CHICAGO Optima Specialty
Steel Inc.s planned acquisition of Kentucky Electric
Steel LLC (KES) should give the company better control over its
supply chain as it tweaks the Ashland, Ky., facility to add
special bar quality (SBQ) round capacity to the mills
capabilities, the companys top executive said.
SBQ rounds are used as feedstock
for both the seamless tubular products manufactured by Michigan
Seamless Tube LLC and the cold-finished bar products made by
Niagara LaSalle Corp., the two companies that were brought
together to form Optima Specialty Steel, company president and
chief executive officer Kevin Stevick told AMM in an
exclusive interview following the announcement of the
amm.com, Nov. 20).
The certainty of having a
captive SBQ supply should give Optima Specialty Steel a
competitive advantage that it didnt have when it had to
go out on the open market to buy feedstock for Niagara
LaSallethe biggest single customer of KESand
Michigan Seamless, Stevick said, noting that Optima combined
the two companies in part to more efficiently purchase SBQ
"This time last year, some of
the SBQ lead times were 14 to 18 weeks, and up to 12 months for
some sizes. By having (KES) in house, well have a lot
more flexibility and a lot more opportunity to be more
responsive to the marketplace," Stevick said.
While backward integrating into
SBQ represents a significant move for Optima Specialty Steel,
the planned changes at KES are unlikely to have a big impact on
the wider SBQ market, Stevick said. Optima plans to invest
"single-digit millions" to produce 3- to 4-inch-diameter bar
from KES, largely for internal consumption at Optima, he
Capacity will probably be in a
range of 50,000 to 75,000 tons per year, a "very small pebble"
in an SBQ market where other mills are adding millions of tons
of capacity, and Optima will still have to source some SBQ
externally. "You just cant get there (SBQ
self-sufficiency) from here. Its not a very large mill,
and its a specialty focused flats mill," Stevick
In theory, Optima could invest
tens of millions of dollars to produce bigger bars, but that
"is not in our plans at all," he said.
Optima Specialty Steel will
continue to make and supply SBQ flats and merchant bar quality
flats to KES customers, and will even look to expand those
businesses, Stevick said.
Steel service centers buy the
entire range of Optima products, from cold-finished bar and
seamless tube to hot-rolled and cold-drawn flats, he noted.
"What we want to be able to do is bundle things for them and
have a single point of contact to make the business easier to
handle from a customer standpoint."
Optima Specialty Steel plans to
keep KES management in place. "We view KES as a very successful
company," Stevick said. The same holds true for the
companys unionized workers. "They (KES) have had good
relations with the union work force since reopening the mill in
2003, and we dont anticipate any change in that."
The biggest question and
potential challenge for Optima and KES is perhaps the
uncertainty of the steel market heading into 2013, Stevick
The company has seen a slowdown
across almost all of its markets, with the exception of
automotive, since July and August. The presidential election,
the fiscal cliff and the economic crisis in Europe hurt the
steel sector in the third quarter, and most customers expect a
continued lull in the fourth quarter, Stevick said. There will
probably be a "nice rebound" in the first half of 2013, but
that is typical of the seasonality of the steel industry, he
"Most customers are telling us
that they dont expect anything to be gangbusters in
2013," Stevick said. "But I dont think anyone is
expecting it to be worse than 2012." If anything, 2013 could
bring a modest improvement, he said.
Optima Specialty Steel began to
think of acquiring KES last summer as it mulled other
opportunities, including the possibility of building its own
mill, Stevick said. But then Los Angeles-based investment bank
Houlihan Lokey Inc. contacted the company about KES. "We liked
the business the more we looked into it," he said, noting that
the management team and the products it made all seemed like a
good fit with Optima Specialty Steel.
Stevick hinted that Optima
isnt out of the acquisition hunt. "Were always
looking, always talking to folks. Any cold-finished bar
business, any seamless tube business or any end-processor that
would use SBQ as the raw material is something that we would
want to take a look at," he said.