Metals Industy Pulls in the Reins
By The Staff of Metal Center News
Dismal demand, weakening prices and inventory destocking had most of the metals industry in a self-preservation mode in 2009, according to MCN’s review of the past year’s news events.
For most of this decade, the metals industry had seen a steady stream of steel and aluminum companies gobbling up smaller competitors in an effort to consolidate operations, expand market share and satisfy the hunger of shareholders. In 2009, struggling under the weight of the recession, the industry stopped looking outward and focused inward.
M&A activity didn’t disappear entirely in the past year, but it slowed to a crawl as companies worked to slash expenses and keep their names off the growing docket in bankruptcy court. After years of record sales and profitability, major steelmakers and distributors faced quarterly statements awash in red ink. In the first quarter of 2009, virtually all domestic steel and aluminum makers reported major losses, the product of plummeting sales and prices. Service centers suffered a similar fate.
To combat the declining sales, producers and distributors engaged in numerous efforts to restructure costs and strengthen balance sheets. Companies reduced head count through layoffs, hiring freezes and reduced workweeks. Capital expenditure projects not already in sight of completion were delayed or cancelled. Both integrated and minimills idled facilities and cut production to below 40 percent capacity in an attempt to match output to the woeful demand.
“We’ve never seen this low a utilization in the history of our company,” Nucor Chairman and CEO Dan DiMicco announced after the first-quarter bloodbath. “I’m not sure the steel industry has seen anything close to this since maybe the Great Depression.”
At the service center level, the story was the same. All of the major publicly held service center companies suffered at least one losing quarter during the first nine months of 2009 as distributors tried to shed high-priced inventory in a market with very few buyers.
Distributors were in an “everything must go” mode, as inventory levels fell steadily through the first nine months of the year. Even as they reached the bottom of the inventory purge, service centers remained cautious about restocking, mindful of the mess they had just left behind. That attitude remains prevalent throughout the supply chain.
“Everybody has gotten very skeptical about buying inventory without having a hard order first,” said Bob Stiles, chief operating officer of Erickson Metals Corp., Cheshire, Conn. “The way customers want to do business has changed. They don’t want to hold inventory. The days of large-quantity orders with extended lead times are gone.”
Economists universally declared that the recession had technically ended in the third quarter. Even the manufacturing sector, on a downward trend for 18 consecutive months, began expanding slightly in August, according to the Institute for Supply Management. But few expect any meaningful improvement in metals demand until well into 2010. Forecasts call for only mild economic growth in the months ahead, with full-scale recovery unlikely until 2011.
As they struggled to survive the downturn, leaders from metals and other industries looked to the new administration in Washington for answers. Loans to bail out two of the three domestic automakers were quickly overshadowed by the nearly $800 billion economic stimulus package passed by Congress. But the effects of the federal spending were disappointingly few in 2009, leaving some skeptical about how effective the stimulus will be in 2010 and 2011.
Also on the legislative front were free trade and climate change issues. Steelmakers have been almost uniformly opposed to the proposed cap-and-trade legislation designed to reduce harmful greenhouse gas emissions, while some aluminum manufacturers, such as Alcoa, have championed the cause.
AK Steel’s James Wainscott, also chairman of the American Iron and Steel Institute, summed up the steel industry’s objections: “Any U.S. climate change regulations involving the steel industry must also provide that similar measures be taken by other steelmaking nations. If not, such regulations would be damaging to our industry’s competitiveness and to the global environment.”
While trade disputes had moderated in the last three years as import threats receded and U.S. exports improved, claims of unfair trading practices picked up steam with the softening economy. Most recently, seven domestic producers and the United Steelworkers filed an antidumping and countervailing duty trade case against Chinese imports of oil country tubular goods. If China continues to defy the world trend by increasing steel production, international trade disputes may be an even bigger story in 2010.
Following is a roundup of significant industry news events of the past year:
Worthington Industries, Columbus, Ohio, cut 300 employees from its workforce in the company’s steel processing and metal framing business segments. It also announced plans to close its Dietrich Metal Framing facility in Lunenburg, Mass., and suspended operations in Phoenix and Miami.
Friedman Industries opened a new coil processing facility in Decatur, Ala., adjacent to the steel mill operated by Nucor Corp. The facility includes temper passing and leveling equipment to process hot-rolled sheet and plate.
Former MCN Service Center Executive of the Year Bud Siegel announced his retirement as president and CEO of Russel Metals Inc., Mississauga, Ont., effective in May. He was replaced by Brian Hedges, executive vice president and chief operating officer for the company, which ranked fifth in the Metal Center News Top 50 Service Centers ranking in 2009.
