| April
2006 Association News |
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Mills
to Buy Up Service Centers Tolerico
was a panelist during the Steel Markets North America 2006 Conference
last month in Chicago, co-sponsored by Steel Business Briefings
and the American Institute of International Steel. Also on the distribution
panel was Jay Gratz, executive vice president and CFO at Ryerson
Inc., and Mike Taylor, president of Cargill Steel Services Co. Noting
that the list of leading flat-rolled service centers, such as Ryerson,
Russel Metals, Worthington and Cargill, is a long and well-known
one today, Tolerico expects the list to be decidedly shorter and
different 10 years from now. Tomorrow’s major players in steel
distribution may have names like Baosteel, CVRD Steel, Mittal Steel,
Nucor Steel, Severstal Steel, ThyssenKrupp Steel and U.S. Steel. Tolerico’s
theory is based on the simple assumption that Wall Street money
will be looking for a new home. “In
the first stage, a lot of financial buyers are stepping in. Apollo
bought Metals USA, for example. There is a lot of money floating
around looking to buy even more assets,” Tolerico says. Eventually,
such players will want an exit strategy so they can cash in their
investment in metals distribution. Who are the natural buyers? Steel
mills, Tolerico asserts. The
consolidation that has characterized the steel production industry
in recent years will have played itself out by then. In order to
feed the appetite of Wall Street, the remaining mills will have
to find a new way to grow their sales and earnings. “The mills
will either have to go upstream to iron ore or downstream to the
service centers,” Tolerico says, speculating that service centers
will be a more natural fit for integration. Unlike
in the past when mills owned distributors in North America, Tolerico
predicts the owners of the future will emulate the European model
and take a more hands-off approach to service center management.
They will allow the service centers to continue focusing on customer
service in an entrepreneurial way, and simply share in the profits. “If
they’re smart, that’s what they’ll do. That’s
certainly what they should do,” Tolerico says. Such
an integrated ownership structure will allow for better balance
between supply and demand and more stability of inventory, he notes,
and can help the industry maintain a better handle on imports. Tolerico
points to the arrival of Mittal and Arcelor to North America and
his own experience with ThyssenKrupp as grounds for his theory.
He
could not predict exactly when mills will begin acquiring distributors,
but he is confident the new M&A wave will arrive suddenly. Buyers
will likely be aggressive, buying up three or four companies at
a time, he says. “You’re either in or you’re out.” Service
centers should follow the ongoing M&A activity of the mills
and determine which companies are going to emerge on top. “You
have to consciously decide who to align yourself with. Otherwise,
you could be on the outside looking in,” he says. Tolerico’s
co-panelists don’t foresee quite such drastic changes for the
service center sector in the coming years, though they acknowledge
that it will continue to consolidate. Gratz
asserts that in the end, performance will dictate the future prospects
for service center operators. “The best supply chain will win
out.” During
a question and answer segment, the panelists were asked what companies
would survive in the face of consolidation. Gratz said the “economies
are against (smaller companies) in the long run.” Tolerico
says the first victims will be mid-sized service companies, while
Taylor agrees “there will always be a place for the strongly
niched.” Congress
Considers Measure for The
legislation, authored by Rep. Benjamin L. Cardin (D-Md.), calls
for the exercise of the constitutional power of Congress over international
commerce, strengthening the administration and enforcement of U.S.
trade laws. “It
articulates clearly and reinforces our objectives in the Doha Round.
It particularly addresses concerns that the World Trade Organization’s
dispute settlement system is not sufficiently transparent and has
led to a number of decisions that have wrongly legislated new rights
and obligations not negotiated and agreed to by the United States,”
said Joseph L. Mayer, chairman of the committee and general counsel
for the Copper and Brass Fabricators Council. Among this bill’s provisions is a statement of Congressional intent that the U.S. Trade Representative should not agree to any proposal in the Doha Round that would weaken existing trade law remedies. The bill would create a Congressional Advisory Commission on WTO Dispute Settlement. It would direct the application of the countervailing duty law to non-market-economy countries, and designates exchange-rate manipulation as a prohibited export subsidy. MSCI:
U.S. Steel, Aluminum Shipments Increase Month-end
steel inventory-to-sales ratios rose from January levels in both
countries and were higher for aluminum at U.S. service centers,
while Canadian aluminum inventories were lower. U.S.
