March 2005
Metal Industry News

Ampco Right-Sizes for Red Metals Niche
With its most recent restructuring completed, Ampco Metal Inc. has emerged from a tumultuous three-year period as a smaller but more focused company, according to its President and CEO Bill Bishop.

Hit hard by the sluggish economy and excess capacity at its mills, Ampco filed for Chapter 11 bankruptcy protection in 2002. While its European distribution arm was spun off to a group of overseas investors, its U.S. operation was purchased out of bankruptcy by United Stars of Beloit, Wis. United Stars ran the business for about a year, selling it in November 2003 to Ampco Metal SA of Switzerland, reuniting the company with its former division.

“When United Stars put the business back up for sale, the European investors came knocking on the door. Now we’re one company again, but the control is on the European side,” Bishop explains.

The European investors made the tough decision to shut down Ampco’s larger Milwaukee plant last March and have spent the past year consolidating and reorganizing their manufacturing unit in Arlington Heights, Ill. In the United States, Ampco now has a workforce of 40 at one location, instead of 150 at two.

“The plant in Milwaukee was too big to serve the market. We had too much capacity, too many pockets of inactivity. So we’ve properly sized the business to serve those markets,” Bishop says.

In the consolidation process, Ampco cut some non-core product lines and outsourced some capabilities. Notably, it now subcontracts production of extrusions to Ansonia Copper & Brass Inc., Ansonia, Conn.

The Arlington Heights plant houses a continuous cast foundry with four horizontal continuous cast lines and a machine shop with 17 machining centers. A vertical billet caster will be installed later this year.

“We had lost the ability to cast large ingots for forgings,” Bishop said, referring to the new billet caster. “While we have shrunk our organization, we have been looking at strategic investments to help us fill out our product line once again.”

Because it no longer needs to fill its excess capacity by going after commodity-type business, Ampco can concentrate on the core group of alloys it has developed and marketed over the past 90 years. “We decided to focus our efforts back on the traditional Ampco alloys. Once you size that market, you come to the realization that a large manufacturing capability is no longer required.”

Over 80 percent of Ampco’s product is sold through distribution. Bishop sees stronger partnerships with service centers as a means to get closer to the end users and gain a greater understanding of their technical needs. “We are committed to selling through limited distribution. We want to partner with distributors that value the Ampco brand name and are willing to support our marketing activities with the end users,” he says.

Dofasco Drops Galv Line Plan
Canadian steelmaker Dofasco Inc. will not pursue construction of a galvanizing line in the southern United States as it had earlier announced.

“We conducted a comprehensive evaluation of a range of alternatives for this project and have concluded that the investment, at this time, does not meet our criteria,” said Don Pether, president and CEO, during the company’s recent conference call with investors and analysts.

Several factors, including transportation and logistics from Dofasco’s Hamilton, Ontario, headquarters to a site in the southern U.S., raised questions about the company’s ability to gain a sufficient return.

“Dofasco remains committed to growing in its target markets, however, and will continue to explore investment opportunities to create value for shareholders,” Pether said.

Internet Auction House Finds Home in Steel
The volatile market conditions of the past few years have left service centers scrambling for customers one day, and scrambling for steel the next. In either case, an up-and-coming Internet auction site may be able to help.

Scott Dawson, a marine surveyor who specialized in steel, founded Steel Salvor LLC four years ago. Recognizing the attractive margins on sales of distressed metals involved in marine cargo claims, Dawson developed an Internet approach to matching up sellers with buyers of secondary steel.

Steel shipped to the United States often arrives with some kind of damage. The same surveyors who inspect the cargo on behalf of the insurance companies are often asked to dispose of it for them. “The problem is they are not marketing or sales people. They could not send the offers to a broad enough offering of potential bidders,” explains Scott Shapiro, Steel Salvor CEO. The system also presented a large potential conflict of interest, he adds, tempting surveyors to reject cargo in order to sell it as secondary material to partners at a huge discount.

Steel Salvor solves those two problems, Shapiro says, because it is totally objective and auditable, and has more than 6,000 buyers and sellers in its database. “We eliminate the good-old-boy network. We change the flow in the hopes that our objective auction will produce the highest result for the seller. We create an environment where everybody can bid, as many times as they like, to drive the price up to the highest level.”

Though its business began with marine insurance claims, it has expanded to include aged, obsolete and excess inventory from service centers, which are both potential sellers and buyers, as well as from mills and end-users.