TW Metals, Exton, Pa., acquired the assets of Fairfield, N.J.-based Stainless Tubular Products, a distributor of stainless steel tubing, pipe and fittings.
Alcoa announced plans to reduce annual smelting output by 750,000 metric tons and alumina production to 1.5 million tons in response to declining market conditions.
Additionally, the Pittsburgh-based aluminum maker planned a 13 percent reduction of its workforce worldwide by the end of 2009.
SSAB announced plans to construct an $11 million research and development facility adjacent to its steel mill in Montpelier, Iowa.
Century Aluminum Co. restructured its workforce, cutting 13 percent of the salaried personnel at its Monterey, Calif., headquarters and its Kentucky operations. The company also shut down one pot line at its Ravenswood, W.Va., primary aluminum smelter.
Kaiser Aluminum, Foothill Ranch, Calif., announced plans to close operations at its Tulsa, Okla., extrusion facility and to reduce operations at its Bellwood, Va., operation, which produce bar, rod and tube.
Dave Raco, a steel industry professional of 42 years and vice president of Tomsin Steel Co., Carnegie, Pa., was named the Association of Steel Distributors’ 2008 Steel Man of the Year. This annual ASD award honors an individual who exemplifies leadership, dedication, service and excellence in the steel industry.
Ryerson Inc. opened new U.S. service centers in Clearfield, Utah, near Salt Lake City, and McAllen, Texas, serving the area from Del Rio to Brownsville on both sides of the border. Also, Ryerson doubled its ownership stake in VSC-Ryerson China Ltd., a joint venture formed in 2006, to an 80 percent controlling interest.
Leeco Steel LLC relocated its Chicago operations to a larger processing and distribution facility in Portage, Ind.
In a strategic buyout, Tri Star Metals LLC, Carol Stream, Ill., was acquired from its three founders by German stainless wire manufacturer Hagener-Feinstahl.
Fulton County Processing, Delta, Ohio, installed a new SMS slitter as part of an 85,000-square-foot expansion effort. The project increased the facility’s size to 250,000 square feet.
Pennsylvania Steel Co. opened a new 70,000-square-foot warehouse and sales office in Naugatuck, Conn., to complement three facilities in Pennsylvania, New Jersey and Massachusetts.
Trade organizations representing various segments of the metals industry urged Congress to act quickly on an economic stimulus package proposed by President Barack Obama. Investment in roads, bridges, mass transit and ports would contribute significantly to the recovery of the U.S. economy, especially the manufacturing sector, they said.
The Institute for Supply Management’s January PMI of 35.6 percent showed that economic activity in the manufacturing sector had failed to grow for the 12th consecutive month, and the overall economy had contracted for the fourth consecutive month, setting the stage for the difficult year ahead.
AK Steel, West Chester, Ohio, implemented a salaried workforce layoff plan in all of the company’s plants and offices to combat the continuing economic downturn.
Universal Stainless & Alloy Products Inc. announced plans to invest $13 million in its Bridgeville, Pa., melt shop, including major upgrades in equipment, automation and plant layout.
North American Galvanizing & Coatings Inc. continued construction on a new $3.5 million hot-dip galvanizing plant in Benwood, W. Va.
As a result of a decline in customer orders, Severstal North America Inc., Dearborn, Mich., extended layoffs at its Warren, Wheeling, Sparrows Point and Dearborn flat-rolled steel facilities.
Due to weak stainless steel demand, Outokumpu cut production, temporarily laid off 2,000 workers and cut 250 jobs at facilities in various countries.
Triumph Tube announced plans for a new cold-drawn tube manufacturing facility in Orangeburg County, S.C. The $3.5 million facility will manufacture aluminum tube and fabricated aluminum products.
Aleris International Inc., Beachwood, Ohio, filed for Chapter 11 bankruptcy protection, citing financial constraints caused by the steep decline in global economic conditions. To fund its global operations during the restructuring, Aleris secured $1.075 billion of debtor-in-possession financing.
United States Steel Corp. took further steps to consolidate operations in the difficult manufacturing environment by temporarily idling finishing and coking operations at Hamilton, Ont., and steelmaking and finishing operations at Lake Erie Works near Nanticoke, Ont. Approximately 1,500 employees were affected by the idlings.
Prolamsa USA began production of mechanical tubing at its first U.S. manufacturing facility in Laredo, Texas. The facility, which produces mechanical tubing from 0.5 to 2.5 inches, includes a cut-to-length line.
