Looking back at the major industry news events of 2005 reveals a market surprised by the economy’s strength, and concerned about dark clouds ahead.

By Tim Triplett,
Editor-in-Chief

Sidebars and Tables:

• A Look Back at 2005

At this time last year, mills and service centers were toting up their record gains of 2004, and wondering how long the good times could last. Today, after another remarkable year for metals, their mindset is much the same.

Looking ahead to 2006, however, the signs of an economic slowdown are much more clear. The U.S. economy performed better than many expected through the first three quarters of this year, with GDP growing by 3.8 percent. But the pace of economic growth has clearly slowed from the 4.6 percent in 2004. Some experts predict decent growth continuing at around 3 percent next year, others less than 2 percent, depending on what transpires in such bellwether sectors as housing, energy and automotive.

UCLA’s Anderson Forecast predicts a sustained slowdown in the U.S. housing market that could cost the economy thousands of jobs next year, as new construction, new-home sales and applications for home mortgages are all trending downward. While housing will put the brakes on the economy, the researchers add, it should stop short of triggering a recession.

GM’s recent announcement that it will close nine production facilities and cut production by 1 million vehicles underscores the changes taking place in the auto sector as the New Domestics win further market share from the Big Three. Auto industry observers fear that high gasoline prices will continue to add to soft consumer demand for new vehicles in 2006.

2005 will no doubt be remembered as the year of the storm. Given the unprecedented destruction Hurricane Katrina caused to the Gulf Coast, experts can only speculate on how much reconstruction efforts will affect the economy next year. A few steel mills and service centers reported relatively minor hurricane damage, but many of their customers continue to struggle with the logistical after-effects of the storm.

U.S. imports of steel declined considerably in 2005, as steel demand suffered from excess inventories. Domestic steel shipments declined around 10 percent due to the inventory correction and mill production cutbacks.

It took until August for the market to work excess inventories down to more normal levels, and continued reductions in the fourth quarter have set the stage for stronger domestic shipments and increased imports in 2006.

While steel prices moderated considerably in 2005 from 2004’s historic highs, they remained at above-average levels. The lower prices and inventory destocking produced mixed results among producers. Most service centers saw at least modest declines in revenues from last year’s record levels, as well. At year’s end, analysts report that steel price declines have leveled off, but softening of end-use demand in markets such as automotive and housing could add pressure to prices in 2006.

China continued to be a lightning rod for criticism on the trade front. Earlier this year, China’s Central Bank repegged the yuan from 8.28 per dollar to 8.11, a small 2 percent shift, and said it will allow its currency to float, within a limited range. Critics quickly labeled the announcement a political maneuver that will do little to correct the huge inequity created by China’s monetary policy. In the U.S. Treasury’s November Report to Congress, Secretary John W. Snow said that China remains too slow in developing a market-based exchange rate, but he stopped short of directly accusing China of manipulating its currency.

The pace of industry consolidation may have quickened a bit in 2005 as companies sought to reinvest their big gains from last year. Among mills, major deals included: Mittal Steel’s acquisition of International Steel Group; Nucor’s purchase of Fort Howard Steel and Marion Steel in the bar market; Steel Dynamics’ plan to purchase Roanoke Electric; the purchase of Republic Engineered Products by Mexico’s Grupo Simec; the purchase of Copperweld by Dofasco’s Atlas Tube division; and ThyssenKrupp’s friendly takeover offer for Dofasco.

Major deals among service centers included: O’Neal Steel’s purchase of Leeco Steel Products and TW Metals; Paragon Steel’s purchase of Feralloy’s Midwest Division; Copper and Brass Sales’ purchase of Slitco Metal Processing and Sales, and Metalfast Services; Esmark’s acquisition of U.S. Metals and Supply Co. and Miami Valley Steel Services; Macsteel’s purchases of Alpha Steel and Alpha Processing; Reliance Steel & Aluminum’s purchase of Chapel Steel Corp.; and Apollo Management’s investment in Metals USA.

Such industry consolidation is a natural evolution in every industry, says Bill Jones, president of O’Neal Steel. “There is still significant opportunity for consolidation among service centers,” he says. “The cost of entry into metals is pretty low, though, which means distribution will probably never consolidate as much as the producing side of the industry.”

