U.S. Steel Mills Bringing Back Production
U.S. integrated steel mills are reacting to their lead time and production issues by bringing back to life blast furnaces, cold mills and coating lines. Last week ArcelorMittal told the union responsible for Indiana Harbor East Chicago plant (USW 1011) of their intention to bring up the idled IH-4 furnace and #3 melt shop. Over at Severstal the company officially announced the restart of the idled Warren steel mill. Earlier, Severstal announced the re-start of two areas of the idled Wheeling facilities - the cold rolled facility at Yorkville and the galvanizing facility at Martins Ferry. While at U.S. Steel the reline of their largest blast furnace - #14 at Gary Works – will be completed within the next few weeks and will then be brought back online before the end of 1st Quarter
With the domestic steel industry running at 65% capacity utilization rates the steel community is a-buzz with concerns regarding the timing of the restarts. To the affected mills these restarts are being made to improve their lead time performance, service their order book and to prevent a loss in business to other mills. However, many in the industry are wondering if all of these restarts will flood the market with too much steel?
John Surma, CEO of U.S. Steel reported in their earnings conference call last week, once the #14 furnace at Gary Works is back in operation, the company will have 90% of their total North American steelmaking capacity online. The only operation not running is Lake Erie in Canada where they do not have a union contract and the workers have been locked out. Lake Erie has the ability to produce 10% of USS steelmaking capacity. Mr. Surma advised they will pull back production on other furnaces should there prove to be too much capacity.
In response to a question from UBS analyst Timna Tanners during their earnings conference call, Mr. Surma touched on the USS thought process behind running their furnaces and expanding their capacity, “We hope that will be some time towards the end of the first quarter as I describe, but projects are projects, it could be sooner, it could be later [he is speaking about restarting the #14 blast furnace]. Assuming it’s ready to go, we’ll bring it up in a safe and efficient way. And if they go with the order book, if the order book is sufficient to allowing us to stay operating, we’ll run everything and may be we cut back one of the other smaller furnaces a little bit, we can do that. Blast furnaces aren’t just on or off, they have some range of operating capability that still has efficiency with it. And if we don’t have a lot of other necessary maintenance because we did a lot of that work in the fourth quarter, as we try to look to in our release. So it depends on the order book. I’d like to think that when we bring it up, we’re going to run them all. But that depends on what our customers ask us for.”
No one believes the domestic steel industry will be anywhere near 90% of capacity – heck – no one believes the domestic industry will hit 80% of capacity utilization during the 2010 calendar year.
At the same time, everyone is watching ThyssenKrupp as they prepare to begin rolling hot band off their new mill in Alabama at the end of 2nd Quarter 2010.
Recent price increases have been commodity (scrap, zinc, etc.) and supply (mill driven) based and not on the laws of supply and demand. It is anticipated demand will become a driving force as we move into 2nd Quarter lead times with USS, Severstal, ArcelorMittal and others committing to increased production capacity. Will steel prices rise or fall during 2nd Quarter? Only time will tell.
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