Presidents deliver State of the Union addresses. Governors offer State of the State addresses. Chief executive officers undertake State of the Company reviews. So who handles the State of the Steel Industry? I will try.
When talking about steel, it is appropriate to start with China. Why? Because the Chinese industry dwarfs all others, having produced 779 million tonnes of crude steel in 2013, slightly more than half of all the steel produced in the world.
With all the advantages of scale that steelmakers always lust after, is the Chinese industry, therefore, the worlds most efficient, low-cost industry? It is hard to say, but probably not. The Chinese steel industry was certainly built to serve a rapidly growing home market--exports were 60 million tonnes in 2013--but it suffers all the afflictions of any nationalized industry. It was designed, built and operated by government bureaucrats. The result is an industry managed for politics, not for profit, and the scarce public numbers are largely impenetrable.
Since it was largely constructed in just a 25-year span, the process and equipment are contemporary but not novel. There is a conspicuous absence of domestic iron ore. Recent growth and day-to-day operations have both been constrained by intense air pollution.
There are no foreign investors or operators in the Chinese industry, as the government has banned this kind of involvement. Elsewhere, the steel business is increasingly globalized, but not in China. It is possible to classify the world steel industry, excluding China, into European, Asian, Latin American and the North American Free Trade Agreement region, but little purpose is served, as the steady march to cross national boundaries continues to gain momentum. Nowhere was this trend more visible than in the United States when the Justice Departments Antitrust division approved the acquisition of the Calvert, Ala., plant of Germanys ThyssenKrupp AG by a joint venture of ArcelorMittal SA, Luxembourg, and Tokyo-based Nippon Steel & Sumitomo Metal Corp. The Calvert operation is a 5-million-tonne-per-year finishing plant, so this is a very significant deal in the world of steel.
A plant built by German ownership in America was sold to a Japanese-European joint venture. Aside from the profusion of nationalities involved, what can be gleaned from this transaction?
1. The American market is very desirable.
2. The American South is a desirable location for production facilities.
3. American energy costs are more economic than those in Europe or Asia.
The only latent negative for the Calvert plant is the source of raw materials if it is ultimately detached from its original Brazilian connection.
The attractiveness of the South was confirmed once again when the United Auto Workers union was defeated in a recognition election in Chattanooga, Tenn. Management of Germanys Volkswagen AG had essentially welcomed the UAW, and the National Labor Relations Board aided the organizing effort, but the result dealt a serious blow to union organizing ambitions.
Simultaneously, U.S. Steel Corp., Pittsburgh, is shrinking its capacity and changing from coke/iron ore to scrap at Fairfield, Ala., where it announced a 1.1-million-ton scrap-melting electric furnace would replace a 2.5-million-ton blast furnace. One of the reasons given for the change was the economics of blast furnace raw materials at Fairfield.
Nucor Corp., Charlotte, N.C., started up its direct-reduced iron plant and successfully shipped product. This is a potentially far-reaching development impacting pig iron, pellets and scrap markets. The price and availability of natural gas made this start-up a disruptive technology.
Certain generalized observations are appropriate to the state of the industry:
1. China remains the towering behemoth in steel, although its growth is slowing.
2. Except for China, steel industries are trending away from being identified as exclusively national industries.
3. Political boundaries are of declining significance. ArcelorMittal operates around the world, Indias Tata Steel Ltd. in the Netherlands and the United Kingdom, U.S. Steel in Canada and Slovakia, South Koreas Posco Ltd. in India, and Russias OAO Severstal and Indias Essar Group in the United States.
It is clear that steel ownership is increasingly internationalized. The reader is left to decide whether these developments are constructive, neutral or alarming.
Thomas C. Graham is a founding member of T.C. Graham Associates. He is a former chairman and chief executive officer of AK Steel Corp., president and chief executive officer of Armco Steel Co. LP, chairman and chief executive officer of Washington Steel Co., president of the U.S. Steel Group of USX Corp., and president and chief executive officer of Jones & Laughlin Steel Co. His column appears monthly. He invites readers comments and can be contacted at email@example.com.