A Look Back at 2005
Highlights of industry news events of the past year, chronologically, January through December:

• Paragon Steel, Fort Wayne, Ind., purchased the assets of Feralloy’s Midwest Division in Butler, Ind.
  
• Alcan spun off its Rolled Products Unit to form Novelis, one of the largest aluminum mill products suppliers in the world.
  
• TXI spun off its Chaparral Steel Co. subsidiary, making the structural mill a standalone company.
  
• The Port of Indiana reported it had moved more tons of steel during October 2004 than any month in its 34-year history.
  
• Copper and Brass Sales, Southfield, Mich., purchased the assets of Schupan Aluminum Sales in Austin, Texas.
  
• Edgen Corp., Baton Rouge, La., was sold to Jefferies Capital Partners, New York, and senior Edgen managers.
  
• Nucor Corp. purchased the assets of Fort Howard Steel Inc.’s Oak Creek, Wis., mill, giving Nucor a leadership position in the cold-finished bar market.
  
• The Lerman family expanded their LJT Tennessee LLC mechanical and structural steel tube mill in Chattanooga, Tenn.
  
• The steel industry responded generously to the tsunami relief fund, led by Mittal Steel’s pledge of $1.9 million to provide assistance in India and Indonesia. Dofasco, IPSCO, Kobe Steel and the United Steelworkers also made sizable contributions to the relief effort.
  
• Industry data showed that steel imports rose a whopping 55 percent in 2004 to meet the needs of the robust economy.
  
• North America’s leading mills and service center companies reported record gains in sales and earnings in 2004, fueled by historically high steel prices.
  
• Canadian steelmaker Dofasco announced it was dropping plans to construct a galvanized line in the Southern United States.
  
• Stelco rejected four bids from potential acquirers as it worked to emerge from bankruptcy reorganization.
  
• U.S. Steel announced plans to build a hot-dip galvanizing facility in Slovakia.
  
• A final vote by shareholders cleared the way for Mittal Steel to merge with International Steel Group, forming the world’s largest steel producer.
  
• O’Neal Steel, Birmingham, Ala., completed its first major transaction of the year, purchasing the assets of plate distributor Leeco Steel Products Inc., Darien, Ill.
  
• Copper and Brass Sales, Southfield, Mich., purchased Slitco Metal Processing and Sales of Countryside, Ill.
  
• Chicago-based Esmark acquired U.S. Metals and Supply Co., St. Louis.
  
• Opponents renewed their call for Congress to repeal the controversial Byrd Amendment after the European Union and Canada threatened retaliatory tariffs.
  
• Macsteel Service Centers USA acquired Alpha Steel, Hammond, Ind. Later in the year, Macsteel would also purchase Alpha Processing of Chicago from the same owners.
  
• Copper and Brass Sales continued its flurry of acquisitions with the purchase of Las Vegas-based Metalfast Services LLC.
  
• EMJ’s initial public offering netted the company $164 million.
  
• The International Trade Commission renewed duties on hot-rolled carbon steel products from Brazil and Japan and voted not to terminate the suspended antidumping investigation on certain hot-rolled carbon steel products from Russia.
  
• Nucor acquired bar maker Marion Steel Co. for a purchase price of $113 million.
  
• Outokumpu sold its fabricated copper products business, excluding the tube and brass division, to Nordic Capital for an estimated $772 million.
  
• Articulating the views of the domestic steel industry, Steel Dynamics Inc. Vice President John Nolan provided testimony to Congress claiming the single biggest disadvantage faced by United States companies was China’s manipulation of its currency.
  
• Chicago-based Esmark Inc. made its largest purchase, acquiring Miami Valley Steel Services Inc., Piqua, Ohio.
  
• Reliance Steel & Aluminum Co., Los Angeles, purchased plate distributor Chapel Steel Corp., Spring House, Pa.
  
• EMJ announced plans to open branches in Spokane, Wash., Hartford, Conn., Lafayette, La. and Quebec City, Quebec.
  
• Rath Manufacturing Inc., Janesville, Wis., and Gibson Tube Inc., North Branch, N.J., merged to form RathGibson, supplier of nickel alloys, high purity tubing and oil field products.
  