Once a seller posts material on the Web site—www.steelsalvor.com—Steel Salvor alerts potential buyers in its database through e-mail, fax and phone.

The site then hosts a standard auction, usually lasting three to five days, during which qualified bidders continue to bid up the price. The high bidder when the auction closes has five days to deliver cash to Steel Salvor, which takes a 5 percent fee and forwards the balance to the seller. The steel usually is sold “as is, where is,” and it’s up to the buyer to arrange for delivery.

“For a seller, there is no risk. We only get paid if we succeed. If we fail to sell their material, it costs them nothing but a few days. We are motivated to sell, and at the highest level, because that is the only way we get paid,” Shapiro explains.

Steel Salvor hosted transactions valued at about $1.5 million per month last year, Shapiro says. Today, the company averages around three auctions per day.

“Everybody has e-mail today, and more and more people are getting comfortable with transacting on-line,” he adds. “We use the Web for what it does best—it’s a great communication tool to reach a lot of people very quickly and cost effectively.”

Steel Salvor is negotiating with logistics companies and commercial credit institutions so users can get quick freight quotes and arrange financing directly on the site.

The company actually thrives when steel is volatile, Shapiro notes. “When the price of steel is falling and people need to reduce their inventories, we do well. When the price of steel is rising and there is available inventory, we do well.”

Shapiro expects steel prices to moderate and insurance claims to increase beginning in the first quarter, which is good news for the online auction house. “We have a lot of items in the pipeline. I would expect that between now and late spring, we should be real busy.”

In fact, the company said it recently completed the largest national steel transaction in its history. The auction included a large lot of 2,200 tons of steel that drew major end-users, distributors, service centers, traders and brokers all over the country. A company in the building products community bought the steel for a 27 percent increase in value over the minimum retention offer, netting the seller an additional $133 per ton.

“It was one of the most powerful auctions we’ve ever run,” Shapiro says. “Information about this particular sale quickly resonated in buying and selling communities around the industry and no large trades took place until this auction closed, setting the selling price for that type of steel.”

He has great confidence in his company’s business model, noting, “We are experiencing exponential growth and are on track for a record year, having eclipsed our first year’s revenue in the first month of 2005.”

IPSCO Establishes Research Unit For Large-Diameter Pipelines
IPSCO Inc. is investing $3.5 million to set up a research unit dedicated to accelerating development of steel products for large-diameter energy transmission lines. In addition, the unit will study the needs of energy-related tubular applications in frontier environments.

“It is our goal to remain at the forefront of technology to enable the company to supply the complex specialty grade steel and pipe required for large pipeline projects, with a specific emphasis on northern environments such as the proposed MacKenzie Valley,” says Joe Russo, senior vice president and chief technical officer.

The Frontier Pipe Research Unit will be located at IPSCO’s Research and Development Facility in Regina, Saskatchewan, to take advantage of the company’s existing research resources and it’s large-diameter pipe forming mills. The unit is expected to maintain a $3 million annual operating budget.

“IPSCO has been a leader in northern pipeline activity dating back to the mid 1970s and has been a major participant in all significant large diameter pipeline projects in Canada since that time,” says Russo. “The technology developed through this research can be applied in all IPSCO large-diameter line pipe products as we compete for these markets.”

10 Observations on the New Steel Landscape
Editor’s note: Following is an edited transcript of remarks by Andrew G. Sharkey III, president and CEO of the American Iron and Steel Institute, who spoke at the Metals Service Center Institute’s Carbon Conference Feb. 17 in La Quinta, Calif.

First, no one saw 2004 coming. If they tell you they did, they’re lying. 2003 was a tough year for North American steel producers. Prices were depressed, demand was flat, there was excess global steel capacity, raw materials prices were moving up (no one knew quite why), and we were focused on the mid-term review of the Section 201 tariffs. In hindsight, had we seen this freight train coming, we could have saved ourselves a lot of time and money.

Second, a confluence of forces created the perfect storm. Strong steel demand was seen almost everywhere, creating attractive markets other than the United States for the 40 to 45 percent of global steel production now typically exported in any given year. Exchange rates, industry consolidation, China’s rapid growth as a steel producer and consumer, and the constraints on metallics supply were the drivers.

Third, the president’s Steel Program was critical to the industry’s consolidation, restructuring and financial recovery. One can argue that this would have taken place without the breathing spell provided by the tariffs, but it would have been a much heavier lift.