service centers shipped nearly 4.6 million tons of steel products
in February, an increase of 2.1 percent from February 2005. Steel
shipments for the first two months of the year, at 9.3 million tons,
were up 3.5 percent from the same period in 2005. Steel
inventories totaled 13.3 million tons at the end of February—15.5
percent lower than at the end of February 2005, but 1.8 percent
higher than at the end of January 2006. At the current shipping
rate, U.S. service centers had a 2.9-month supply of steel products
on hand at the end of February, a decrease of 17.3 percent from
a year earlier, but 6.5 percent higher than January 2006. Some
100,600 tons of aluminum products were shipped by U.S. service centers
in February, up 7.1 percent from February 2005. In January and February,
U.S. service centers shipped 203,100 tons of aluminum products,
or 7.4 percent more than shipments from the same period last year. Aluminum
inventories at the end of February totaled 349,200 tons, a decrease
of 2.5 percent from a year ago and down 1.2 percent from January
2006. At the current shipping rate, this represents a 3.5-month
inventory supply, down 9.0 percent from a year ago, but up 0.8 percent
from January. Canadian
service centers shipped 323,300 tons of steel products in February,
down 5.0 percent from the same month in 2005 and reversing the strong
growth shown in January. Shipments for the first two months of the
year, at 676,400 tons, were down 0.2 percent from the first two
months of 2005. Canadian
steel product inventories were above 1.0 million tons at the end
of February, a decrease of 24.4 percent from the same month a year
ago, but up fractionally (0.3 percent) from January 2006. At the
current shipping rate, this represents a 3.2-month supply, down
20.5 percent from 2005, but an increase of 9.5 percent from January
2006. February
shipments of aluminum products totaled 9,700 tons in Canada, up
5.7 percent from February 2005. Year-to-date shipments of aluminum
products by Canadian service centers, at 19,200 tons, were 5.6 percent
higher than the same period a year ago. Aluminum
inventories at the end of February were 29,600 tons at Canadian
service centers, some 7.1 percent lower than at the same time in
2005 and down 1.9 percent from January. At the current shipping
rate, this represents a 3.1-month supply in inventory, a decrease
of 12.1 percent from a year ago and down 3.1 percent from January
2006. AISI:
Domestic Mills Keep Looking
at a three-month rolling average, the trend shows that finished
steel imports overall are up 27 percent and that, from certain countries,
the import increase is especially pronounced: Taiwan, up 180 percent;
Turkey, up 135 percent; China, up 86 percent; South Korea, up 62
percent; and India, up 59 percent. On an annualized basis, total
steel imports would exceed 42.1 million net tons, which would be
the second highest year in history, according to AISI officials. Key
products with large increases in February compared to the month
before include: reinforcing bars, up 149 percent; structural shapes
heavy, up 81 percent; tin plate, up 42 percent; cold-rolled sheets,
up 35 percent; structural pipe and tubing, up 34 percent, and plates
in coils, up 23 percent. Products
with sizable year-to-date increases through February, vs. 2005,
include: reinforcing bars, up 138 percent; galvanized electrolytic
sheets and strip, up 70 percent; bars-light shapes, up 81 percent;
structural shapes heavy, up 79 percent; plates cut to length, up
60 percent; galvanized hot-dip sheets and strip, up 26 percent;
and cold-rolled sheets, up 23 percent. U.S.
spot prices in February for hot- and cold-rolled sheet per ton were
down vs. February 2005—from $662 to $545 for hot-rolled sheet,
and from $715 to $630 for cold-rolled sheet—according to data
publicly reported by Purchasing Magazine. “Imports
in the steel sector remain up sharply in 2006,” says John P.
Surma, chairman and CEO of U.S. Steel Corp. and chairman of AISI.
“As policymakers focus more and more on the nation’s trade
problems, including our unsustainable trade deficit, it will be
critical to ensure that imports—whether in steel or other sectors
of the economy—compete based on market principles rather than
through dumping, subsidies and other foreign trade distortions.” “The
bulk of the import increases are coming from countries where subsidies
are prevalent, currency undervaluation is practiced and capacity
increases outstrip domestic demand,” adds Andrew G. Sharkey
III, president and CEO of AISI. “These trade distorting practices
have the potential to damage the globally competitive U.S. and North
American steel industry, and need to be addressed.” ISSF:
Stainless Production Declines in 2005 The
strong decrease in stainless steel production in the second half
of 2005 has resulted in the first decline in yearly production since
2001. The cut in production in the final two quarters of 2005 was
the result of dramatically reduced demand. Significant stock reductions
have occurred at distributors and fabricators, ISSF reports. Asia
was the largest stainless steel producing area in the world during
2005 and the only main production area with an increase in stainless
steel output during the year. Production was driven by increases
in China (34 percent to 3.2 million tons) and India (11 percent
to 1.5 million tons). All other stainless steel producing countries
in Asia failed to match their 2004 output. In total, Asia’s
stainless steel production grew by 5 percent to 12.5 million tons.
The
second largest stainless steel producing region is Western Europe/Africa.
Total output in the region dropped by 6.4 percent in 2005 to 8.8
million tons. Only Spain and Italy showed an increase in production
compared to 2004. However, production in these countries was lower
than normal in 2004 partly due to strikes. Production
in the Americas region decreased by 8 percent in 2005. Total output
in 2005 was 2.5 million tons. Demand
for stainless steel in the Central and Eastern Europe region currently
shows a strong increase. However, local production facilities cannot
meet this demand. Stainless steel production in the region decreased
by 2.5 percent to 310,000 tons, ISSF reports. AIIS:
Steel Imports Up 26% This
second monthly report for imports reflects robust underlying U.S.
demand, low inventories and large price differentials when the February
imports were ordered, three to five months prior, according to the
Washington, D.C.-based American Institute of International Steel. According
to year-to-date figures for two months, imports increased 26.1 percent,
from 5.57 million tons in 2005 to 7.02 million tons in 2006. The
data show that semifinished imported products increased by 32.3
percent in February 2006 as compared to February 2005. For the year-to-date
period, semifinished imports increased from 1.36 million tons in
2005 to 1.8 million tons in 2006, a 32.6 percent increase. Briefs The
American Iron and Steel Institute and Association for Iron and Steel
Technology Foundation are seeking proposals from students studying
metallurgy and materials science under its FeMET Design Grant Program.
Proposals will be judged based on technical approach, probability
of success and potential benefits, team qualifications and relation
to the 2006 theme: Comparative Life Cycle Greenhouse Gas Assessments
of Steel Products. The winning team may be awarded up to a $50,000
grant for its project. |
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