Stamping Out a Living

These guys are about an hour away from us here in Toronto, so we follow them a little more closely than we do other steel companies.
Reuters.com
Steelmaker Dofasco Inc. said on Monday its third-quarter profit slumped 95 percent, much lower than analysts expected, dragged down by weaker steel prices and a stronger Canadian dollar.

Labels: Dofasco

I think this is a good example of why the stock market doesn't work well when owning or influencing decision making for long-term-investment type industry. Ironically, that's the type of industry that stock markets were originally meant to service ...

Yahoo! News
Paulson & Co., which controls 19 per cent of the steelmaker's stock, sent a letter to Algoma last week, asking the steelmaker to refinance its debt and pay cash to shareholders to boost its 'depressed' stock price.
[...]
Ben Duster, chairman of Algoma's board, said 'Paulson's proposal involves drastically reducing Algoma's cash position as the company goes into an uncertain time in the steel industry's cycle.'
[...]
As steel prices soared to unprecedented levels last year, the firm racked up a cash balance of $453 million. That soared to $700.2 million by June 30.
[...]
In August, the company announced a special dividend of $6 a share - using up about $240 million of its cash surplus. In addition, it said it would buy back about 3.3 million shares.
"We will make further shareholder distributions when it is prudent to do so in the context of the company's cash needs," Duster said in the announcement that Algoma was rejecting Paulson's proposal.

Anyone who has anything to do with steel knows that the future is uncertain at the moment, and having a nest egg from the good times of a year ago could be the difference between success and failure in the long term.

Forcing the company to cash out the nest egg could be a death-knell.

From time to time I've talked about workplace safety in China.

This time it was a coalgas leak in a steel factory in Beijing. But these weren't factory workers - these were pedestrians walking by outside the plant! The leak was so bad people outside in the free air died.
NEWS.com.au
NINE people died after being overcome by fumes from a gas leak at Beijing's controversial Capital Iron and Steel Corp, state press said on Thursday.
The leak occurred Wednesday afternoon in the city's western Shijingshan district leading to the deaths of three street cleaners and six others walking by the steel factory - a leading Beijing polluter for decades.
[...]
The leak of the highly concentrated coal gas, which could kill 'within minutes', was stopped soon after it was discovered, the paper said.

From our friends at MEPS ...

The forthcoming annual iron ore price negotiations promise to be the toughest for a long time. Steel executives say they will resist any attempt to raise them for 2006, and some state they will be seeking decreases of 10 percent or so. The miners, however, are anxious to consolidate prices at the new level they reached after this year’s quantum leap. They may well seek a further increase.

What cards are the steel industry holding that can outplay the mines’ strong hand? There is talk of weakness in steel markets, reducing the industry’s ability to pay higher prices for raw materials. The mills will no doubt also point out that extra demand is mainly required by Chinese mills.

Steel industry executives fear that consolidation has given the iron ore suppliers too much pricing power. When the top three companies have a market share of close to 75 percent, it is easy to hold the line against a fragmented buying side.

Market fundamentals support the miners’ case. Demand for iron ore is running at record levels. World pig iron production in the first three quarters of this year was almost 50 million tonnes, or 9.2 percent, higher than the same period of 2004. Production of direct reduced iron was up by 10 percent.

Yahoo! News
China's biggest steel industry group has urged its members to cut output by 5 percent in the last three months of this year as it seeks to better balance supply and demand, hoping to stem falling prices.
China's biggest steelmakers agreed at a national meeting held in Beijing last Friday to set up a committee to discuss ways to counter the drop in prices, the China Iron and Steel Association said in a notice seen Tuesday on its Web site.

Meanwhile, MEPS warned today:

MEPS (International) Ltd expects crude steel output in 2005 to be just below 1116 million tonnes - 6.2 percent up on the year earlier figure. Blastfurnace iron production is forecast to expand by almost 8 percent and direct reduced iron supply by 2.7 percent, year on year.

The steel manufacturers of most industrialised countries and the emerging nations have acted very responsibly in reducing output to balance market demand, during the second and third quarters of the year. This is expected to extend into the final trimester. Our forecasts from the previous issue of World Steel Outlook have been trimmed.

China still leads the way; with an anticipated increase of 77 million tonnes. This will be more than the 65.5 million tonne rise we attribute to the total world output. Producers in the EU and US are expected to reduce supply by above 16 million tonnes in 2005.

Chinese steel consumption has been growing rapidly for most of this year. However, steel output has been moving up at a faster rate - transforming the country from a net importing nation into a net exporter of steel. India will also increase output this year by around 16.5percent - not all of which will be consumed in their home markets.