Samuel, Son & Co., Ltd., Mississauga, Ont., acquired two former Novamerican facilities located in Albany, N.Y., and Cumberland, R.I. Both facilities carry the full line of Samuel products of carbon flat-rolled, carbon plate, aluminum, stainless steel and pipe.
Russel Metals, Mississauga, Ont., cut executive salaries by 10 percent and reduced headcount by 500 employees to reduce operating expenses during the difficult economic environment.
Metals USA Holdings Corp., Houston, acquired VR Laser, a processor of carbon plate products located in Philadelphia, as part of an effort to expand its value-added processing capabilities to its customer base in the Northeast.
Private equity firm Linx Partners LLC acquired Metaltech Service Center Inc. in Houston. Metaltech is a provider of metal processing services and distributes a line of plates, sheets and bars.
Alliance Metals, West Chester, Pa., was acquired by industry veteran Ed Weinfurtner, who is now president and CEO of the supplier of painted, anodized and mill-finish aluminum.
Republic Engineered Products Inc. moved its corporate headquarters from Fairlawn, Ohio, to its manufacturing operation in Canton.
Carpenter Technology Corp., Wyomissing, Pa., announced plans to close its Crawley, U.K., metal strip manufacturing facility as part of an overall plan designed to reduce fixed costs.
For the second month in a row, steel shipments from service centers in the United States and Canada fell by more than 40 percent from year-earlier levels, according to the Metals Service Center Institute, Rolling Meadows, Ill. Continued economic uncertainty coupled with dismal economic indicators led customers to buy only as much metal as was absolutely needed, and service centers stayed in a stock-reduction mode.
Metals producers felt the full brunt of the recession in the first quarter, as domestic steel mills reported massive losses. AK Steel, Nucor, Steel Dynamics and U.S. Steel all reported net losses for the first three months of 2009 due to falling prices and dismal demand.
The World Steel Association projected that worldwide apparent steel use would decline by 14.9 percent to about 1.02 billion metric tons in 2009, on top of the 1.4 percent decline in 2008. The group predicted steel demand would stabilize in late 2009, however, leading to a mild recovery in 2010.
Reliance Steel & Aluminum Co., Los Angeles, avoided the fate of the rest of the industry by posting a modest profit of $20.1 million during the first quarter. Fellow distributors Metals USA and Olympic Steel reported first-quarter losses.
North American Stainless, Ghent, Ky., ran the first production coil on its Z-mill No 5. The installation of the No. 5 mill completed the company’s expansion of its cold-rolling operations, upgrading its annual capacity to 840,000 metric tons.
Following a record year in 2008, American steel exports turned down sharply in the first two months of 2009. Exports to nearly every region of the globe declined, except for non-NAFTA western hemisphere countries and Africa.
The National Association of Manufacturers reported that manufacturing output fell at an annual rate of 22.4 percent in the first quarter, the largest quarterly decline in 34 years.
Bill Jones, vice chairman of O’Neal Industries, Birmingham, Ala., was elected chairman of the Metals Service Center Institute, succeeding Norman E. Gottschalk, Jr., president of Marmon/Keystone Corp., Butler, Pa.
Service center shipments of copper and copper alloys declined from both the previous month, and the companion month a year ago, to the greatest degree since the Copper & Brass Servicenter Association began compiling data over 40 years ago. February shipments declined by more than 20 percent from January and were 40.6 percent below the previous year.
Automotive metals suppliers looked on anxiously as troubled auto giant General Motors filed for Chapter 11 bankruptcy protection and announced plans to accelerate its reorganization. The move followed the bankruptcy filing by fellow Detroit 3 automaker Chrysler in May.
Severstal International took additional steps to curtail North American production in the face of deteriorating economic conditions, idling cold-rolling and coating operations at its Wheeling, W.Va., facility, following a similar action with its hot-rolling operations there.
AK Steel announced plans to idle its Ashland Works operations in Kentucky. The planned idling was later overturned by an arbitrator.
Kaiser Aluminum further curtailed operations at its Bellwood, Va., facility to focus solely on drive shaft and seamless tube products.
After nearly 50 years with the Copper and Brass Servicenter Association, Executive Vice President R. Franklin Brown Jr. retired from the position. With his retirement, management and the headquarters of the red metals trade group shifted to Susan Avery in Overland Park, Kan.
Economic activity in the manufacturing sector failed to grow in May for the 16th consecutive month, but the overall economy grew for the first time following seven months of decline, reported the Institute for Supply Management.
