Companies see Opportunity in Closed Steel Mills

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). With a double-digit bankruptcy rate in the steel industry over the past few years, things have been anything but optimistic for the nation's steel industry. However, recent purchases by new and established steel companies with plans for reopening closed mills is setting a precedent for an optimistic future for the U.S. steel industry. Companies involved in this trend include Nucor, Leggett & Platt, International Steel Group, and Dofasco to mention a few.

Leading the charge is cash rich Nucor Corporation (NYSE:NUE) (Charlotte, North Carolina), which is in the process of purchasing the assets of at least three failed steel companies, including, minimill producer Birmingham Steel, Trico, and Qualitech. These acquisitions altogether represent a $772 million investment and close to 5 million tons of annual steel making capacity. Nucor has remained successful during difficult times for the industry by keeping overhead low, and developing cost saving minimill technologies. Steel Dynamics has entered the fray with the announcement that it had reached an agreement to purchase Qualitech for $45 million. A battle for Qualitech could be brewing.

Company's are banking on improved future demand and gobbling up capacity at fairly inexpensive prices. Take for example, niche market producer, Universal Stainless & Alloy Products, Incorporated (Nasdaq:USAP) (Bridgeville, Pennsylvania) acquired the 50,000 ton per year Empire Specialty Steel mill located in Dunkirk, New York for a foreclosure price of $4 million. The company is now up and running under the name of Dunkirk Specialty Steel, LLC.

International Steel Group has recently started up a third blast furnace at facilities of former fourth largest U.S. steel producer LTV Steel. Indiana Harbor Works is operating one furnace and Cleveland works is operating two blast furnaces. ISG acquired LTV's assets for around $80 million early this year. ISG management hopes to trim down the integrated steel manufacturing operating expenses and overhead and make the company competitive with domestic producers like Nucor and foreign competitors. ISG will need a favorable union labor contract in order to succeed. If all goes well the company should be producing anywhere between 3-6 million tons of steel in the next three years.

Canadian steel producer Dofasco has agreed to purchase a closed LTV steel tube mill in Marion, Ohio with plans to reopen this fall.

Leggett & Platt Incorporated (NYSE:LEG) (Carthage, Missouri) has made its first venture into the steel making business with the acquisition of a portion of the former Northwestern Steel & Wire property located in Sterling, Illinois. Northwestern Steel filed for bankruptcy protection and had to close down the 2.4 million ton per year steel mill last year. The 700-acre property and plant building and equipment were liquidated with Leggett & Platt picking up about 145 acres including the meltshop, caster, and rod mill for the low auction price of $4.4 million. The new venture will be known as Sterling Steel Company LLC and is spending about $25 million to refurbish the rod mill and associated buildings. Operation is expected to start in early 2003. Sterling Steel will be Leggett & Platt's first venture into steel making. Rod mill production from the minimill will be dedicated to downstream Leggett & Platt steel wire making and fabrication plants across the U.S.

Minimill producer, AmeriSteel Incorporated (Tampa, Florida) purchased Republic's Cartersville, Georgia cold rolled mill for $7 million in a bankruptcy auction. AmeriSteel had previously purchased the 900,000 ton a year Birmingham Steel minimill in Cartersville Georgia.

Republic Technologies International LLC (Fairlawn, Ohio) has emerged from Bankruptcy and has been acquired by RT Acquisition LLC for $450 million. The company operates 10 steel mills in the U.S.

Joseph Govreau, Manager Metals & Minerals for Industrialinfo.com says, "There are currently 129 steel mills and 15 metallurgical coke plants operating in the U.S. Over the last three years the country has lost 15% of its steel plants to bankruptcy, consolidation, and competition. Over the last three years we have witnessed the closure of 23 steel mills, two alternative iron plants, and seven metallurgical coke facilities. Metallurgical coke is a main raw material in the making of pig iron in the integrated steel process."

Upstream raw material suppliers to integrated steel mills have been hit hard by the continuing down swing for integrated steel manufacturers in the U.S. This includes coke producers as well as iron ore miners. Major Iron ore miner Cleveland Cliffs has gone as far as investing in a steel producer to insure the delivery of iron ore. Cleveland Cliffs is a partner in the ISG venture and has recently signed a contract to supply iron ore for ISG's blast furnaces. The company is also spending considerable research and development efforts for developing alternatives for iron ore.