Steel consolidation helping, but more needed, execs say

SAN DIEGO -- Recent consolidation activity is slowly boosting the fortunes of the North American steel industry, but more of the same is needed over a longer period for the benefits to continue, according to several top executives of steel-producing and distribution companies.

Daniel R. DiMicco, chairman of the American Iron and Steel Institute (AISI) and vice chairman, president and chief executive officer of Nucor Corp., Charlotte, N.C., said Monday that consolidation, in and of itself, was not enough to help the steel industry prosper.

Speaking at a joint meeting here of the AISI and the Metals Service Center Institute (MSCI), DiMicco said that consolidation must be coupled with the rationalization of excess capacity, a halt to currency manipulation by foreign governments and a commitment to radical technological advancements that would help improve steel company cost structures.

"Is consolidation enough?" DiMicco asked during a panel discussion that kicked off the meeting Monday. "No. We need to shut down capacity. We cannot have capacity brought back with government loan guarantees. Currency manipulation must be minimized or, better yet, eliminated. We must continue to invest in radical leapfrog technology and commit to the new technology, taking bold steps to make sure it works."

DiMicco pointed out that consolidation was working, noting that following the mergers of U.S. Steel Corp. with National Steel Corp. and Bethlehem Steel Corp. with International Steel Group Inc., three companies--U.S. Steel, ISG and Nucor--would effectively control about 60 percent of U.S. production of long and flat steel products. "That is major consolidation," he said.

Maurice "Sandy" Nelson, chairman of the MSCI and president, chief executive officer and chief operating officer of Earle M. Jorgensen Co., said that more consolidation was needed in the distribution end of the industry, as well as in both long and flat products manufacturing.

"When consolidation is efficient is when the steel sellers get up against the big buyers and they are even," Nelson said. "What consolidation has happened (in distribution) has been offset by (economic) recession."

Nelson said that steel distributors had been consolidating, but the process slowed and eventually stopped due to the economic slowdown. He said that if the economy rebounded, consolidation activity likely would restart. "But if things don't get better, there will be failure in this industry," he said. "There is too much capacity."

Peter Southwick, vice chairman of the AISI and president and chief operating officer of Ispat Inland Inc., emphasizing the importance of continuing consolidation, said that one day after Ispat International NV closed its deal to acquire the former Inland Steel Co., a supplier came to him offering a 25-percent volume discount. Southwick said he had been trying to get a discount from that supplier for five years but had no success until the merger was finished.

"Size does matter," he said, pointing out that the four largest iron ore companies controlled 70 percent of the market and that the top four U.S. automakers controlled about 50 percent of the market. Steel consolidation had not yet reached those levels, he said, but must in order for it to be considered successful.

"It is necessary to be able to deal with customers and suppliers on an equal footing," Southwick said. "What has happened so far is not enough. There is a long way to go but at least we are at a beginning. We are further along than we were three years ago when we started down the path toward the (Section 201 steel import tariffs). There is light at the end of the tunnel. But there is still a long way to go."

Source: findarticles.com

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