ArcelorMittal Warning of Low Hot Strip Mill Capacity Utilization Rates

Harshaw notes record levels of steel imports have taken market share from US steel producers. Imports of flat carbon products alone have risen 70 percent since 2013 and, as a result, mills are running at low utilization rates. Flat carbon products account for 93 percent of ArcelorMittal USA business.

ArcelorMittal’s hot strip mills have been averaging 70 percent utilization even though the costs for maintaining and operating them remain the same as 100 percent utilization. Each HSM averages $39 million in repair and maintenance each year, costing ArcelorMittal USA more than $1 billion annually, says Harshaw.

The answer is consolidation of HSMs and, subsequently, operations along the finishing line as well.

“To achieve higher utilization and lower our operating costs in a challenging market environment, we must: 1. invest in certain assets to ensure their capacity is better matched with downstream units and they can run at or close to full capacity; and 2. divest ourselves of certain assets, keeping the healthiest and most strategic running as close to full as possible. Clearly, we face formidable challenges with difficult choices ahead,” writes Harshaw.

ArcelorMittal has been in financial straits for several quarters with consolidated results showing a net loss of $1.1 billion in FY 2014. ArcelorMittal USA, which is included in the company’s NAFTA segment along with Mexico and Canada, has been negatively impacted by imports and lower steel prices as well as by fixed costs.

“It’s no secret that ArcelorMittal USA’s financial performance has been poor,” writes Harshaw. “Fixed costs – including wages, medical costs and post-retirement expenses – are significant and don’t fluctuate with the ebb and flow of steel consumption or market prices for the products we produce. These costs are increasing each year while our average steel selling prices have declined dramatically due to imports and capacity utilization rests at historically low levels.”

Harshaw writes that not only does the US need a fair market for the steel industry to compete in, it also needs to match assets to “the geographic reach of our customers, a skilled workforce that embraces the competitive forces at play in our industry while being cost conscious on all fronts.”

“Companies that adapt to changing conditions will survive; those who refuse to change will continue to fill the coffers of the bankruptcy lawyers.”

The text of Andrew Harshaw’s blog and other commentary in Raw may be accessed here.