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Conference Report: Steel Success Strategies

World Steel Dynamics projects significant decline in price of hot-rolled coil

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MCN Editor Dan Markham

World Steel Dynamics is projecting a significant decline in the hot-rolled coil price over the course of the third quarter. Peter Marcus, managing partner of the company, told attendees at June’s American Metal Market/WSD Steel Success Strategies meeting that the price of HRC could fall to about $750 per ton by October, compared with the $980 figure where it was sitting at June’s end.

Since the 232 tariffs were announced in the first quarter, the domestic price of hot-rolled coil has increased from around $700 to nearly $1,000 per ton. However, the world export price has not kept pace, increasing less than $100 per ton to $590 per ton entering July.

While uncertainty has been keeping imports out of U.S. ports recently, that condition won’t last. At $600 per ton for global HRC, a 25 percent tariff takes the world price up to $750, plus the $50 per ton cost to get the steel to the port. That still leaves the export price almost $200 per ton below the U.S. price. 

Such a gap will lead to “an avalanche of foreign steel entering the country, probably around September,” Marcus said. Such an onslaught of supply will push the domestic price down to the $700 range. The export price will also fall in October, a byproduct of an increase in global supply at midyear. 

That’s not all bad news, Marcus cautions. That price remains well above the mill’s operating costs, which will continue to keep mills profitable, just at lower margins. 

Marcus didn’t limit his predictions to the U.S. price. He also cautioned the audience to remain wary of China’s role in the global economy, though in an entirely different way than through its export-dominated model of steel production that characterized the last decade. 

The recent improvement in business conditions for global steelmakers has been driven by a rebalancing of the Chinese steel industry, with all highly polluting furnaces closed as of July 1, with other shutdowns planned to curtail air quality issues in the winter. Still, a retrenchment in steel production should not be interpreted as a countrywide push to increase its global economic presence. 

“There’s a critical new strategy in China to create an international financial colonial empire that will rival the importance of the British, French, Spanish, Dutch and Portuguese colonial empires. Many developing world countries will be benefiting from China’s financial support for their non-financeable infrastructure projects. China has created the Asian Infrastructure Investment Bank, whose influence is rising extraordinarily and usurping the power of the USA-promoted World Bank,” Marcus said. 

On 232, Marcus believes that rather than any particular interest in the steel industry, President Trump is using the tariffs as a “jawboning tool whereby he wants better trade pacts with other countries.” And though exemptions have been slow moving and difficult to process given the more than 20,000 that have already been filed, he believes that ultimately more exemptions will be granted, in part to encourage steelmaking investments by companies that plan to import slabs. 

The U.S. tariffs are just a more extreme version of a global push toward protectionism, one that’s been taking place since 2016 with no signs of abating. The result, he said, has been many more countries being able to get higher prices in their home markets due to lower levels of foreign competition. 

Word from the New Guys 

The annual gathering of steel industry leaders in New York regularly attracts the biggest newsmakers, and the 2018 event was no exception. Three of the most recent entrants to the North American market had prominent places on the agenda. 

Included in the scheduled speakers was Sanjeev Gupta, whose London-based company GFG Alliance restarted the Georgetown, S.C., mill just one day before he delivered the keynote address. GFG had acquired the idled facility from ArcelorMittal in late 2017. 

Gupta made it clear that the relaunch of steelmaking in Georgetown, which has two 500,000-ton EAFs and a 750,000-ton rod mill, was just the beginning for the company’s plans in North America. The company followed that up with the acquisition of Liberty’s first recycling plant in Tampa, Fla., the first step “in our plan to build an extensive network of scrap operations in the U.S.”

Beyond that, the company envisions developing steelmaking assets capable of producing 5 million tons within two to three years. Additionally, the company is looking not just vertically into mining upstream and engineering downstream, but also into energy, infrastructure and even aluminum. 

GFG’s push into the U.S. was driven by a lot of factors, including the size of the economy, the ease of doing business, raw material availability and a highly educated workforce. “However, the economy is now skewed toward services,” he said. 

With China pulling back on steel production, the long-anticipated growth of India into a steelmaking power may finally be starting to become a reality. And while JSW Steel Ltd. is heavily invested in being a leader in that growth at home, the company is also making a strong push into the U.S. market as well. 

The company followed up its arrival in Baytown, Texas, with the recent acquisition of the idled steelmaking operation in Mingo Junction. Significant investments are taking place at both locations.

After Executive Vice President Sanjay Jayram delivered the company’s analysis of the home market, he tapped JSW Steel USA President John Hritz to summarize the company’s efforts here. 

JSW is already in the middle of a $500 million project at Baytown, developing the “plate mill of the future.” The investments there include the addition of a hot end to become “totally melt to manufacture,” he claimed. 

An additional half-billion dollars will be invested at Acero Junction, getting the hot end back up while adding another electric arc furnace. The company anticipates being able to produce 4 million tons in short order. 

“You don’t get money from our parent company unless you have a definitive plan going forward,” Hritz said. “When we finish, we’ll have the lowest-cost, highest-technology facilities of our kind in the U.S. Our technology and cost structure will be so ridiculous, we’ll pick the niche markets we want to participate in. This is being done very analytically.”

While JSW Group is breathing new life back into a couple of old U.S. facilities, Bedrock Industries has done the same in Canada with one of the country’s most iconic steelmakers. When Bedrock acquired the Hamilton, Ontario, operation from U.S. Steel, it also returned the Stelco name to the steel landscape. 

The new Stelco has been operational for a little more than a year, and CEO and Executive Chairman Alan Kestenbaum outlined the progress that’s been made during that time. Chief among them is an adjustment to the blast furnace that has resulted in an increase in steelmaking production from 2 million to 2.8 million tons. 

Looking ahead, the company is planning to add annealing equipment to help participate in the large cold-rolling market. Stelco will also upgrade its galvanizing and hot-rolled facilities for greater market penetration. The company recently acquired 800 acres of land at the Port of Hamilton, “which will position us for some organic opportunities,” Kestenbaum said. 

But the gains Kestenbaum was most encouraged by were not in steelmaking, but in shipping. “One of the amazing things I encountered when I came into the industry was 20-30-40 percent delivery reliability was acceptable.”

To improve delivery, the company has overhauled its entire process, while repurposing its dock so that it could be used not just for receiving raw materials but shipping out finished goods.  

“Our on-time performance has doubled to a still-lousy number, but it’s much better. Our goal is to get to 90 percent, which I believe would be industry leading. Our customers are JIT. They don’t want inventory either,” he said.