SSS 2020: Mills eye different growth strategies

With so much uncertainty regarding the macro environment for steel consumption and prospects for tepid demand growth, US and Canadian mills are vying for a bigger piece of the pie - and using different strategies.

Jeffrey Lorch, a partner at McKinsey & Co. who heads the North American metals practice, said his team forecasts North American annual steel production growth of 1-1.5%, while demand will grow by only 0.5-1% per year for the “next many years.”

“Our outlook is for a dissonance between the demand and the supply growth during the next many years,” Lorch said during a panel of US and Canadian steel producers at Fastmarkets’ 2020 Steel Success Strategies Online conference this week.

Steel Dynamics Inc (SDI) intends to take advantage of geographic gaps in steel availability when it opens its new sheet mill in Sinton, Texas, next year. Aside from filling a need for coil in the local market in Texas and domestic points West, SDI plans to be among the most competitive suppliers to manufacturers in Mexico, executive vice president and chief financial officer Theresa Wagler said during the conference session.

Consumption of flat-rolled steel in Mexico totals about 15-16 million tons per year, Wagler said. Mexico imports 45% of that volume.

“We believe that this will increase to 20-21 million tons over the next three-year to five-year time frame,” she said. “This will be through automotive production, appliance production and other construction-related projects... We will be the most freight-efficient steel mill into Mexico via rail.”

Wagler said the Sinton mill is still scheduled to start up “mid-year 2021.”

North Star BlueScope is adding a third electric-arc furnace and second continuous slab caster to its flat-roll mill in Delta, Ohio. Patrick Finan, chief executive of North Star BlueScope’s North American hot-roll division, emphasized the localized “simple business model” at this mill, which produces only hot-rolled coil and has a reputation for shipping orders when the material is promised.

“We are ideally located in northwest Ohio, near our customer base, with an ample supply of scrap,” Finan said during the panel. “Delivering quality hot-rolled coil, on time, with a low-cost base has enabled the business to run at capacity while generating strong cash flows and underpinning our expansion project.”

Stelco Holdings has completed blast-furnace upgrades to its Lake Erie Works in Nanticoke, Ontario, improving its cost structure. Now, executive chairman and chief executive officer Alan Kestenbaum would like to expand operations into more value-added goods and downstream operations.

“This includes further penetration into other markets that use more sophisticated products,” Kestenbaum said, adding that the new forays could potentially come in the automotive, appliance or construction segments.

“Our intention is to continue to push further and further into those markets so that we balance our hot-rolled coil business with further penetration downstream,” Kestenbaum said.

Indeed, Lorch said many steel companies will be becoming more vertically integrated, either by looking upstream and expanding into the scrap business, by acquiring downstream customers, or by pursuing “adjacencies” such as operations involving other metals.

When asked about forecasts from analysts stating that there is too much new steel sheet capacity being added in North America, the panelists generally agreed that those fears were unfounded.

Lorch and the panel’s moderator, Steel Manufacturers Association president Philip K. Bell, said that steel demand during the Covid-19 pandemic turned out to be better than the industry had feared back in March and April.

Wagler and Kestenbaum said the US-Mexico-Canada Agreement has already prompted customers to adjust their supply chains in favor of North American steel.

“The change in origin to a melted-and-poured standard is a tremendous win for the industry,” Kestenbaum said. “Many of the auto companies are starting to transition to that in their models.”

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