We've been following this story for a while. The steel producer was sold for a song to a buddy, then the sale was revoked. Just last week, the Ukraine parliament was working on a bill to prohibit the sale of it. Today it sold (before second reading of the bill, if I understand properly).
Yahoo! News
KIEV, Ukraine - The world's largest steel producer, Mittal Steel Co., bought Ukraine's flagship steel plant Kryvorizhstal from the state at auction Monday for more than $4.8 billion.
Mittal Steel bought the mill for 24.2 billion hryvna, well above what analysts had predicted and more than five times what former President Leonid Kuchma's son-in-law and another Ukrainian tycoon paid for the mill in 2004 — a sale that Yushchenko called a theft and that was annulled after he became president this year.

One (of several) bottlenecks to more steel at a better price is iron ore mining bottlenecks.
Reuters
BHP Billiton said it will spend $1.3 billion to expand its iron ore output and rail and port capacity to keep up with soaring demand from Asian steel makers.
The board's approval comes one day after Rio Tinto said it would spend $1.35 billion expanding its iron ore mine and port operations in Western Australia and Brazil's Caemi Mineracao e Metalurgia approved a $760 million iron ore expansion.
BHP Billiton said it would start work immediately to nearly double iron ore production capacity to 42 million tonnes a year at its Area C iron ore mine in Western Australia, with production from the expansion to begin in the fourth quarter of calendar 2007.

Another bottleneck is coking (or metalurgical) coal:

Bloomberg
Anglo American Plc and Japan's Mitsui & Co. Ltd. will start digging a $516 million Australian coal pit, seeking to take advantages of record prices for metallurgical coal, which is used by steelmakers.

BHP Billiton also mines coking coal, and several announcements in the last few months indicate they're ramping up their production too.

Once these bottlenecks are reduced, JFE Steel Corp., Japan's second- largest steel producer, said prices of iron ore and coking coal will probably decline next year on increased supplies (Bloomberg).

And then hopefully steel prices will go down ...

I don't know enough about Ukrainian politics to understand why it needed 2 bills that sound the same (there was also a regulation On Keeping Krivorozhstal's Shares in the State Sector that passed). But this is a huge reversal in a drama that's been going on for over a year now ...

Ria Novosti
Ukraine's parliament passed a bill banning the privatization of Krivorozhstal, the country's largest steel mill, in the first reading Tuesday.
The bill, which passed with 256 votes, 30 more than required, must undergo a second reading.
The parliamentarians also approved a draft bill to impose a moratorium on the privatization of Krivorozhstal, which accounts for 20% of Ukraine's steel market.

How to resolve this news with the following?

Three Companies Bid for Ukraine's Biggest Steel Mill, Government Says

KIEV, Ukraine (AP) -- Three companies have submitted applications to participate in next week's auction of Ukraine's biggest steel mill, the State Property Fund said Monday as the deadline to participate expired.

Other European Steel news (well, views, I guess):
MEPS thinks the new German government isn't going to help industrial growth (and therefore steel).

The formation of a “grand coalition� government in Germany has left economic commentators unimpressed. Many believe decisive and radical action is needed to spur industrial growth – and, with it, steel consumption. But a coalition government – composed of left and right wing parties who have little in common – could see compromise, indecision and even paralysis.

Once the powerhouse of the European economy, Germany has been floundering. National finances have deteriorated as stagnation took hold. More than 10 percent of the workforce is unemployed. At the recent election, the conservative Christian Democrat Union leader Angela Merkel campaigned on a platform of radical reforms of tax and the labour market. However, voters failed to back her in sufficient numbers and left no single party with enough seats in the Bundestag to take power.

[...]

So the economic outlook for Europe’s largest steel producing and consuming country remains distinctly lacklustre. Steel demand this year was already forecast to be down by more then 3 percent compared to last year

Aluminum is in the news today. Usage is up, they can make it transparent now, aluminum can competitions

Bloomberg News
Demand for aluminum, used to make car components and beverage cans, rose in North America and Canada by 9.6 percent in August, The Aluminum Association said.

[don't you just love that bit, by the way? North America and Canada? Where else would Canada be located? And this, mind you, was in the Canadian edition of Bloomberg, not some far away edition)

Air Force testing new transparent armor

WRIGHT-PATTERSON AIR FORCE BASE, Ohio (AFPN) -- Engineers here are testing a new kind of transparent armor -- stronger and lighter than traditional materials -- that could stop armor-piercing weapons from penetrating vehicle windows.

The Air Force Research Laboratory's materials and manufacturing directorate is testing aluminum oxynitride -- ALONtm -- as a replacement for the traditional multi-layered glass transparencies now used in existing ground and air armored vehicles.

The test are being done in conjunction with the Army Research Laboratory at Aberdeen Proving Grounds, Md., and University of Dayton Research Institute, Ohio.

