Steel Industry Insight

Another foreign-owned US mill bites the dust?

In early May, rumors started to swirl that Severstal NA was putting its North American operations up for sale. This included two key facilities:

Severstal Dearborn, an integrated mill which underwent a $740 million modernization program in 2011. Those upgrades included a new, five-stand, six-high, 72″ tandem cold mill linked to a pickle line and a new, exposed hot-dipped galvanizing line which targeted critically exposed applications for automotive customers and other original equipment manufacturers.

A company spokesperson said the facility is capable of producing 3.6 million net tons of hot rolled, 2.1 million net tons of cold rolled, and 1.1 million net tons of galvanized and galvannealed sheet each year.

The other mill in question, Severstal Columbus, was constructed in 2007 at a cost of $980 million, Many have considered that facility as being the vanguard of the ‘”mini-mill” movement, since it featured the newest and most advanced electric arc furnace facility in the world at the time of its construction.

The Columbus mill’s annual capacity is 3.4 million net tons of hot rolled steel, 1.5 million net tons of cold rolled steel and 1.1 million net tons of galvanized and galvannealed sheet.

Some believed the Russian producer was considering the sale because they wanted to pull back and not have investments everywhere, and focus more on their home market, instead. Others said they heard rumors that once the US mills sold, Severstal planned on investing in a new mill in India. Neither of these rumors have been confirmed or denied.

Two front runners were speculated to be in the buying seat: US Steel and Brazilian-based Companhia Siderurgica Nacional SA (CSN), and many believed combined sale price for both facilities would topple the $1.5 billion mark.

But less than one week later after media reports of the sale first surfaced, the company announced it would extend its deadline for bids. The top finalists would be announced by the end of May, they said, and the winner would emerge by mid-summer.

The new rumor, at that point, was that Japanese steelmaker JFE Steel Corporation had shown interest in tossing its hat into the ring, but told representatives from Severstal they needed more time to put some numbers together.

At that point, neither US Steel, JFE nor CSN were talking to anyone. Each of the would-be buyers were keeping their lips tight and weren’t too keen on making comments to the media.
This meant that movers and shakers in the US flats market were wide-open to speculation as to how the deal would pan out—and whether the mills would be sold as a package deal, or if Severstal would split them up to maximize profits.

The leading belief was that US Steel and JFE could team up to take over the Dearborn, Michigan facility. US Steel already has connections for iron ore shipments on the Great Lakes, and the partnership could bode well for JFE’s interests in the automotive sector.
That could open up some doors for, potentially, Nucor (or CSN) to sweep in and take over the Columbus, Mississippi mill.

Hypothetically speaking, it makes sense that the sale could go any number of ways. Although some thought Severstal would try to force the sale as a package deal, others felt it would be hard to sell mini-mill operations to traditional blast furnace operators, and vice versa.

“I don’t think whoever buys one mill will want the other,” said one SteelOrbis source, furthering a JFE-US Steel joint venture would fit much better for Dearborn while a mini mill operator would be far more interested in gaining interest of the Columbus facility.

But the biggest wild card, at this point, is if that does in fact happen, how would the US flats market fare should an international mill gain control of the Mississippi mill?

“The market would be much better served if a US domestic mill buys Columbus,” said a Texas-based source. “Let’s use ThyssenKrupp for example. They always pulled the market down, and if CSN comes in, they may start pricing cheaper that what US mills are trying to hit for now. This could turn out to be one big disaster for domestic producers.”

On the flip side of that coin, he said, a domestic buyer would likely show more restraint, which could bode better for other US flats producers.
At this point, it’s all rumor and speculation, and the steel industry as a whole is still waiting to see how the proverbial dust settles.

OAO Severstal is also not saying much, except that they are “considering a range of strategic options in relation to Severstal North America. [The company confirms] that no decision has yet been taken as to which, if any, such option might be pursued.”

The company’s CEO, Alexey Mordashov has also said that selling the mills is merely one option, and that they are also considering another course of action, which involves keeping the mills and working to expand market share.


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