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Steel CEO: More consolidation 'inevitable'
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Steel CEO: More consolidation 'inevitable'

INDIANAPOLIS | Bethlehem Steel, Ispat Inland, National Steel Corp. and LTV vanished from the Northwest Indiana landscape following a series of bankruptcies in the early 2000s.

The companies are gone, but their mills and finishing facilities remain along Lake Michigan's southern shore. The major plants are still cranking out steel, but now they belong to just two companies: ArcelorMittal and U.S. Steel.

Nationally, the United States once had 55 steel producers, but now 24 are left.

But more consolidation is likely coming, and steelmakers may sell off some of their assets within the next 12 to 18 months, said Mark Millett, president and CEO of Fort Wayne-based Steel Dynamics.

Millett, the recipient of the Association of Iron and Steel Technology's Steelmaker of the Year Award, predicted that slim margins would spur more mergers while giving a lecture on making money in the steel industry.

"It's not easy to make money in the steel industry," he said. "But it's not impossible."

Millett and other steel industry bigwigs addressed the sector's challenges and headwinds at the AISTech 2014 conference at the Indiana Convention Center in downtown Indianapolis, which was attended by 6,800 steel industry professionals.

More than 530 companies displayed new products in the exposition hall, while more 515 academics and engineers gave technical presentations on the latest research.

Steel industry leaders touted the promise of new technologies, such as those that reduce emissions and energy use, but also spoke of headwinds such as global overcapacity, dumping from subsidized foreign competitors and slender profit margins.

Profitability levels are as low as they were during the early 2000s, when about 45 percent of steel producers were driven into insolvency, Millett said. Less efficient producers were acquired by competitors.

Integrated steel producers, like those that operate mills in Northwest Indiana, have been carrying the burden of high fixed costs, Millett said. They have managed to reduce the manhours that go into producing a ton of steel from 4.6 hours about a decade ago to 1.5 hours today, but they still are not as efficient as mini mills that need only about a third of a manhour to make a ton of steel.

"They don't have the same flexibility in cost structure and have had to shoulder the brunt through the most turbulent time in our history," he said. "Further consolidation is inevitable, and meaningful consolidation needs to occur to have higher levels of utilization."

Global steel production has been growing exponentially, to the point where 400 million tons of overcapacity exist, Millett said. The United States, which is still one of the top steel-producing countries in the world, makes about 100 million tons a year.

"It will take some time to be absorbed," he said.

Domestic capacity remains stuck at 76 to 78 percent, but it really needs to be above 85 percent before steelmakers will start seeing their margins grow, Millett said.

Steelmakers face pricing headwinds since any time they raise prices, importers — who control around a fourth of the market — step in and undercut them, Millet said. They also have suffered from unfairly traded products and currency manipulation.

Steel is being dumped in the United States because it is a free country with easily accessed markets, said Tracy Porter, vice chairman for the Steel Manufacturers Association. But foreign producers are violating international trade rules by selling government-subsidized steel for less than what it costs to make, he said.

"Four out of every five tons of steel made in Turkey is exported," he said. "Steel should not be able to travel that far unless it's under cost. Foreign governments are subsidizing steelmakers as an employment mechanism. The United States still has some of the lowest cost producers in the world."

Domestic steelmakers also have advantages such as low-cost natural gas, coke and iron ore, said Terry Fedor, president of Association of Iron and Steel Technology.

The steel industry is cyclical and domestic steelmakers should see bottom lines improve when there is more demand from the construction sector, Millett said.

"So there are plenty of challenges," he said. "But despite these headwinds, there's growth. The United States is leading the world out of the financial doldrums. Manufacturing has regained strength. Residential and nonresidential construction is recovering, which is key."


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Business Reporter

Joseph S. Pete is a Lisagor Award-winning business reporter who covers steel, industry, unions, the ports, retail, banking and more. The Indiana University grad has been with The Times since 2013 and blogs about craft beer, culture and the military.

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