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,"
"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
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
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.