NEW YORK The U.S. steel market could likely absorb the added capacity of John D. Correntis proposed 1.7-million-ton-per-year steel project in Osceola, Ark., a group of industry analysts said, but the domestic sector could see its margins disappear if joined by other new projects not already in development.
"The steel industry can handle the addition of Big River Steel (LLC), both Phase I and Phase II, from a capacity perspective," analysts at Lexington, Mass.-based IHS Global Insight Inc. wrote in an economic analysis of Correntis proposed $1.1-billion mill.
"However, if any other major facilities, other than projects already announced, were to be added to the U.S. steel stock, the industry would quickly find itself in a highly competitive, zero-sum environment," IHS warned in its report, discussed March 25 at a joint Arkansas Senate and House committee meeting.
Not all steel produced at the proposed mill would be received by the market the same way, according to the IHS report, obtained by AMM.
The millwhich is expected to produce hot-rolled, cold-rolled, galvanized and electrical steelscould face its biggest hurdles gaining a foothold in the hot-rolled sector, IHS said.
"(Big River Steel) would be entering into a (hot-rolled carbon sheet) market that is highly competitive and generally sees lower profit margins. (The company) hopes to differentiate on quality. They are targeting more difficult grades of steel to produce that are wider and thicker than existing capacity. However, there are no completely unserved end-use markets, only underserved markets," IHS said.
"Most of the hot-rolled production at the new facility would probably find itself competing in the commodity-grade pile; that is, generic steel that is not well differentiated by quality," the analysts added.
Correnti has told AMM that the mill would have the ability to make 76- to 78-inch-wide by 1-inch-thick coil, with the project aiming to displace imports rather than compete domestically in the commodity-grade market (amm.com, Feb. 11).
Charlotte, N.C.-based Nucor Corp. has challenged that claim, however, arguing in letters to members of the state legislature that the Big River Steel complex will make 100 percent of the same products made at Nucors nearby Hickman, Ark., facility, possibly forcing it to shift orders and jobs to sister divisions (amm.com, March 18).
With the new mill expected to have a lower cost of hot-rolled coil production than some existing competitors, the project "would be positioned to displace at least some domestic producers by competing on price," IHS said.
The cold-rolled sheet market is in a similar position, it said. "Like hot-rolled carbon sheet, the cold-reduced carbon sheet market is quite large ... but also highly competitive. Just as in (hot-rolled carbon sheet), the differentiating factor would be width, serving markets that are currently underserved, but not unserved," IHS said, adding that with most cold-rolled coil imports coming from North American Free Trade Agreement (Nafta) trading partners, displacing imports would be "difficult."
Galvanized output from the mill could also lead to domestic displacement, including from Nucors Hickman mill, IHS said.
A spokeswoman for U.S. Steel Corp., Pittsburgh, declined to comment March 26, and Nucor did not respond.
But while the hot-rolled, cold-rolled and galvanized sheet produced at the new mill could face competition on the domestic front, the electrical steel sector is a different story, IHS said.
"The electrical steel market is well served from a tonnage perspective, but is a high margin business that could benefit from some competition," the analysts said. "There is the possibility of expanded exports from the United States, but the greater effect would almost certainly be domestic price competition."
The study by IHS is intended to provide information before the legislature votes whether to issue Big River Steel a $125-million bond for funding. The House and Senate will aim to make a decision before the legislatures scheduled recess April 19, a Senate spokesman told AMM.
Meanwhile, a second analysis on the project, prepared by Regional Economic Models Inc. (REMI) and presented at the same joint meeting, offered another perspective on the mills economic impact. It said that the project would create some $400 million in additional annual gross domestic product (GDP) during construction and about $150 million more in additional GDP in subsequent years. However, a potential downside, it warned, would be the fiscal impact of the proposed recycling tax credit, which could cost the state a $240-million liability charge.
"The economic story is positive for Big River; however, the fiscal impact picture is more mixed. The large investments and operations do generate jobs, but the size of some of the incentives erodes much of the tax revenue presented to the state in the form of increased economic activity, payroll, taxable income and the business sales," REMI said.