Fourth, many observers concluded that the North American steel industry’s business model was broken and untenable. Through the restructuring, closure and consolidation process, more than 55 million tons of U.S. steelmaking capacity went into bankruptcy protection, of which 30 million tons or more were subsequently eliminated from the market.

Domestic selling prices were at or below the cost of production for most producers. Steel prices had fallen by 2 percent each year in real terms over the past 25 to 30 years, resulting in a massive transfer of wealth to downstream customers. Many buyers had come to believe that this was now the norm, and they would continue building their business plans around untenable steel prices. The strong steel market of last year made it clear that the business models of some customer segments were also broken.

Fifth, the consolidation of global steel assets was empowered with the creation of Arcelor and LNM Group globally and the asset purchases by ISG, U.S. Steel, Nucor and Gerdau Ameristeel domestically. Phase two began last October with the creation of Mittal Steel through the merger of LNM Group and Ispat International and the proposed acquisition of ISG.

In spite of significant consolidation and restructuring, the global steel industry has remained highly fragmented. The top 10 steel companies’ share of output in 1970 was 29 percent, 27 percent in 2003 and 30 percent in 2004.

The vision of a handful of 50 million- to 100 million-ton steel companies within the next few years now looks increasingly possible. Strong balance sheets, combined with easier access to capital markets, will fuel more deals. Investment bankers have rediscovered the industry with a vengeance. Each major deal changes the competitive landscape and makes more consolidation likely.

A sixth factor in the world steel market is China’s explosive growth in steel capacity, from 115 million tons in 2000 to 272 million tons in 2004, for a 27.2 percent share of global production. The OECD projects China will manufacture an additional 70 million tons in 2005, to exceed 340 million tons in 2006, jumping to 380 million tons of production by 2008.

This exponential growth has created a huge sucking sound for metallics (scrap, iron ore, coking coal, coke, lime and alloying metals). It has the effect of artificially driving up steelmaking costs (and prices), which obviously impacts steel applications at some point. China’s imports declined from 37 million tons in 2003 to 29 million tons last year. China’s exports more than doubled from 7 million to more than 14 million tons.

While still a net importer by a wide margin over the entire year, China has been a net exporter over the past three months. Either China’s steel consumption will grow fast enough to absorb its new capacity or China has the potential to be very disruptive on the world stage.

Seventh, a major worry for steelmakers the world over, following 2004, is their ability to secure cost-effective raw materials. These inputs took on a whole new dimension last year, growing in strategic importance due to the concerns over availability, control, flexibility and cost.

The shortage of coking coal and coke restrained steel production last year and could do so again this year. One result is new coke capacity being built in the U.S. and investment in iron-making technologies that do not require coke as an input. Iron ore prices jumped 20 percent this year and commodities experts say prices could rise by at least 30 to 50 percent this year.

Electric arc furnace producers are aggressively investing in alternative iron-making technologies to reduce their dependence on scrap (especially Nucor and Steel Dynamics).

While high prices will bring additional supply of metallics into the U.S., we think prices will stay well above their historical levels.

Isn’t it ironic that severe raw materials constraints may be the key to saving the global industry from another bout of oversupply?

Eighth, are these changes cyclical or structural? We tend to forget this is a cyclical business and that we are beset by larger economic and political forces beyond our control.

While I’ve tried to suggest that some trends we see are structural—such as consolidation, metallics requirements, steel consumption in developing countries and China’s growth—the big unknown, and threat, relates to the very real prospect of significant capacity expansion.

Huge cash flows are being generated by the industry with capital outlays expected to rise to $65 billion in 2005 from $32 billion in 2003 and $46 billion in 2004. Governments once again view steel as a good business to be in, and steelmakers in China, Brazil, India and Russia have announced projects that would add 278 million metric tons of capacity by the end of 2008.

Not all these projects will open soon—some may be delayed—but it’s still a big number, and there are indications that government aid is being provided to many of their projects.

Market-based producers in the NAFTA region expect to add about 3.3 million tons of raw steel capacity by 2008. North American capacity will continue to be insufficient to meet demand for the foreseeable future. Fairly traded imports will have to fill the gap.

Ninth, most North American steel producers have reported record results for 2004. The fundamental question is, what will these companies do with the cash? Historically, the industry would respond to the one good year (out of 10) by building new capacity just in time for the next downturn. Now companies are looking strategically at using these new-found earnings to reduce debt, accelerate pension payments, increase dividends, invest in new technology, strengthen their raw material positions and make acquisitions. This new disciplined approach bodes well for the future.

