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Millett sees opening for steel in SW, Mexico

Nov 29, 2018 | 04:12 PM | Michael Cowden

Tags  Steel Dynamics Inc, SDI, Mark Millett, new steel mill, flat-rolled steel, steel, Southwest steel, Mexico steel Michael Cowden


CHICAGO — Steel Dynamics Inc's (SDI) top executive has had enough of critics lumping his company's planned new mill in the Southwest together with other new entrants to the domestic flat-rolled steel scene.

And the success of SDI's planned  mill, announced earlier this week, doesn’t hinge on Section 232 or the US-Mexico-Canada Agreement (USMCA), SDI president and chief executive officer Mark Millett said in an interview with Fastmarkets AMM on Wednesday November 28.

What's more, the mill shouldn’t be seen as adding to what some analysts say is a potential US flat-rolled capacity glut - especially given that the mill will in large part target markets currently served by imports, he said.

“It’s more of a Southwest strategy than just a new mill... This is not a trade play. It is market play,” Millett said.

Another thing that will set the mill apart will be its advanced technology, which Millett described as “a mini-mill front end and an integrated mill hot-strip mill.”

That configuration should allow the plant to make steel with metallurgical qualities not available from traditional electric-arc furnace (EAF) outfits with compact strip production, he said.

Citing ongoing talks with state and local governments, Millett declined to say where SDI might locate the nearly $2-billion mill, which is expected to have annual capacity of 3 million tons per year and start up in the second half of 2021.

The mill has been under consideration for approximately two years, before Section 232 or USMCA were buzzwords in the steel industry.

And the marketing strategy has been in the works for even longer - since SDI acquired a flat-rolled mini-mill in Columbus, Mississippi, in 2014 from Russian steelmaker Severstal. That deal gave the company greater exposure and insight into markets outside of its traditional footprint in the Midwest, including Mexico.

The Southwest strategy
The US flat-rolled market was approximately 60 million tons in 2017. And just four states - Texas, Oklahoma, Arkansas and Louisiana - accounted for roughly 7-8 million tons per year. The new mill should also be able to serve the West Coast, a 3.5-million-tpy flat-rolled steel market, Millett said.

Customers in those regions are served in large part by imports, which come with lead times of two months or more, or by far-flung mills in the Midwest or Southeast.

"If you look on a map, there is no regional flat-rolled producer. It's all coming from great distances. So a regional mill obviously has a significant freight advantage," he said.

SDI sees significant opportunities to sell heavy-gauge high-strength steel to American Petroleum Institute (API) specifications - particularly in Texas, the heart of the US energy sector. The state is also a big market for building products and is the biggest consumer of pre-painted Galvalume, one of SDI’s strongest product lines, Millett said.

The new mill will also target the automotive and appliance markets, along with the heating, ventilation and air conditioning (HVAC) sector - all of which are exhibiting strong growth in Mexico in particular, he said.

Growth in Mexico
The Mexican flat-rolled steel market is approximately 15 million tons per year, a figure that is expected to grow to about 20 million tons by 2025. “Mexico is certainly the growth center in North America, and so it has been a focus for us for some time,” Millett said.

SDI is on track to export 250,000-275,000 tons of steel to Mexico this year. Its Omnisource recycling division trades about 300,000 tons of scrap annually to the country. And the Southwest mill will export significant tonnage, up to 30-40% of its output, to Mexico, he said.

The company even considered locating its new mill in Mexico. “But for a variety of reasons we decided that if you’re going to invest a large amount of money, you want to be on the US side of the border,” Millett said.

The USMCA should help demand on both sides of the border, he said, especially given that the planned replacement to the North American Free Trade Agreement (Nafta) is likely to include requirements that vehicles made in the region use more locally produced content.

What excess capacity?
Fastmarkets AMM's daily US Midwest hot-rolled coil index stood at $37.94 per hundredweight ($758.80 per ton) on November 28, down by 8% from $41.26 per cwt at the beginning of November and off 17.2% from a nearly 10-year peak of $45.84 per cwt. Prices are now at their lowest point since before President Donald Trump announced Section 232 tariffs of 25% on US imports of steel products.

But that's besides the point. "[Construction of the new mill] doesn't hinge on 232," Millett said.

What matters is being a low-cost producer, being close to customers in growing markets and being able to offer those customers a broad portfolio of high-value flat-rolled products, he said.

The planned new mill also won’t hinder SDI’s other growth plans. That said, future expansion probably won't include another flat-rolled mill.

“I think we have a unique market opportunity that we are going to capitalize on here. We don’t necessarily see that same opportunity anywhere else in the States today,” Millett said.

One project that is officially on hold is “Black Beauty,” a proposed $1-billion flat-rolled mini-mill that former SDI CEO Keith Busse had considered building along the Ohio River.

“Black Beauty in Ohio has been off the table for a long time. That has been out of our vocabulary for a long time," Millett said.

For other mills that might be looking to expand, Millett offered a warning: “History has shown that not all announced capacity actually does come online.”
And that should also be a warning to analysts who are "fear-mongering" about the potential impact of new US capacity, he added.

 Michael Cowden



 

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