U.S. Steelmakers Raise Their Bets on Energy, Construction
December 30 2017 - 7:29AM
Dow Jones News
By Bob Tita
Steelmakers are betting on the U.S. again, building mills they
hope will help them compete against cheap imports as demand
rises.
Steel companies have complained for years that steel from China,
South Korea, Vietnam, Turkey and elsewhere is being sold in the
U.S. for less than the cost to make it.
While imports are still increasing, steel prices are also on the
rise globally. And demand for U.S. steel is starting to rebound,
thanks to rising oil prices and a strengthening manufacturing
sector, steel executives say. Still, others see expansion as a
risky bet.
Some steel companies say they can capture more customers with
new plants that can make more steel at less cost than older plants,
and can deliver it faster to customers. They're also counting on
additional U.S. tariffs to drive out cheap, foreign-made steel,
creating more opportunities for domestic producers. Stiff tariffs
imposed over the past 18 months have significantly slowed steel
imports from China, according to Commerce Department reports.
Nucor Corp. is building a $250 million steel mill in Sedalia,
Mo. Startup Big River Steel LLC in Osceola, Ark., accelerated
production early this year at one of the largest new steel sheet
mills built in the U.S. in years. And Tenaris SA started making
pipe for oil and gas wells at a new $1.8 billion mill near Houston
this month.
"Our view is the energy sector will continue to expand here for
the next 10 to 20 years and justify more manufacturing in the
states," said Paolo Rocca, chief executive of Luxembourg-based
Tenaris.
Domestic steel shipments rose 5% in the first 10 months of 2017
compared with a year earlier and are on track to finish the year
higher for the first time since 2014. At the same time, imports
were also up 15% annually in the first 10 months of 2017, as
imports shifted from China to other low-cost countries. Nucor said
Dec. 19 that price pressure from imports has compressed its
margins, and it forecast that its fourth-quarter earnings per share
will be barely above last year's and below analysts'
expectations.
Some industry analysts say the new U.S. mills could exacerbate
that pressure, swamping a still-fragile domestic market. As
Tenaris's new mill in Bay City, Texas, begins production, the
company has nearby plants that remain mostly idle. Mills in the
U.S. that supply well-site pipes are operating at about 60% of
their maximum production, estimates market analytics firm Pipe
Logix LLC.
"Building any more production capacity is just questionable,"
said Seth Rosenfeld, a Jefferies analyst. "These companies' actions
don't align with what they've been saying about the state of the
steel market."
But Pipe Logix also estimates that the number of oil and gas
wells drilled in the U.S. increased by 60% this year over 2017, and
steel executives expect more growth next year.
Tenaris hopes to benefit from that growth by doubling its U.S.
pipe-making capacity to about 1 million tons annually. Tenaris
plans to sell it directly to well drillers, eliminating independent
distributors. Without the middlemen's markup, Tenaris says it can
beat its domestic rivals on price. It also expects continued U.S.
tariff pressure on foreign competitors to drive down imports that
now make about 70% of the U.S. well-pipe market.
Tenaris is also pledging to provide engineering and technical
support to customers and to take back pipe that drillers don't use.
"This is a way of working that requires a very intimate
relationships with customers," Mr. Rocca said.
Some U.S. steel companies also see opportunities in rebar, the
reinforcing bar used to strengthen concrete in construction
projects. Rebar imports are on pace to drop by 17% in 2017,
according to Commerce Department, as duties and higher prices for
the scrap steel used to make it decrease shipments.
Nucor's new Missouri mill will allow the North Carolina-based
company to produce rebar closer to where its customers use it in
buildings, bridge piers and highways. Nucor said it chose a site
near Kansas City because most of the rebar used in the region now
is shipped in from elsewhere.
"The closer we are to that market, the more successful we could
be," CEO John Ferriola said.
Nucor also intends to buy scrap steel for its rebar near the new
mill, which is scheduled to open in 2019. "That's going to give us
a cost advantage in serving that market," Mr. Ferriola said.
Texas-based Commercial Metals Co., is building a similar
regional rebar mill in Durant, Okla., after opening one in Mesa,
Ariz., in 2009.
Big River, backed by Koch Industries Inc. and the Arkansas
teacher's retirement fund, designed its mill in northeast Arkansas
to produce lightweight sheet steel for cars with an electric
furnace, challenging established competitors that make steel for
cars with coal-fired furnaces. The company says the mill can be
adapted to produce different flat-rolled steel products,
potentially leaving it less vulnerable to supply gluts than mills
making just one or two products.
Write to Bob Tita at robert.tita@wsj.com
(END) Dow Jones Newswires
December 30, 2017 07:14 ET (12:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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