his new post, he’ll oversee information technology, transportation and purchasing.

Corrections
Incorrect information appeared in Metal Center News' recently published Metal Distribution 2003 directory.

In the Computer Software Manufacturers listings on page 107, the correct phone number for Steelman Software Solutions Inc. should be 416-495-6939. The company's e-mail address is info@esteelman.com, and its Web site is at www.esteelman.com

In the Alphabetical Metal Producers Listings on page 45, the phone number for Alcoa Engineered Products should be 570-385-5000, not area code 717, which was changed.