Inventories of steel and aluminum products at service centers in the United States and Canada continued to decline and shipments remained weak, according to MSCI data. Steel shipments from U.S. metal centers were down over 40 percent for the year.
Sweden’s Sapa Group acquired North American aluminum extrusion manufacturer Lincolnshire, Ill.-based Indalex, which filed for bankruptcy protection earlier in the year. Sapa, a producer of aluminum profiles, acquired all of Indalex’s assets in the United States and Canada in a sale valued at approximately $95 million.
Gerdau Ameristeel Corp. suspended production at its Sayreville, N.J., steel mill and closed a rolling mill in neighboring Perth Amboy due to the market slump. Gerdau also entered into discussions with the United Steelworkers regarding the potential closure of the company’s steel mill located in Sand Springs, Okla.
ThyssenKrupp Steel USA began hiring at its new Alabama mill. ThyssenKrupp expects to begin production at its new facility in 2010.
Marmon/Keystone opened its newest branch location in Queretaro, Mexico. The 20,000-square-foot facility, a satellite of the Monterrey service center, is the company’s third location in Mexico.
The so-called “Cash for Clunkers” automotive stimulus bill passed by Congress helped the auto industry sell approximately 700,000 cars in just two months, but the program was criticized for pulling buying forward rather than creating incremental demand. Steel industry executives did not expect the program to have much effect on the scrap market or scrap prices.
World crude steel production for the first six months of 2009 totaled 549 million tons, a 21.3 percent decrease over the same period of 2008. North America showed a 48.5 percent decline of its crude steel production, producing 35.8 million tons during the first six months of 2009.
So-called cap-and-trade legislation designed to reduce harmful greenhouse gas emissions passed the U.S. House, but was roundly criticized by steel industry executives, who argued that it will unfairly increase the cost of producing and transporting steel at a time when companies are struggling to survive the recessionary economy.
Timberline Steel, a 50-year-old service center with four facilities in the Rocky Mountain region, began operating as O’Neal Steel, following a six-month-long transition. Timberline was purchased by O’Neal in 2006 as part of a strategic plan to expand and diversify O’Neal’s business into growth-oriented geographic areas.
With the first half of a difficult year in the books, most service center executives across the country agreed that the inventory correction had finally run its course. Unfortunately, they reported, there was little sign of improved demand for metals. Steel, aluminum and copper distributors had been in a stock-slashing mode since October 2008 when the economy took its historic nosedive. By summer 2009, most had right-sized their inventory levels to match the current weak order volume and were holding their breath to see what would happen next.
Following 18 consecutive months of contraction, economic activity in the manufacturing sector finally expanded in August, while the overall economy grew for the fourth consecutive month, reported the Institute for Supply Management. The August PMI of 52.9 percent was the highest since June 2007, and up 4 percentage points from the 48.9 percent in July.
Gerdau Macsteel resumed steelmaking operations at its Jackson, Mich., mill, due to an uptick in auto industry orders, but its parent company suspended activity at Gerdau Ameristeel’s Sand Springs, Okla., operation for at least two years.
Sapa Profiles North America planned to shut down its plant in Morris, Ill., as a result of low volumes and low profitability at the facility, coupled with historically low demand in its markets. As a result of their acquisition of Indalex, Sapa officials said they could provide customers with better service and extrusion offerings from other facilities.
Serviacero Worthington completed the first phase of its greenfield steel processing facility in the Monterrey region of Mexico. The business is a 50 percent joint venture between Mexico’s Serviacero Group and the Worthington Steel Co. Phase 1 of the project was the completion of the 65,000-square-foot building with rail access.
United States Brass & Copper Co., Downers Grove, Ill., purchased Guardian Metal Sales Inc., Morton Grove, Ill. Both companies specialize in the distribution of copper and copper alloy mill products.
The number of M&A deals announced in the global metals industry during the second quarter of 2009 declined from the first quarter and remained far below the pace of 2008, according to analysts at PricewaterhouseCoopers. Tracking transactions from mining through production and distribution worldwide, the consulting firm reported that 34 deals worth $50 million or more were announced in the first half of 2009, down from 139 deals for all of 2008.
Results of the Metal Center News Top 50 survey appeared to suggest that the first three quarters of 2008 were strong enough to offset the disastrous fourth quarter when the economy took its historic nosedive. Combined revenues among the industry’s Top 50 service center companies actually grew around 5 percent in 2008, though industry executives were forecasting declines averaging 20 percent in 2009.