Lastly, as we look to 2005, the North American industry must leverage the transformation of its business model into a new and more positive image, and share strategies with key opinion leaders, policy makers, the environmental community and the public.

This is all about getting people to see steel not as bankrupt, low tech, dying or adversarial, but rather as a dynamic, high-tech, environmentally sustainable and globally competitive industry that makes a remarkable product. This is an industry and a material with a bright future.


Offers for Stelco Fall Short
Stelco Inc. has rejected four bids from potential acquirers and plans to seek alternative sources of capital to help the company emerge from bankruptcy protection and return to a competitive position in the steel market.

“Our process unfortunately did not turn up any acceptable proposals from strategic or financial bidders,” says Courtney Pratt, Stelco chief executive officer. “We will now be working with our financial advisors to aggressively attract new capital.”

The company expects to return to court soon to outline its plans for raising capital. Meanwhile, it will continue to consider offers for several of its noncore subsidiary businesses, which include Stelwire Ltd. Stelpipe Ltd., Stelfil Ltee, AltaSteel Ltd. and Norambar Inc.

U.S. Steel to Build Galvanizing Plant
U.S. Steel Corp. will build a new hot-dip galvanizing facility at the company’s steelmaking operation in Slovakia, U.S. Steel Kosice.

With an annual capability of 350,000 metric tons, the facility will serve the growing demand for high quality coated steels in the Central European automotive and construction industries. Construction of the $160 million facility will begin this year, with start-up expected in early 2007.

Demand for automobiles in Central Europe, especially in the V4 countries (Czech Republic, Hungary, Poland and Slovakia) is expected to continue growing. This demand, combined with the region’s central location, skilled workforce and favorable cost structure, have led a number of automotive manufacturers to locate new assembly operations in this area. They are expected to require an increasing amount of high-quality coated sheet steel products.

The construction industry is also expected to drive increased demand for galvanized product to supply residential and commercial construction and infrastructure development. USSK is already a leader in the construction market and intends to maintain its position as the market grows.

“As the premier flat-rolled supplier in the V4, we have continually upgraded and expanded our facilities to meet the growing needs of our customers,” says Joe Scherrbaum, vice president-commercial for U.S. Steel Kosice. “Since 2001, our major market-driven investments have included a vacuum degassing station, expansion of our tin coating facilities and, most recently, an electrical steel line.”

Ductwork Collapse Hits Mill Finances
The collapse of ductwork on the Basic Oxygen Furnace at Wheeling-Pittsburgh Corp. shut down production for 12 days in December and cost the Pennsylvania mill millions in lost revenue.

The company reported fourth-quarter operating income of $8 to $9 million on shipments of 503,000 tons. Approximately 10,000 tons of shipments were lost as a result of the ductwork collapse.

Wheeling-Pitt is pursuing insurance recoveries for property damage related to the BOF breakdown, for which the $2 million deductible was recorded in the fourth quarter. The estimated impact of the collapse on fourth quarter earnings was approximately $23 million, according to company officials.

Shipments in the first quarter of 2005 are expected to be negatively impacted by a further loss of 85,000 tons. A business interruption claim is being prepared which, after the deductible, is expected to be significant.

“BOF operations have resumed, and the start-up of our new EAF is progressing very well with production in December and January totaling 338 heats for 92,400 tons, nearly double the expected production,” says James G. Bradley, chairman, president and CEO. “We expect first-quarter shipments to be in the 500,000 to 515,000 ton range.”

Hussey Names Execs to Head New Units
Hussey Copper has created three strategic business units to increase efficiency and align its sales and manufacturing capabilities to meet customer requirements.

Thomas Funkhouser, formerly vice president, commercial sales, has been appointed vice president and general manager of the Hussey Copper Eminence, Ky., unit, overseeing the manufacture of all copper and copper alloy bar products and plating operations.

H. Russell Garrett, formerly vice president, technical sales, has been appointed vice president and general manager of the Hussey Fabricated Products unit with manufacturing operations in Leetsdale, Pa., and Eminence. The Fabricated Products unit will be responsible for all copper and copper alloy fabricating of bar, rod and shape products.

Former Weirton Steel executive Howard Snyder has been appointed vice president and general manager of the Hussey Copper Leetsdale, Pa., unit, overseeing the manufacture of copper and copper alloy sheet, strip and plate products.

