NLMK may scrap $600-mln US investment if slab not excluded from 232 tariffs

NLMK USA was finalizing a plan to invest $600 million in its mills in western Pennsylvania and northwestern Indiana but won’t do so if the Trump administration doesn’t exclude slabs from proposed 25% Section 232 tariffs.

The steelmaker’s Russian parent company - Novolipetsk Steel Public Joint Stock Co (NLMK) - was willing to spend that amount over the next five years in downstream rolling and finishing operations in Portage, Indiana, and Farrell, Pennsylvania, company executives told American Metal Market in an exclusive interview on Tuesday March 6.

If slabs aren’t excluded from President Donald Trump’s Section 232 action, NLMK USA will instead face the prospect of laying off United Steelworkers union members from their Farrell plant.

The company employs approximately 1,200 steelworkers, up approximately 33% from 900 in 2009, president and chief executive officer Bob Miller said. It’s not clear exactly when the layoffs might start if slabs aren’t excluded from the tariffs.

“The market will decide that. If we can’t sell at a price that covers our increased costs, then the layoffs will start pretty fast … because we’re in business to make money,” Miller said.

NLMK imports more than 2 million tons of slabs per year because there is no spot market for slabs in the United States. Approximately 1.8 million tons come through New Jersey to the Farrell location, which has no steelmaking capabilities. Another 400,000 tons are brought into Portage through the Great Lakes to supplement the mill’s limited melting capacity.

Most of the slabs come from NLMK USA’s parent company in Russia. Slabs are also brought in from Brazil.

It’s not just steel jobs that will be lost; so too will be good-paying longshoreman positions and key services in struggling communities such as Farrell that are supported in no small part by taxes paid by NLMK.

“I’m quite confident that’s not what the administration wants to have happen,” Miller said.

It’s ironic that the president - in the name of protecting the US steel industry - might inadvertently punish slab converters, which account for approximately 15% of domestic steel output, said James M. Banker Jr, NLMK USA’s executive vice president, commercial.

“It’s the slab conversion model that has allowed us to rebuild and grow our business,” Banker said, noting that the Pennsylvania plant, formerly Sharon Steel, could not have emerged from bankruptcy in 1999 and thrived since then without that model.

“We can’t afford to eat that (25%). So we’d have to try to pass it on to the market. … But people can opt to go elsewhere,” he said - namely, to steelmakers that melt steel in the US from imported hot-briquetted iron (HBI), direct-reduced iron (DRI) or pig iron from Brazil and Russia that would face no tariff.

NLMK USA is “running full,” as are most US sheet mills, thanks to capacity utilization rates of approximately 90%, Banker said. And it has been increasing capacity - restarting an idled galvanized line in Pennsylvania in 2017, for example - to meet increased demand.

That means the Trump administration’s stated goal of reaching 80% capacity utilization is not relevant to the flat-rolled side of the steel market, Banker said. That stands in contrast to the long-products sector, where capacity utilization rates are substantially lower.

Sweeping protections for the US steel industry are also unnecessary given that most major steelmakers are posting near-record profits, Miller said. Trump should therefore target nations that are “cheating” by dumping or subsidizing imports instead of taking the disruptive step of hammering imported slabs.

California Steel Industries - a West Coast slab converter - has also requested that Trump make an exemption for semifinished goods.

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