Ron Bedard is the President and Chief Executive Officer of Canadian pipe and tubing producer Lakeside Steel Corporation. Mr. Bedard has of 20 years of industry experience. Prior to joining the Welland, Ontario-based company as Vice President of Operations, Maintenance and Engineering in 2008, Bedard held increasingly senior positions in integrated steel at United States Steel and Stelco at both Hamilton and Lake Erie Works with Division Manager responsibilities for the Coke Plant, Sinter Plant, Blast Furnace, BOP and Casters. Mr. Bedard has worked closely with his management team and the Canadian Auto Workers to make Lakeside more competitive in the OCTG market.
At press time, North American energy pipe (OCTG, line pipe) producers have just announced some pretty hefty price increases. Do you think these hikes are supported by demand or are they based primarily on raw material costs?
I believe that there are several factors at work in terms of the price increases. Pipe producers are seeing significant increases in hot band passed down from the integrated mills. These increases, in turn, are passed along to end-users. I think that the trade cases against China in both Canada and the US have had an impact as well -- November imports of OCTG products are off -90 percent from the same period one year ago. I also believe that the support for oil in the $70-$80 per barrel range coupled with the support for natural gas in the $5-$6 (per thousand cubic feet) range has had an impact on real demand. Inventories are starting to come down to more manageable levels which is also creating some buying opportunities. The threat of unfair imports will continue to exist in the absence of Chinese pipe, however. It is incumbent upon Lakeside to improve our efficiency and be positioned to compete with those trading fairly.
Do you think the North American OCTG market is vulnerable to another price bubble like the one that formed (and burst) in 2008?
From the supply side, that will depend on the extent of steel strip increases, which will be a function of how busy the steel mills will be in 2010. On the demand side, that will depend on where the prices for oil and gas migrate. Oil seems to be healthy at around $80 per barrel and is not, as of yet, showing signs of rapid increase. Natural gas pricing remained fairly depressed for most of 2009 and is only now starting to show signs of life- but not enough to generate huge demand for gas-related OCTG products as of yet. Therefore, we anticipate only moderate growth in terms of demand and pricing over the next 12 months.
How would you characterize the recovery of the oil and gas markets as compared to other steel-consuming sectors (such as automotive or construction)?
I believe the North American automotive industry will show only modest recovery in 2010. I do not anticipate a quick return to the 16 million build years. Perhaps 10-12 million is more realistic. We need to get people back to work in North America. Once people are back to work, we may enjoy more significant gains in terms of demand for consumer goods. Oil and gas have a limited supply. Cold weather, severe storms, political unrest and concern over supply all drive pricing. Natural gas is abundant and relatively inexpensive. With pressure for clean energy, natural gas should see modest increases in demand. We enjoy a very good relationship with our customers. Our customer base has been loyal to Lakeside through all demand cycles. It is imperative as we emerge from this economic downturn that Lakeside services our customers better than our competition. Not all of our customers order on price alone. Our key accounts know our product and our service and support us in all markets.
Would you care to comment on the intervener status granted to Lakeside Steel in US Steel's court case levied by the Canadian government? What would the acquisition of US Steel's Canadian assets mean for Lakeside Steel?
Lakeside believes that there are significant synergistic opportunities in combining an integrated steel producer with a pipe and tube manufacturer. The former Stelco assets are important to Canada and to the communities in which they operate. We believe that the former Stelco can be viable. We have confidence in the employees, customers and suppliers of the former Stelco and believe that there is a strong business case for an acquisition. If there is a reasonably priced acquisition available, we believe we have the financial support necessary to complete a transaction.
Are there any strategic markets that Lakeside Steel is looking to expand its presence in?
We are focusing on increasing the value-added content within our current OCTG markets through the availability of heat treated products and on-site upsetting and threading. As for geographic markets, we will certainly key in on the Marcellus Shale due to a potentially high demand in a market that is relatively close to our operating facilities in Ontario. We have a very skilled and dedicated workforce in Welland. We believe that we produce an excellent product. Given our relatively small size, we believe we can be more nimble and perhaps service our customers better than some of our larger, more bureaucratic competition.
What are Lakeside's investment plans for the coming years?
Lakeside is committed to growing the business. We can do so organically or through acquisition. In terms of organic growth, there are some key areas for Lakeside. The Upsetting and Threading operations that we recently completed allowed us to repatriate the end finishing that had previously been performed in Texas to our facility in Ontario. We see this as an important first step in terms of supporting our Canadian clientele. Next, we installed a three slip rail yard which allows for enhanced customer service with better lead times. Going forward there are opportunities for on-site slitting, on-site casing threading, on-site thermal treatment to allow us to upgrade our products to L80, N80 and P110, and perhaps a new mill that would allow us to produce 4" - 9 5/8". These projects would round out our product offerings and allow us to offer a full basket of goods to our OCTG customers. In addition, we look to continue our investment in training our employees. We enjoy an excellent relationship with the Canadian Auto Workers. Together, we have implemented trades training to up-skill our workforce and reduce our dependency on outside contractors.