ALONtm is a ceramic compound with a high compressive strength and durability. When polished, it is the premier transparent armor for use in armored vehicles, said. 1st Lt. Joseph La Monica, transparent armor sub-direction lead

"The substance itself is light years ahead of glass," he said, adding that it offers "higher performance and lighter weight."

Traditional transparent armor is thick layers of bonded glass. The new armor combines the transparent ALONtm piece as a strike plate, a middle section of glass and a polymer backing. Each layer is visibly thinner than the traditional layers.

Did you know they have aluminum can competitions (from Red Nova)?

Two winners were announced in the European Association of Aluminum Aerosol Container Manufacturers' (AEROBAL) "Aluminum Aerosol Can of the Year 2005" competition. Boxal-part of the American Exal Group-won in the "Cans Already Launched on the Market" category for its mp3 container based on the company's GRIP concept- a technology that allows container embossing processes to highlight decorative elements.

Aluminum makers seem to be making a profit despite hard times

Red Nova
Aluminum manufacturer Alcoa Inc. on Monday said third-quarter profit edged up 2 percent as lower aluminum prices and higher energy costs cut into profitability.

And Red Nova is also reporting an interesting idea by the state of Maryland. Energy is a huge input cost for Aluminum smelting. Anywhere there's an aluminum smelter, there are always big arguments over the cost of electricity.

Md. To Alcoa: Buy a Power Plant and We'Ll Help You Save Your Frederick Operation

State economic officials said they can't help Alcoa Inc. save a Frederick aluminum plant threatened by surging energy costs unless the global aluminum maker helps itself by buying a regional power plant.

The fact is, we need to know if Eastalco is even serious about the long-term commitment of the plant, said Chris Foster, deputy secretary of Maryland's Department of Business and Economic Development. With energy prices going up over the last three years, certainly it's a legitimate question.

Last week the Pittsburgh company sent layoff notices to its approximately 600 employees as it faces a Dec. 31 deadline to find a new power supplier. Next year, its current fixed energy contract with Allegheny Energy Inc. expires. Its power bill is expected to grow to three times the average global price for energy.

Driven by high operating costs, Alcoa has been building plants in other countries where the price of power can be much cheaper. Energy makes up about one-quarter of the cost to produce aluminum.

Other countries can offer less expensive power partly due to hydropower plants. Brazil, for example, has a hydro facility that requires no fuel cost yet produces the same amount of power as 20 nuclear facilities. China is building an even larger hydro plant.

Detroit Free Press
General Motors Corp.'s landmark deal with the UAW on Monday to dramatically cut union health care expenses could reshape the benefits all of Detroit's auto companies offer workers.
The deal to trim $1 billion in cash from GM's $6-billion annual health care bill is the largest single cost-cutting initiative ever announced by the company. It sharply reduces the automaker's health care costs for 750,000 hourly workers, retirees and dependents, GM Chief Executive Rick Wagoner said.
The deal is part of a broad plan revealed by the automaker to try to cut costs and become profitable. It reported a massive quarterly loss of $1.6 billion Monday.
The GM agreement paves the way for Ford Motor Co. and the Chrysler Group to seek similar cost-savings plans with the UAW.

This isn't particularly good news for steel consumers. Rapid (over)development of production leads to unstable prices down the road. Recent developments include India and the Ukraine. There are also eyes on Turkey, China and Latin America.

AFP via Yahoo
The big beasts of the global steel industry are in the grip of a frantic race to invest in high-growth zones such as India, China, Latin America and Eastern Europe, a strategy that may see them having to cut their own overcapacity in the future.

In other steel news, Canadian steel producer - Atlas Tube Inc - to invest in Arkansas, hire 100 workers
Arkansas News Bureau
A Canadian tubing company said Friday that it will invest $50 million to build a steel tubing manufacturing plant in Blytheville, home of Arkansas' thriving steel industry.

And, as old as steel is, I am forever amazed that the building and construction industry keeps finding new uses for it. When we moved to our new location (now 7 years ago and, I guess, not so new any more), we had to build one new room. It was all built using steel studs. This has become the norm. They're stronger than wood studs, better in case of fires, lighter, it's easier to find them (behind the gyproc, because they're magnetic) etc. Here's an article from the seattle post about how steel doors are a good idea for homes:

I have installed and tested every type of front door (steel, wood, fiberglass and carbon fiber) in my own home, and my preference is clearly an insulated steel door. I particularly liked the clean appearance, the airtight seals and the security steel offers.

Even though steel does conduct heat, insulated steel doors are one of the most efficient of all designs. The steel skins are thin, and there is an insulating thermal break between the indoor and outdoor skins to block the direct flow of heat. The interior of the door is filled with insulating foam.

