Steel Mills

USS Canada is Ready to Take 2016 Automotive Contracts

Written by John Packard

On Monday of this week, Steel Market Update conducted an interview with Michael McQuade, CEO for US Steel Canada. The purpose of our interview was to see if USSC will be a viable supplier for 2016 automotive contracts.

Many times articles begin by our customers asking what might be construed as a simple question that we view as more complicated and deserving some research before attempting a response. Last week SMU was contacted by one of the automotive companies asking for our opinion regarding the viability of US Steel Canada as a supplier for 2016 contracts currently in negotiation.

Steel Market Update has spoken directly with executives at US Steel Canada twice over the last few working days including an interview with the Canadian mill’s CEO, Michael McQuade on Monday of this week.

A quick fact check for those of you who have not been following the US Steel/US Steel Canada saga:

US Steel Canada is currently a privately held company, separate from US Steel, with 100 percent of its stock held by US Steel whose headquarters are in Pittsburgh, Pennsylvania USA.

US Steel Canada (USSC) is operating under the protection of the Canadian courts through the use of the CCAA (Companies’ Creditors Arrangement Act) which allows insolvent companies owing in excess of 5 million dollars the opportunity to restructure their business and financial affairs. Under creditor protection no one stakeholder can control the process.

One major item of contention is US Steel’s claim that they are owed $2.2 billion by USS Canada. Exactly how much US Steel is owed and where their claims fit in the pecking order of who gets what first are in the process of being adjudicated.

As of this past Friday there was a court hearing in Canada to schedule hearings on the US Steel claims. The court will decide if the $2.2 billion claim against USS Canada is valid or otherwise, providing clarity to the process and allowing USS Canada to begin anew plans to place the mill and its assets up for sale. The plan, according to USS Canada CEO Michael McQuade is to begin the sales process by May 31, 2016. It is expected that US Steel’s claims will have been resolved by that point in time.

US Steel has stated to the Canadian court that they will not be a bidder in the next sales process. At the same time US Steel is the 100 percent shareholder in USS Canada. USSC’s CEO told SMU “nothing is off the table” when it comes to the final resolution of the restructuring process.

Company is Meeting or Exceeding Business Plan

During the two interviews we conducted with USS Canada we were told that the company is operating under a court approved business plan which does not include any automotive business and, while under supervision of the court, the company has exceeded both their financial and production forecasts. We were told the company has not used any of their DIP financing and they have enough raw materials on the ground to take them through the long Canadian winter months.

The Canadian court has agreed that it is in the best interest of all the stakeholders that USSC continue to run through 2016.

USSC’s CEO told SMU that they will be making a case to the court that the be allowed to rebuild raw material inventories at the end of 2016 to take them well into 2017.

USS Canada Sales

As of October 9, 2015 all sales for the Canadian facility were separated from US Steel USA. Greg Anderson was named Vice President, Commercial and the company brought on their own automotive sales team.

The mill continues to run both automotive and non-automotive business from their two mills, Lake Erie and Hamilton. US Steel Canada CEO Michael McQuade told SMU that all equipment is running with the exception of the Hamilton blast furnace which was permanently idled a few years ago.

All of the non-automotive sales were handled by Canadian based salespeople. Only the automotive companies were handled by the US Steel USA automotive sales group. In early October that changed and USSC now has their own automotive sales force.

USS Canada Automotive Business

As part of the CCAA process, US Steel USA is in the process of taking approximately 15,000 tons per month of automotive business from USSC production facilities and rerouting that business to mills located in the United States.

McQuade told Steel Market Update when asked if the mill would continue to be a “viable” automotive supplier, “Our intention is to run the business.” He went on to point out that the mill continues to run automotive quality advanced high strength steels (AHSS) for the automotive industry and that they are in negotiations with all of the top 5 automotive OEM’s as well as the service centers who process for the OEM’s and their Tier 1 suppliers.

He pointed out the quality of the assets at Lake Erie with its fully integrated steelmaking operation; hot strip mill and push pull pickling facilities. The Lake Erie mill (formerly Stelco) was completed in 1980 and is the newest fully integrated mill in North America. The Hamilton facility has a four-high stand state-of-the-art cold rolling facility and two coating lines including the famous “Z-Line” galvanizing facility preferred by the automotive companies.

McQuade also praised the nearly 2,200 highly motivated and dedicated employees. As a team they have a galvanized focus on keeping USS Canada running and competitive.

McQuade, in response to a question from SMU regarding his opinion of their chances at regaining the automotive business being taken away by US Steel in the United States told us, “My expectation is that we will take all of their business we had and more.” He went on to concede, “My expectation may differ from results.”

•    McQuade pointed to the company’s assets as being some of the best in the industry.
•    The company is “well down the path to have the know-how regarding Gen 3 steels”
•    With the value of the Canadian dollar the company has the ability to be price competitive for 2016 contracts.
•    The company is working with automotive OEM’s in order to “take some of their risks off the table.”

Is US Steel Canada a Viable Supplier for 2016 Contracts?

Steel Market Update canvassed the financial and consulting communities to gather intelligence regarding the viability of the Lake Erie and Hamilton assets. Many of the analysts and consultants have been put off by the labor issues (3 lockouts) and the inability of the former Stelco mill to stay out of financial trouble. We asked the USSC CEO to address some of these issues. 

The USSC CEO explained the reasoning behind the three lockouts and how they have addressed the three primary issues: ending the defined benefit plan for retirees, removal of the pension indexing and ending new hires being added to the existing retirement plan. All three of these issues have been resolved, according to McQuade. Each was a dramatic step that the mill had to go through.

Steel Market Update does not feel comfortable expressing an opinion on the long-term viability of US Steel Canada. There are too many moving pieces. However, we were impressed with the time and effort the company dedicated to answering our queries. This openness alone has got to be a step in the right direction.

Every company considering doing business with USSC has to conduct their own evaluation of the risks and benefits of doing business with this mill.

The question remains if the automotive companies will agree to place 2016 contracts with USS Canada. If they do, the better chance USSC has to be able to survive whether as US Steel Canada or under another name….

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