WEST CHESTER TWP. — The best way to understand the effect of foreign competition in the steel industry is to think about the oil market.
A worldwide increase in gas and oil production has trickled down to lower prices at the gas pump because the supply exceeds demand.
A similar thing is happening in the global steel industry, said Phil Gibbs, vice president and equity research analyst for KeyBanc Capital Markets Inc. of Cleveland, focusing on the metals and mining industry. Companies producing more and more steel on the global playing field and importing those products into the United States are driving down prices per unit, and threatening sales margins of domestic producers.
The global forces in the steel industry are having a direct impact on the local economy where one of the region’s largest companies, Fortune 500 steelmaker AK Steel Holding Corp., is cutting jobs, reviewing expenses and struggling to keep sales and profits up.
“Something needs to change,” Gibbs said. “Whether or not it’s the dollar or maybe tariffs would help, but for them, it’s probably shrinking the cost base and hoping we see a better supply/demand balance unfold.”
“That’s probably going to have to come from capacity reductions not only in the U.S. but globally,” Gibbs said, adding a strong dollar compared to other currencies invites imports in.
Worldwide steel production grew about 46 percent from 2005 to 1.8 billion tons in 2014, according to the American Iron and Steel Institute.
During that time, steel imports into the U.S. market have risen from 32.1 million net tons in 2005 to 44.3 million in 2014, an increase of 38 percent. And so far this year, finished steel imports to the U.S. are tracking about 3 percent ahead of the year before, beating what was already a record year for imports in 2014, according to the steel institute.
“The steel industry is under attack from the surge in foreign imports,” said Lisa Harrison, spokeswoman for the steel institute, a trade association and industry lobbyist that represents 19 North American steel producers and more suppliers.
“Foreign government subsidies and other trade distorting practices have created global overcapacity in steel which is fueling the surge and causing domestic steel producers to idle facilities and lay off workers,” Harrison said.
AK Steel is not alone in being affected by surging foreign output.
Pittsburgh-based United States Steel Corp. is mulling a consolidation of its North American flat-rolled operations and may temporarily idle steelmaking and most finishing operations in Granite City, Ill., the company announced Oct. 6. The move put 2,000 steelworkers on layoff notice.
U.S. Steel also is closing an Alabama blast furnace.
“The potential consolidation is a result of continued challenging global market conditions including fluctuating oil prices, reduced rig counts, depressed steel prices and unfairly traded imports,” reads the company’s announcement. U.S. Steel supplies steel parts used by oil and gas drillers.
Charlotte, N.C.’s Nucor Corp. also felt the squeeze on profits in its most recent earnings release Oct. 22, noting overall operating rates at its steel mills decreased to 69 percent for the three months ending Oct. 3. A year ago, Nucor reported its mills were running at 81 percent. Nucor also warned stakeholders that the end of the year would be tough too. “A slowing economy in China is causing further global overcapacity and resulting in significant levels of steel imports into the U.S. market,” reads a company statement.
Citing imports and unfair trade concerns, AK plans to temporarily idle the blast furnace of a Kentucky steel mill. The Ashland Works plant employs a total of about 940 workers, but the number of jobs to be affected at Ashland has not yet been determined, according to the company.
AK Steel attributes the effect of imports to a declining average selling price per steel ton. The average price of steel sold by the company dropped to $912 last quarter, down 16 percent year-over-year, according to AK Steel.
“It wouldn’t surprise me at all to see that potential idling at (Ashland) to be a more permanent shutdown,” Gibbs said.
AK Steel, ArcelorMittal USA LLC, Nucor, SSAB Enterprises LLC, Steel Dynamics Inc. and U.S. Steel joined forces this year to seek remedies for unfair trade practices such as anti-dumping and counter-vailing duties. The Butler County steelmaker has joined three trade cases filed so far this year. But the cases are taking too long to complete, AK Steel’s Chairman, President and Chief Executive Officer said Tuesday when discussing the company’s most recent financial results.
Following the economic downtown, imports have posed a new challenge for AK Steel that has yet to recover pre-recession sales and profit levels. The Ohio company sold 6.5 million tons of steel in 2007, which dropped to 6.1 million in 2014 even though 2014 began to see the benefits of an acquisition of a new steel plant in Michigan that grew sales volumes. At the worst of the recession, AK Steel sold 3.9 million tons in 2009, according to the company.
“They’re very high cost and they’re very debt leveraged in an industry that’s challenged,” Gibbs said.
West Chester Twp.-based AK Steel makes carbon, stainless and electrical steel products. Approximately 2,400 full-time workers are employed by AK in Butler County between headquarter operations and the Middletown Works steel plant. Facilities in Ohio, Kentucky, Indiana, Pennsylvania, Michigan and West Virginia employ more than 8,000 altogether and produce flat-rolled carbon, electrical and stainless steels used by the automotive, appliance, construction and manufacturing markets.
This article was written by Chelsey Levingston from The Dayton Daily News and was legally licensed through the NewsCred publisher network.