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Severstal Dearborn a harder sell: analysts

Keywords: Tags  Severstal, Severstal North America, Alexey Mordashov, Charles Bradford, John Tumazos, steel, high-strength steel, aluminum alternative materials


CHICAGO — As speculation swirls about who might buy Severstal North America Inc.’s operations, some analysts questioned the wisdom of investing in U.S. steelmaking assets, given increased imports, low capacity utilization and threats from competing materials in the automotive arena.

While acknowledging that several steelmakers might be interested in Dearborn, Mich.-based Severstal NA’s newer electric-arc furnace (EF) facility in Columbus, Miss., analysts suggested the list of suitors for its integrated facility in Dearborn might be much shorter.

Alexey Mordashov, chief executive officer of Moscow-based OAO Severstal, parent company of Severstal North America, seems to want to sell, according to Charles Bradford, principal of New York-based Metals Industry Advisory Group LLC.

"It seems like Mordashov wants to sell, and there are people out there who would like to buy. The question is, who has the money to do it and is this really the time to be buying steel assets," Bradford told AMM May 12.

Severstal could be fishing for $2 billion for Columbus and $1 billion for Dearborn, Bradford speculated.

Because it’s the newest, and perhaps the best, mini-mill facility in the United States, Columbus makes sense to "almost anybody and everybody," Bradford said. "The only question on Columbus might be who has the money for it."

Fort Wayne, Ind.-based Steel Dynamics Inc. might be a prime candidate for the facility, especially given antitrust concerns that might face a bid from Charlotte, N.C.-based Nucor Corp., which already has a strong presence in markets in the Southeast, Bradford said, echoing the sentiment of others.

Dearborn likely isn’t seeing the same interest, Bradford said, because of limited operating rates and profitability at integrated mills in the Midwest, even at facilities not heavily impacted by recent production and supply chain problems.

But Dearborn might make "eminent sense" for Pittsburgh-based U.S. Steel Corp. because its new cold mill and hot-dipped galvanizing line fit the company’s strategy of targeting the automotive market, Bradford said. In addition, U.S. Steel is long metal at its Great Lakes Works in Ecorse, Mich., and could potentially ship hot metal by rail to Dearborn, which is short metal.

The value of both Columbus and particularly Dearborn could be impacted by their ability—or lack thereof—to produce new grades of high-strength steels in the face of increased competition from aluminum in the automotive sector, according to John Tumazos, principal of Holmdel, N.J.-based John Tumazos Very Independent Research LLC. About 2 million tons per year of automotive cold-rolled aluminum capacity is being brought online, aiming to displace around 4 million tons of automotive exposed steel, he estimated.

That means steelmakers will have to offer advanced high-strength steels to remain in the hunt in a more-competitive market, Tumazos said. "Henry Ford did not foresee ultra-high-strength, generation-three automotive steels when he designed (Dearborn) in the 1920s."

Severstal Dearborn’s plant can trace its origins back to Ford’s River Rouge automobile complex in the early 1920s, according to Severstal’s website, which notes that Severstal acquired the plant in 2004.

But just because Dearborn was built to serve an auto market very different from today’s doesn’t mean Severstal won’t be able to find a buyer for the plant, Tumazos said. Severstal could, for example, grudgingly sell its "crown jewel" in Columbus as a means of unloading Dearborn as well.

In that case, "it’s all a function of whose checkbook is big enough and whether Severstal would really sell Columbus," Tumazos said.

And there may be buyers interested in Dearborn despite its limitations, Tumazos said, pointing to Japan’s JFE Steel Corp. JFE might be looking to gain a foothold in the U.S. market following domestic competitor Nippon Steel & Sumitomo Metal Corp.’s play with Luxembourg-based ArcelorMittal SA for the former ThyssenKrupp AG facility in Calvert, Ala. (amm.com, March 21).

JFE likely would have to invest heavily—potentially as much as $2 billion—into Dearborn to make it competitive with the Calvert plant, Tumazos said. That would not be an ideal situation for the company but might still be a quicker and cheaper way to gain entry into the U.S. market than building a new facility.

Dearborn also has another advantage: it’s for sale when other operations are not, Tumazos said. "Sometimes people have a hard time finding a date for the prom."

Some market sources familiar with Dearborn said its links to Henry Ford are not something serious bidders are concerned about, noting that Severstal has invested heavily in the plant since acquiring it to modernize it. The plant’s "C" blast furnace now has a good reputation for being on time and, on the finishing side, its hot-dipped galvanized line has few competitors, they said.

And while many steelmakers struggled in March and April, Severstal had some of its best months on record, market sources said, predicting that May could also see the company break or come close to new production records. With equity markets rebounding, it’s a good time to sell, they added.


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