Chesterton Tribune



ArcelorMittal exec eyes closure of a hot strip mill in blog post

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An ArcelorMittal USA executive appears to be telegraphing--or trial-ballooning--the closure of one of the company’s five U.S. hot strip mills, in a corporate blog posted on June 23.

Andy Harshaw, president and CEO of ArcelorMittal USA Flat Carbon, doesn’t indicate which hot strip mill (HSM) of the five is up for shuttering, much more whether the company has definitively settled on such a move, but he does make a case in principle for consolidation, as ArcelorMittal USA continues to look for ways to come to terms with record import levels.

Since 2013, Harshaw writes, the volume of imported flat carbon sold in the U.S. has increased by 70 percent, and that product has been squeezing ArcelorMittal and other domestic steelmakers out of their usual markets. The result: the company has naturally cut back on production. “As a result of this and other market forces, many of our key assets are running at relatively low capacity utilization levels, and they have for quite some time.”

By way of example, Harshaw notes, ArcelorMittal USA’s five HSMs--an 80-incher at Burns Harbor; an 80- and an 84-incher at East Chicago, an 84-incher at Cleveland, Ohio; and a fifth HSM at Riverdale, Ill.--are currently averaging a utilization rate of 70 percent, without, however, any concomitant reduction in overhead. “This means that they aren’t producing roughly 30 percent of the time, even though we are paying the costs associated with operating and maintaining those assets as if they were operating 100 percent of the time.”

Harshaw puts the average annual cost of keeping the company’s four largest HSMs on line at $39 million each, around 15 percent of the $1 billion which ArcelorMittal USA spends every year to repair and maintain its facilities. That’s too much, he suggests. “It is not sustainable to operate multiple HSMs at low utilization rates when the same volume of steel could be produced by fewer HSMs at higher utilization rates. Why run five HSMs at 70 percent when you can finish the same tonnage running four HSMs at 90-percent capacity?”

“Consolidating the HSMs and running at higher utilization rates also leads to more efficient use of repair and maintenance dollars, allowing us to invest more in the remaining assets,” Harshaw adds. “The same logic would apply to other operations as well, from the hot end to finishing.”

Going forward, Harshaw foresees “formidable challenges with difficult choices,” as the company seeks at once to “invest in certain assets” whose “capacity is better matched with downstream units,” and at the same time, in a kind of triage, to “divest” itself of other assets, in order to keep “the healthiest and most strategic running as close to full as possible.”

“It’s no secret that ArcelorMittal USA’s financial performance has been poor,” Harshaw observes. “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. Those costs are increasing each year while our average steel selling prices have declined dramatically due to imports and capacity utilization rates at historically low levels.”

ArcelorMittal reported an average steel selling price of $843 per ton in 2014, up (+1.7 percent) from $829 in 2013; but down (-1.3 percent) from $854 in 2012; and down even more (-5.5 percent) from $892 in 2011.

Harshaw concludes his blog post by calling for an even playing field, where domestic producers can “compete fairly” with foreign ones. But that’s not the only prerequisite for sustainability, he says. ArcelorMittal USA must be organizationally disciplined. “We also need the right set of assets that match 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.”

Because the alternative, Harshaw writes, is corporate oblivion: “Companies that adapt to changing conditions will survive; those who refuse to change will continue to fill the coffers of the bankruptcy lawyers.”

Hot strip mills produce steel for truck frames, automotive wheels, pipe and tubular, and agricultural equipment, among other things.



Posted 7/8/2015




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