Steel Dynamics Gears Up for Increased Market Share with Steel Mill Acquisitions and Expansions

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). Since its creation in 1993 by a group of steel minimill experts, Steel Dynamics Incorporated (Nasdaq:STLD) (Fort Wayne, Indiana) has managed to become one of the true success stories of the U.S. steel industry, during historically its most trying time. Created at a time of great change in the industry, including; downsizing, consolidation, bankruptcies, increased foreign competition, labor, and legacy issues, the formula for success had to be mixed just right to start and expand a steel company during these times. While other large integrated steel producers, like LTV and Bethlehem Steel, have fallen by the wayside, companies like Steel Dynamics have managed to grow, mainly due to adherence to the development of low cost minimill technologies. Recently, the company is undergoing a growth spurt, with the completion and start-up of its second grassroot steel mill, expansion at existing mills, and acquisitions of newly constructed closed operations.

In 1994, the company began construction of its flagship steel minimill (Plant 1020023). The grassroot $354 million thin slab minimill
(PEC 11000828) was constructed in Butler, Indiana. In 1996, the company added a $210 million cold rolling mill and galvanizing line addition (PEC 11000885). The mill now produces over two million tons per year of steel products. Late last year, the company began construction on a $30 million coil coating operation (PEC 11002166) at the Butler site, which is now complete.

In 1997, Steel Dynamics created the Iron Dynamics, Incorporated subsidiary to produce direct reduced iron (DRI) as a feedstock for the Butler mill. The $90 million project (PEC 11001256) was completed in late 1998 then expanded in 2000, and subsequently shut down due to a series of optimization problems and poor market conditions. The company recently announced plans to reopen the plant (Plant 1032245) and is currently adding three briquetting machines representing an investment of $14 million. Equipment installation should be complete by next month. The DRI plant gives the Butler mill some flexibility for feedstock, and protection from swings in scrap steel pricing, but so far has been a "work in progress" essentially since its construction.

In early September, Steel Dynamics received environmental permits to modify its recently acquired steel mill (Plant 1025896) located in Pittsboro, Indiana and is preparing it for the installation of new rolling mill equipment (PEC 11002150). The company is demolishing and tearing out existing equipment to make room for new equipment and will begin the construction of new building this fall.

As it did with the Columbia City mill, Steel Dynamics will be acting as its own general contractor for the $70 million project and will be awarding mechanical, electrical, and specialty subcontracts over the next six months. The new rolling mill will produce up to 600,000 tons per year of specialty bar quality (SBQ) products, such as angles and channels, and is scheduled to be up and operating in July of 2004. Employment at the mill is expected to increase to 150 by the end of 2003 and to 290 by the end of 2004.

Steel Dynamics acquired the Pittsboro mill for $45 million late last year from Qualitech Steel, after winning a bidding war with Nucor Corporation (NYSE:NUE) (Charlotte, North Carolina), and very soon thereafter announced plans to invest in the mill to enable it to produce merchant and reinforcing bar. Qualitech constructed the mill in 1998 a cost of about $220 million.

Steel Dynamics is looking to boost its steel production capacity with the additions at the Pittsboro mill and its recently opened new $360 million structural steel and rail mill in Columbia City, Indiana (Plant 1033812, PEC 11001305). In fact, the company announced that its Structural & Rail Division achieved its first monthly operating profit in August on shipments of 43,000 tons of structural beams. The mill began operating in July 2002, and has currently ramped up to about 50% of its capacity. In October the company is scheduled to be producing rail product.

In 2005, once all of these expansions are in place and mills are running at capacity the company is expected to produce between 3.6 and 4 million tons of steel products per year making the minimill producer not so "mini" anymore. The company is also adding downstream finishing capability. In early 2003, Steel Dynamics acquired a 350,000 ton per year hot-dip galvanizing plant (Plant 1034330) located in Jeffersonville, Indiana. The former GalvPro plant, a joint venture between Weirton Steel and Corus was idled in March of 2001, shortly after start-up in 1999. The plant was constructed at a cost of $63 million. Steel Dynamics acquired the plant for a reported $17.5 million.