The U.S. Commerce Department imposed countervailing duties on Chinese imports of oil country tubular goods. Its preliminary findings determined that Chinese producers/exporters of OCTG received net countervailable subsidies ranging from 10.9 to 30.7 percent.
Northwest Pipe Co. announced plans to revitalize its facility in Bossier City, La., which has been idle for the past three years, to strengthen the company’s presence in the oil country tubular goods and pipe markets. Executives hope to recommission the plant by mid-2010.
Chicago Tube & Iron Company relocated its Wisconsin Division from Milwaukee to a newly constructed 117,000-square-foot metals distribution service center in Fond du Lac. The new facility employs approximately 30 warehouse and office workers who support the company’s customers throughout the state of Wisconsin.
Angeles Steel, Santa Fe Springs, Calif., acquired TPL Metals Corp., a Lake Forest, Calif.-based steel distributor. The service center business will merge with Angeles Steel’s wholly owned subsidiary, Get Steel Inc.
Analysts and economists assembled at MSCI’s fall forecast conference agreed that the recession had most likely run its course, but that recovery would be a slow, painful process with persistent unemployment, sluggish consumer spending and the costs of government stimulus programs weighing heavily on future growth.
With steel shipments from service centers slowly rising, inventories of the metal, in decline since early 2008, rose slightly in the United States and Canada. Shipments of aluminum products also rose slightly, but inventories of the light metal continued to decline in both countries, according to MSCI data.
The World Steel Association forecasted that apparent steel use would contract worldwide by 8.6 percent to 1.104 billion metric tons in 2009 after declining by 1.4 percent in 2008. This was an improvement over earlier forecasts, however, largely due to the exceptionally strong growth in steel demand in China.
Citing the steep general international economic decline that resulted in mounting cash losses, tubing maker PTC Alliance filed for voluntary Chapter 11 bankruptcy.
Allegheny Technologies Inc. completed the purchase of Crucible Compaction Metals and Crucible Research for $40.95 million. The combined entities produce nickel-based superalloy powder metals used in the aerospace and defense, oil and gas, electrical energy, and medical markets.
Brussels-based EUROFER’s October report on the economic and steel market outlook for 2009-2011 showed that the EU economy most likely turned the corner during the third quarter of 2009. However, recovery was expected to be slow in the coming quarters and surrounded by high levels of uncertainty. Prospects for the EU’s steel-using sectors—such as automotive and the construction—remain subdued. Despite stabilizing financial markets, financing was still a bottleneck for many companies. While year-on-year output growth was expected to turn positive again in the second quarter of 2010, it could take until 2011 before a more pronounced rebound in output begins, officials said.
The end of the recession does not necessarily signal an end to the difficult market conditions facing both residential and nonresidential construction, according to Edward Sullivan, chief economist for the Portland Cement Association. The economic fundamentals were not in place to spur a recovery in either housing or commercial construction investment, although he expected some relief from the public sector.
Marmon/Keystone Corp. opened its newest Canadian service center in Headlingley, near Winnipeg, Manitoba. The 63,000-square-foot pipe and tubing distribution facility/office complex replaced the company’s former location at Sylvan Way in Winnipeg.
After weakening this winter, carbon flat-rolled prices should remain relatively stable for most of next year, predicted Paul Scott of London-based CRU. Scott forecasted the Midwest price for hot-rolled coil will average $520 per ton during 2010 after declining by as much as $70 late in 2009.
While on the surface, it appeared the carbon flat-roll market had improved significantly, raising hopes that the economy’s recovery was finally gaining traction, metals executives remained frustrated by the lack of true demand. Many attributed the uptick to temporary inventory restocking by distributors. Nevertheless, a number of integrated mills opted to restart idled capacity in anticipation of improving order activity.
Chriscott USA outbid a consortium of four other companies to purchase Barzel Industries, formerly Novamerican Steel Inc., out of Chapter 11 bankruptcy. Barzel’s assets include substantial service center holdings in the United States and Canada.
Economic activity in the manufacturing sector expanded in December for the fifth consecutive month, and the overall economy grew for the eighth consecutive month, said the nation’s supply executives in the final Manufacturing ISM Report on Business for 2009 from the Institute for Supply Management. The manufacturing sector grew as the PMI rose to 55.9 percent, its highest reading since April 2006. “This month’s report is quite strong as both the New Orders and Production Indexes are above 50 percent,” said Norbert Ore, chair of the ISM’s Manufacturing Business Survey Committee. “Overall the recovery in manufacturing is continuing but there are still some industries mired in the downturn, as evidenced by the seven industries still in decline.”