Metals
Last updated: April 2008

Industry Codes:
  • NAICS – 331111 Iron and Steel Mills US
  • SIC – 3312 Blast Furnaces and Steel Mills

Overview

Iron is the least expensive and most widely used metal. Steel is produced by reducing iron ore into a molten form and combining it with other elements. In its simplest form, steel is composed of iron and carbon, although many other types of steel are made. Formed from the most common element found on Earth, carbon, it is manufactured and sold on six continents. Steel making in the U.S. is concentrated in the Midwest around the industrial manufacturing heartland, the logic being at the time the industry was established that it was cheaper to make steel near where it would be consumed. Other major steel producing centers are located throughout the U.S. in Pennsylvania, West Virginia, Ohio, Michigan, Alabama, and California, located near either a large market for finished steel or a source of steel making raw materials such as coal or iron ore. Most major steel mills are vertically integrated, owning iron ore reserves and mines, coal mines and coke plants, the mills themselves, and value added processing facilities.

In 2007, the industry generated revenues of approximately $150 billion. U.S. production has been steady over the last five years, ranging from 97.3 to the current level of 96.8 million metric tons. Revenues have been very volatile with base steel prices rising from their 2003 nadir of around $250 per ton, to over $800 per ton in 2004. Although steel prices were expected to decline in 2007, in the fourth quarter of 2007, prices started to break out of the $500 to $650 per ton range they had been in for several years, and currently, prices are again spiking as high as $800 per ton.

Industry Condition – Good

After a prolonged period of weakness from 1998 through 2003, steel makers were rescued by a combination of strengthening commodity prices, a strong demand curve for steel products worldwide due to a strong international cycle, and a rationalization and restructuring of the industry that started a decade ago and continues today. Market conditions are currently strong with Midwest mill pricing over the past four months having risen from 31% to 50%, depending on the grade. Rationalization continues in the industry with consolidation occurring throughout the U.S. and internationally. IBIS forecasts a 20% decline in domestic revenues by 2012 from current levels based on price declines due to substitution, weakness in housing, and weakness in automotive demand. Current U.S. market conditions are being roiled by production issues at several U.S. mills, rising ore, scrap and energy prices, and continued strong demand overseas. Going forward, despite recent strength, forecast values are predicted to decline, and rapid growth in production in the Asia-Pacific region will mean that the U.S. will likely account for a smaller proportion of the global industry moving forward. Leading players today include Arcelor Mittal, POSCO, Corus Group, and United States Steel Corporation.

Key Industry Indicators

  • US Gross Domestic Product
    Real gross domestic product increased at an annual rate of 0.6% in the first quarter of 2008, according to final estimates released by the Bureau of Economic Analysis. This sluggish rate of growth confirms the slowdown in the U.S. economy that many economists see as currently being in a recession.
  • Chinese Gross Domestic Product
    China faces a number of challenges in sustaining its strong economic performance. Most immediately, China has been impacted by a series of severe winter storms that disrupted much of the country and caused a tragic loss of life. The current worldwide financial crisis, which began in the U.S. housing market, is spreading to affect the real economy in the U.S. and elsewhere. There will be some impact on China, but the IMF still expects their economy to expand by 10% in 2008.
  • Hot Rolled Steel Pricing
    Steel prices continue their recent surge reaching $870 per metric ton FOB port of export. The latest increase logs a 44% rise in the price hot rolled steel coils from the close of 2007.

  • Heavy Melt Scrap Prices
    Global scrap and pig iron prices have been on the rise due to growing demand for finished steel. Export prices for # Heavy Melt FOB New York recently reached $518 per gross ton in May, up from $243 per gross ton 12 months ago.
  • Coke Prices
    Contract prices for coke in 2008 have risen to around $200 to $250 per metric ton up from 2007 levels of $103 to $104 per Metric ton.
  • Natural Gas Prices
    Natural gas spot prices rose $.24 over the course of 2007 rising from $6.73 to $6.97 per million Btu (MMBtu). Prices have shot up in the first quarter of 2008, with the spot price at the Henry Hub closing at $10.81 per MMBtu on May 1, 2008.
  • Capacity Utilization
    In 2007, the industry consists of about 57 companies that produced raw steel at about 116 plants, with a combined production capability of about 113 million tons. Based on 2007 production, capacity utilization was running at about 86.5%. This is an improvement from 2002 levels where capacity utilization was running at about 78%.

Secondary Market

Overview

The secondary market for equipment used in an integrated steel mill or in a mini mill is limited. The initial cost of establishing steel making operations is very high and much of this cost is invested in extensive leasehold and site improvements that are ignored when mills are sold piecemeal. That is why every effort should be made to find a purgeantaresr to assume the operation of the mill and, most of the time, these efforts are successful because steel mills die very slowly. Even in the worst of times, buyers can usually be found for mills unless they are functionally obsolete: labor costs, work rules and/or legacy expenses are uncompetitive and cannot be renegotiated; and/or the mill location is geographically uncompetitive. In the past, all that has to be done to ultimately sell the mill was lower the selling price. Repeated sales of Bethlehem Steel and Geneva Steel are both excellent examples.

When steel mills are sold piecemeal, marketing times for the major work centers vary from one to two years for mini mills and between three and five years for integrated mills. The sale process is time consuming because it takes a long time to find the right buyer able to use equipment with very specific capabilities. Then, funds must be appropriated and space must be found or constructed to install the equipment. Finally, it takes months to dismantle, match marke, and rig machinery for transport.

Only late model equipment or equipment that has been substantially rebuilt is salable. It must be the "right size", highly productive, and able to produce product of the quality and tolerance demanded by the marketplace. There are very few dealers of steel equipment and buyers rarely speculate on purgeantaress.

Some equipment does not sell and is a liability to the property. Examples include coke ovens and blast furnaces.

Equipment supporting steelmaking such as machine shops, material handling equipment, locomotives and rail cars can all be sold through conventional means.

Used Equipment Values –Average

  • Supply of used equipment – Stable
  • Demand for used equipment – Stable

Liquidation Monitor

  • Recent bankruptcy filings
    • Tarpon Industries, Inc. filed on April 29, 2008
    • Keystone Consolidated Industries, Inc. filed on February 26, 2004
    • Stelco Inc. filed on January 29, 2004
    • Rouge Industries, Inc. filed on October 23, 2003
    • Republic Engineered Products LLC filed on October 6, 2003
    • Atchison Casting Corporation filed on August 4, 2003
    • Slater Steel U.S., Inc. filed on June 2, 2003
    • Kentucky Electric Steel, Inc. filed on February 5, 2003

Industry Experience

Valuation Monitor

AccuVal routinely provides appraisal, consulting, and asset management services to the Metals industry and is intimately familiar all aspects of the steel industry and the industries supplying raw materials and consuming the metals produced by these mills. View industries serviced >>

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