TPT March 2009

From the AmericaS

A brighter outlook for steel in the second half? As President Barack Obama works out the details of his plan for stimulating the weakest US economy in living memory, early indications are that the greater part of the government outlay will be in the form of spending on infrastructure – mass transit systems, bridges, electric power grids – rather than tax breaks. If so, steel companies would be substantially better positioned to benefit than their counterparts in the domestic automobile industry. Despite the drum-beat of bad news from the steel industry ( ‘Production curtailments, ’ see above), there are encouraging signs here and there. The Wall Street Journal, in a recent article, cited movement by steel producers around the world toward the selective opening of mills as signaling revitalization. Neil Malkin, an analyst-blogger for Zack’s Investment Research, endorses the WSJ view and foresees upward momentum in iron ore and steel prices as early as the second half of this year. ( ‘Signs steel may have bottomed,’ 7 January). If these expectations seem rosier than warranted by the stirrings of a few steelmakers, a more compelling rescue model is suggested by the Reuters headline ‘Steel companies may gain if buyers restock inventories’. Stockists, having depleted their inventories to supply construction customers, will likely increase their orders for new steel as their own supplies shrink. Bob Richard, an analyst with the equity research firm Longbow Research (Independence, Ohio), told Reuters (7 January), “I think a more timely catalyst is not necessarily the stimulus package. Service centres have pared down their inventories to an unprecedented level.” › This is not to say that steel producers will not be trying their luck in Washington. They will. To help revive steel demand, the US industry is pressing the Obama administration on public works plans that would reach $1 trillion over two years. And at least some of the pressure will be couched in terms reminiscent of the George W Bush era. Daniel DiMicco, chairman and chief executive of Nucor, the largest steel mini-mill operator in the country, told the New York Times that the steel industry in the US was asking the incoming administration to “deal with the worst economic slowdown in our lifetime through a recovery program that has in every provision a ‘Buy American’ clause.” › If the optimists are right, and steel picks up in second-half of 2009, the coal mining industry in the depressed Appalachian region of the US stands to benefit. With metallurgical coal a vital element in the making of steel, any increase in steel demand should push coal prices higher.

not,” he said. “We really haven’t said whether we will or we won’t need money after that period.” Ford Motor Co is in better shape than GM and Chrysler and did not need an emergency infusion of federal cash. But the second-largest US automaker, after GM, has asked for a multibillion-dollar backstop in the event that North American auto sales continue to collapse. Steel Light order books mean production curtailments at steel plants across the US Economy measures announced by steel makers include the following: › Severstal North America Inc said 8 January that it would continue the temporary ‘rolling’ layoffs, begun in December, that affect operations in Wheeling, West Virginia; Warren, Ohio; Sparrows Point, Maryland; and Dearborn, Michigan. The company is a subsidiary of Russia’s OAO Severstal, which completed its acquisition of the former Wheeling-Pittsburgh Steel from Esmark Inc last summer, pledging a $250 million capital investment in US operations including the strip mill at Wheeling. › AK Steel Corp(West Chester, Ohio), which employs 6,000 company-wide, is laying off an undisclosed number of workers at all plants and offices. Its network of mills includes the Middletown Works and smaller plants in Mansfield, Coshocton, and Zanesville – all in Ohio; Butler, Pennsylvania; and Ashland, in Kentucky. AK Steel in November halted production and shipping at Mansfield, and blast furnace, steel making, casting, and coating operations at Ashland. Most of the suspended workers had not been called back by early January. The company said in December that it would impose a 5 per cent pay cut on salaried workers including its CEO and other top executives. (Pittsburgh Business Times, 9 January). › Roughly 1,600 workers have been laid off at US Steel’s Granite City Works plant, in southern Illinois. The plant, which makes hot rolled and coated sheet steel products, is one of five integrated facilities that the Pittsburgh steel giant operates in the United States. It has annual raw steel making capability of 2.6 million tons. Russ Saltsgaver, president of the United Steelworkers local at Granite City, told the Alton (Illinois) Telegraph on 10 January that within days the plant, which had not been idled in its 130-year history, would be run by a ghost crew of about 60 people. Relating the plant’s troubles to those of customers in the tube and pipe industry, the union representative said, “We need the price of gas to increase so the oil companies will start putting in more pipelines and doing exploratory drilling.” Of related interest . . . › US Steel Corp, on 7 January, said it had reduced production at its plant in the eastern Slovakian town of Kosice following a halt imposed on gas deliveries from Russia via Ukraine. It was not disclosed how much production was cut at US Steel Kosice, which is rated to produce 4.5 million metric tons of pig iron a year. A company spokesman said, “[We] have adjusted our production in line with the restrictions” imposed by the Slovakian government.

Oil and gas Plunging oil prices derail a Venezuelan philanthropy in the United States

As Venezuela’s oil income falls, President Hugo Chávez has ended a three-year-old program under which his country provided heating oil to low-income Americans. Citgo Petroleum, the US refining unit of the state oil company Petróleos de Venezuela SA (PDVSA),

92 ›

M arch 2009

www.read-tpt.com