Another significant advantage of a steel door is it is magnetic. That allows refrigerator-door-type magnetic weather-stripping to be used on the frame. When the door closes, the seals snap tightly to the door. That is more effective than friction or compression weatherstripping, which may wear out or take a permanent set, reducing its airtight sealing ability.

More plant closures ...
RedNova News
Oct. 12--Timken Co. will close its steel plant in Wooster Township by the end of the year and consolidate operations into the Gambrinus plant in Stark County.
The Wooster Township plant, which at one time employed hundreds of workers, had been pared back to finishing and inspection of steel tube that was manufactured at Gambrinus. The tube was then shipped from the Wooster plant.
Only 36 hourly employees remained in Wooster, and they all will be offered jobs at Gambrinus, company spokesman Jeff Dafler said.
Employees won't necessarily be doing the same kind of work as they did in Wooster, but they won't be displacing Gambrinus workers either, Dafler said.

BBC NEWS
Three hundred jobs could be cut at the last remaining big stainless steel producer in Sheffield, the firm Outokumpu has confirmed.
Outokumpu, the world's second-largest stainless steel producer, blames a global oversupply of steel for the proposed job cuts at its Tinsley site.
Around 100 jobs may go at the melting shop and 200 may go at the coil division early next year.

Pittsburgh Post-Gazette
High oil and natural gas prices continue to ripple through the economy, affecting everything from chemical producers and glass makers to delivery charges, air fares and office rents.

Also in the news today ... a rather sobering explanation of an explosion in 2003 ... aluminum dust, in the right circumstances, can explode. And, more frightening (at least to me, because someone operates one of these just across the parking lot from us), an explosion in an outside dust collector can travel back into the factory.
Dust accumulation blamed in ’03 blast
Fort Wayne.com
According to the report, the aluminum dust ignited in the factory’s dust collection system. The dust originated in a scrap system at the plant, and a high concentration of the dust, when suspended in air, is extremely combustible.
The plant manufactures cast alloy aluminum wheels, and until the time of the explosion, had dried and melted down scrap metal chips created during its manufacturing process. The dust from the process was separated from the chips and conveyed to dust collectors on the outside of the building, according to the report.
When the dust in the collector exploded, it sent a pressure wave through the system’s ductwork and back into the building, according to CSB Chairman Carolyn Merritt. A fireball then erupted in the building, which lofted and ignited more aluminum dust that had accumulated on the rafters and equipment, she said.

And copper prices continue to rise ...
bloomberg.com
Copper prices climbed to a record for the third straight day in New York as global inventories declined, suggesting demand remains high for the metal used in wiring, manufacturing and construction.

Other reasons cited:
short-term supply problems in Canada, the United States and Zambia, as well as falling warehouse stocks, continued to drive the market.
Copper, used in construction and electronics, is on the crest of a wave of buying that has been driven by demand from China, speculative activity and, most recently, supply worries.
In Canada, Falconbridge Ltd. declared force majeure on Tuesday at its Kidd Creek copper-zinc plant in Canada as a strike entered its fourth day.
In Zambia several plants have cut production or closed and more are threatened by energy shortages, although the government has scrapped import duty on fuel in an attempt to keep the copper sector running.
In the United States, Asarco closed its Hayden smelter in Arizona for repairs. The company is already gripped by a 3-1/2-month strike, reducing output by around 20 percent.

Labels: Copper

According to the IISI (International Iron and Steel Institute) web site:
The prospects are good for continued real growth in the demand for steel worldwide according to the latest projections by IISI. Apparent Steel Demand is forecast to grow [...] 4-5% over the two year period.
The strongest growth continues to come from China which should see a 10% increase in steel demand in 2005 and a further 7-10% growth next year. In the rest of the world, Apparent Steel Demand in 2005 will be the same as in 2004. A significant build-up of steel inventories in 2004 has been worked-off this year.

Like everything you read here, take this with a grain of salt. This is a steel makers industry group. Good for them is high prices and high growth rates. This is not the same "good" that metal stampers perceive ...

In other news ...

Last week MEPS reported that steel prices were flat in Europe but rising in North America. This week the same article has been retitled "High North American prices could lead to surge in Imports". A good point ....

MEPS is also reporting Remarkable growth forecasts for China’s stainless steel sector were made at a recent industry meeting in Shanghai. Chinese production capacity in 2006 will be double the figure in 2004. Moreover, if current expansion plans are fully realised, China could be melting more than [...] 60 percent of current world output.

Bloomberg.com: Canada
Falconbridge Ltd., Canada's biggest mining company, idled its Ontario copper refinery and zinc plant today after talks with a union on a new contract broke down.

Labels: Copper