Briefs
Siderurgica Lazaro Cardenas-Las Turchas, S.A. de C.V., has contracted for installation of a new rod outlet on the bar mill at the company’s SIBASA mill in Celaya, Mexico. Among the equipment to be installed will be mini-blocks, a No Twist mill, water boxes, pinch roll, laying head, Stelmor conveyor, and a complete coil handling system with compactor and automation. When added to the existing mill, the outlet will provide the capability to roll 5.5 mm to 25 mm rod into coils. The mill is scheduled for delivery in February 2006.

AK Steel Corp., Middletown, Ohio, has advised its flat-rolled carbon steel customers that a $214 per ton surcharge will be added to invoices for products shipped in March, an increase of $18 from February’s surcharge of $196 per ton. AK Steel also advised its electrical steel customers that a $340 per ton surcharge will be added to invoices for electrical steel products shipped in March, a decrease of $70 from the February surcharge of $410 per ton for those products.

Alcan Inc. and its employees have raised Cdn $1.2 million to aid victims of the Dec. 26, 2004, tsunami that devastated Southeast Asia. Direct employee contributions amounted to more than Cdn $598,000, which was donated to local Red Cross or Red Crescent organizations. This figure will be matched by Alcan, which will present the Canadian Red Cross with a check. Alcan operates two facilities in Indonesia, three in Thailand, and one each in Singapore and Malaysia with a total employment of approximately 4,400.

Gallatin Steel and its employees have contributed $105,490 to the tsunami relief effort in South Asia. In January, Gallatin Steel pledged to match every dollar donated by employees to the United Way International Response, American Red Cross and the Save the Children Tidal Wave Relief Fund.

Northwest Pipe Co., Portland, Ore., will supply approximately $8 million of welded steel pipe to Barnard Construction, Bozeman, Mont., for the West Leg Water Transmission Main project for the City of Scottsdale. Northwest Pipe will supply approximately 46,000 feet of 30-, 36- and 42-inch-diameter steel pipe. Deliveries will begin in the second quarter.

AK Steel Corp. reached agreement with the United Steelworkers of America to extend for nearly two years a collective bargaining agreement covering employees at the company’s Mansfield Works in Ohio. The existing agreement was scheduled to expire March 31. Wages and all other contract provisions remain unchanged from the collective bargaining agreement that was finalized in January 2004, and now is scheduled to expire Feb. 10, 2007.

Bohler-Uddeholm, Rolling Meadows, Ill., has developed a new powder metallurgy tool steel, Vanadis 4(r) Extra, suitable for long run tooling in applications with high demands on adhesive wear and chipping resistance.

Acerinox, Spain’s largest producer of stainless steel, has contracted for replacement of the existing No. 2 EAF at their plant in Palmones los Barrios, Spain.

The U.S. Bankruptcy Court has approved Kaiser Aluminum’s new financing arrangement with JPMorgan Chase Bank, National Association, J.P. Morgan Securities Inc., and The CIT Group/Business Credit Inc., under which Kaiser will be provided with a new $200 million debtor-in-possession credit facility intended to remain in place until the company’s emergence from Chapter 11. The new financing arrangement also provides a commitment to Kaiser for a multi-year exit financing in the form of a $200 million revolving credit facility and a fully drawn term loan of up to $50 million upon the company’s emergence from bankruptcy.

AK Steel contracted Woodings Industrial Corp. to re-engineer and manufacture new cone-style scrubbers for its blast furnace gas cleaners at the Ashland, Ky., and Middleton, Ohio, plants. The new scrubbers allow easier access to components while providing longer part life.

People
Ansonia Copper & Brass, Ansonia, Conn., has promoted John Barto from general manager of the Tube Division to vice president and general manager of the Tube Division.

AK Steel has hired Thomas F. McKenna as vice president, labor relations.

Robert E. Lewis has joined Gerdau Ameristeel as vice president and general counsel.

WCI Steel Inc. has named Thomas J. Gentile as vice president and chief financial officer. Gentile has served as WCI's treasurer and acting chief financial officer since November 2003.

Kaiser Aluminum, Houston, has named Douglas Campbell as operations manager of the company's Greenwood, S.C., aluminum forge operation, and Tom Davenport as southeastern regional sales manager for Custom Industrial Products.

Greer Steel has appointed Robert L. Bates to plant engineer of its Dover, Ohio, plant. Bates brings nearly 25 years of engineering experience to the job, including a stint at U.S. Steel's Gary Works.

 
 

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