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ATI, Tsingshan shake hands on stainless steel sheet jv

Nov 29, 2017 | 06:00 AM | Fastmarkets AMM staff

The deal is expected to pass customary regulatory hurdles by the first quarter of 2018 with first shipments expected in January of next year.

Allegheny Technologies (ATI) and an affiliate of Tsingshan Group have formed a 50-50 joint venture to manufacture and sell 60-inch-wide stainless steel sheet in North America.

The deal is expected to pass customary regulatory and antitrust clearances by the first quarter of 2018, with first shipments expected in January of next year, Patrick J. DeCourcy, ATI’s senior vice president of finance and chief financial officer, said during a conference call November 2.

Under the terms of the joint venture, to be called Allegheny & Tsingshan Stainless (A&TS), Tsingshan will supply ready-to- roll slabs from its Indonesian operations, which will be hot-rolled into coils on ATI’s hot-rolling and processing facility in Brackenridge, Pa. The hot-rolled coils will then be finished into stainless sheet using ATI’s direct roll anneal and pickle line in Midland, Pa., which was idled in 2016.

ATI’s flat-rolled products business currently doesn’t make slabs wide enough to produce 60-inch wide sheet, according to Dan Greenfield, ATI’s vice president of investor relations and corporate communications. The company did produce such slabs at its Midland facility before it was idled, he told American Metal Market.

“This means significantly improved productivity for the customer as their manufacturing lines can run faster and with
fewer coil changeovers,” Robert S. Wetherbee, executive vice president of ATI’s flat-rolled products division, said during the call. “In addition, the joint venture will differentiate itself with short, industry-leading, slab-to-finished coil flow times that will reduce finished product inventory in the supply chain.”

The joint venture has accomplished three main objectives for ATI, according to DeCourcy:

• The addition of a conversion agreement for its hot-rolling and processing facility, pushing the mill’s operating rates up to 40-50 percent;

• The securement of a cost-competitive base load volume for its flat-rolled products division that improves cost structures;

• Enhanced profits via the joint venture. The joint venture also will minimize exposure to raw materials price volatility, according to Wetherbee.

Tsingshan is a fully integrated producer engaged in nickel ore mining, ferro-nickel and ferro-chrome smelting, stainless steel production, hot-rolling and cold-rolling, and as a result will control and transform raw materials on site in Indonesia, he said.

“The raw materials are smelted and fed directly into the (argon oxygen decarburization) refining vessels,” Wetherbee said. “This innovative process, which eliminates the need for electric-arc-furnace melting, is a disruptive process for the industry.”

ATI and Tsingshan were in negotiations for the deal for almost a year, he noted.

The joint venture will cater to the 60-inch-wide stainless sheet market, which represents about 40 percent of the roughly 2 million tons of U.S. flat-rolled stainless consumption per year, according to Wetherbee.

The joint venture has targeted a goal of 6-10 percent of domestic market share, and the direct roll anneal and pickle line is expected to produce “close to 270,000-280,000 tonnes when it reaches full production,” he said.

“Our capacity at the (direct roll anneal and pickle line) and our target is about half of the current level of imports,” Wetherbee
said, noting that imports have historically represented about 20 to 25 percent of the U.S. stainless market. “We do see the ability to displace imports.”

ATI is not concerned about potential impacts from any Section 232 trade action by President Donald Trump’s administration, which could limit or ban imports that threaten national security, according to Elliot S. Davis, ATI’s senior vice president, general counsel, chief compliance officer and corporate secretary.

A&TS “will produce only standard stainless products; it will not be engaged in the production of downstream products that have national security implications . . . We believe the Trump administration recognizes that there are many non-integrated steel operations that rely on offshore feedstock. We expect that the conclusion of the proceedings will take into account the need to keep the upstream global supply chain in place,” he said during the call. “There will be no technology transfer in connection with the joint venture.”

Currently, Outokumpu and North American Stainless are the main players in the 60-inch-wide stainless market, according to Gautam Khanna, an analyst at New York-based Cowen & Co.

“Competitive response remains a question,” he wrote in a research note on November 2. “The deal may provoke competitors to respond with lower prices on 60-inch and perhaps 48-inch- wide product, although it is too early to know.”

“This is a very strategic move for ATI,” a midwestern distributor said. “Sure makes a lot of sense to me.”

Tsingshan Group was one of two Chinese companies that planned to build a new stainless steel mill in Texas last year, before the plans fell apart.


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