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BRS undeterred by tariff, capacity threats

Jun 05, 2019 | 02:13 PM | Chicago | Michael Cowden

Tags  Big River Steel, David Stickler, expansion, Osceola, Arkansas, new mill, Brownsville, Texas flat-rolled steel

Big River Steel is forging ahead with plans to double capacity at its Arkansas flat-rolled steel mill and to build a second mill focused on the automotive sector, the company’s top executive said.

And the flat-rolled steelmaker is going ahead no matter what the tariff environment in the United States might be or how much capacity is added to the domestic market, Big River Steel chief executive officer David Stickler said in an interview with Fastmarkets AMM.

“I’ve heard for 20-plus years that there is too much capacity in the market. But... if you have a low-cost, high-quality operation you are going to win - you are going to get your share of the pie,” he said. “What happens to the others that are maybe higher cost, more moderate quality, I can’t tell you.”

Stickler declined to say who those “others” might be. His comments come as US mills prepare to add millions of tons of sheet capacity to the domestic market through the early 2020s at a cost of billions of dollars.

Osceola to double in 2020
Big River Steel expects the doubling of capacity at its mill in Osceola, Arkansas, to 3.3 million tons per year from 1.65 million tpy, to be completed within 18 months - or before the end of 2020, Stickler said.

The company within the next two months expects to add cranes that are part of the expansion but that will, even before the expansion is complete, allow the mill’s existing melt shop to run more efficiently, he said.

The Osceola mill is also pressing forward with plans to add capability to make non-grain-oriented electrical steels. It currently makes hot-rolled, cold-rolled and galvanized flat-rolled steels.

Electrical steels are needed in applications in which energy efficiency is critical, including in electric and hybrid electric vehicles.

Big River Steel has already designed, permitted and started site work in Osceola for the electrical steel expansion and expects to select an equipment supplier this summer, Stickler said. He declined to say which companies were in the running for that business.

The company also continues its drive into the automotive sector, having landed business with three major automakers and plans to add a fourth to that list in the “very, very near term,” Stickler said.

The automakers that Big River is working with include both domestic and European companies, he said, declining to name them.

Auto mill in Texas?
Big River Steel’s second mill will have an even greater focus on the automotive market than its existing mill in Arkansas, Stickler said, declining to offer specifics on the percentage of the company’s sales or production that will go to the automotive sector.
But the Arkansas mill is “fairly focused on automotive already,” he added.

In a sign of the Big River’s seriousness about building a second mill, the company has extended an option agreement for land at the Port of Brownsville in Texas.

“We continue to spend time, effort and money... on a southern mill, with the most focus currently on the Port of Brownsville,” Stickler said, noting that he met with state officials in Texas in recent weeks to discuss jobs.

The plan to build that second mill will go ahead regardless of whether Section 232 remains in place or President Donald Trump's administration imposes a new round of tariffs on Mexico.

Trump has also threatened to hit foreign automakers and auto parts suppliers - including those in Europe - with tariffs, or duties paid by US buyers on goods imported from abroad.

 “Obviously we pay attention to the tariff environment. But our growth plans in the southern United States and in Osceola are not heavily impacted by what’s going on day to day with the tariffs,” Stickler said.

Big River has said it wants to build a second mill in part to take advantage of growing demand for flat-rolled steel from automakers in Mexico. The Trump administration's threat of additional tariffs has cast doubt on the viability of trade agreements between the US, Canada and Mexico.

But Big River's bullish long-term view appears to be shared by investors, who have provided $777 million to fund the steelmaker’s doubling of capacity in Arkansas. Approximately $487 million of that comes in the form of 30-year bonds carrying a 4.5% interest rate and for which no principle is due for 20 years.

“When you’re running a company like Big River Steel who has only operated for a little over two years, and people want to give you 30-year money at those rates, it’s something that we’re awful proud of,” Stickler said.

The expansion was already under way and had already been funded. “So what we did was we continued with the expansion effort. But we took an opportunity to alter the sources of expansion financing to take advantage of this great, great bond offer that we had,” he said.

The $1.6-billion Texas mill is being financed from other sources. "That is a separate, standalone activity that we continue to advance," Stickler said.

HRC's wild ride
Steel prices have fluctuated widely since Big River Steel started up.

The US hot-rolled coil price averaged $30.88 per hundredweight ($617.60 per ton) in January 2017, Big River Steel’s first full month of production. The price rose by 47.7% to a monthly average of $45.61 per cwt in July 2018 after the Trump administration applied 25% tariffs on imported steel.

Fastmarkets AMM's domestic Midwest HRC index was calculated at $29.09 per cwt on June 4, down by 36.5% from the nearly 10-year peak of $45.84 per cwt on July 5, 2018, and the lowest point for HRC since reaching $29 per cwt in June 2017.


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