• Mittal Steel, still working to integrate its acquisition of ISG, opted to idle its Cleveland and Indiana Harbor furnaces for maintenance, partially to reduce excess inventory in the supply chain. Mittal later announced plans to reduce global steel production by one million tons during the third quarter in order to match demand.
  
• Wheeling-Pittsburgh Steel shut down its No. 1 blast furnace after more than a century of service.
  
• Donald R. McNeeley of Chicago Tube and Iron company was elected chairman of the Metals Service Center Institute, succeeding Michael F. Peterson of Peterson Aluminum Corp., Elk Grove Village, Ill.
  
• ESCO Corp., Portland, Ore., acquired the assets of Quality Steel Foundries, Nisku, Alberta, and SRW Technologies, Edmonton, Alberta, now both part of ESCO Engineered Products.
  
• Butech Inc., Salem, Ohio, purchased the property and products of the former E.W. Bliss-Rolling Mill Division from DMS, Lille, France, forming Butech Bliss.
  
• China’s Central Bank repegged the yuan from 8.28 per dollar to 8.11, a 2 percent shift, and said it will allow the currency to float, within a limited range. Critics were quick to label the announcement a political maneuver that will do little to correct the huge inequity created by China’s currency manipulation.
  
• National Tube Supply began a $4.2 million expansion in south suburban Chicago.
  
• Mexican Steelmaker Industrias CH, S.A. de C.V., purchased Republic Engineered Products Inc., Fairlawn, Ohio, for $229 million. Republic, a special bar quality steelmaker, becomes a subsidiary of Guadalajara-based Grupo Simec, of which ICH is the primary owner.
  
• Norfolk Iron and Metal Co., Norfolk, Neb., and Steel Warehouse Co., South Bend, Ind., formed a joint venture company, Steel Processing Center LLC, in Rock Island, Ill.
  
• Red Man Pipe & Supply Co. purchased majority interest in Brooks, Alberta-based Midfield Supply Ltd., a service center chain serving the energy industry in Western Canada.
  
• Hurricane Katrina stunned the South inflicting some damage on industry companies such as Aluminum & Stainless Inc., Namasco Corp. and O’Neal Steel. Even once all employees were accounted for and damage repaired, many companies in the region continued to feel the logistical after-effects of the storm.
  
• The Continued Dumping and Subsidy Offset Act of 2000, more commonly known as the Byrd Amendment, continued to dominate foreign trade policy battles in Congress. End-users arguing for the act’s repeal made headway late in the year as their bill narrowly passed in the House headed to a House-Senate Conference Committee.
  
• In Canada, Dofasco’s Atlas Tube division agreed to buy Copperweld.
  
• Stelco Inc. filed a new bankruptcy restructuring plan, but the status of the Canadian steelmaker remained uncertain at year’s end, as did the sale of three of its subsidiaries to Mittal Steel.
  
• SeverCorr, a partnership between SteelCorr and Severstal Group, announces plans to build a new steel mill in Mississippi. The mill, which was expected to open in the third quarter of 2007, would produce 1.5 million tons of flat-rolled steel products.
  
• Steel Dynamics Inc., Fort Wayne, Ind., agreed to purchase Roanoke Electric for $240 million. The deal, which is expected to be completed by early 2006, would make SDI one of the nation’s most diversified steel companies.
  
• O’Neal Steel made its second major purchase of the year, acquiring TW Metals from a private holding company. TW will be operated as a wholly owned subsidiary of Birmingham-based O’Neal.
  
• The merger between Metals USA and private management firm Apollo Management was ultimately finalized, but not without intrigue. The Houston-based company reported that it failed to meet one of the conditions of the purchase agreement, though that condition was ultimately changed to allow the purchase to proceed.
  
• Nucor Corp. announced plans to build a second Castrip thin-slab-casting facility.
  
• Domestic producers of wire rod filed an antidumping petition against mills in China, Germany and Turkey. Domestic mills had filed a previously successful petition in 2001 on wire rod imports from Brazil, Canada, Indonesia, Mexico, Moldova, Trinidad and Tobago, and Ukraine.
  
• Dofasco agreed to a takeover bid from ThyssenKrupp AG at a price of $4.1 billion. The move came on the heels of an unsolicited takeover attempt by Belgian steelmaker Arcelor.