A future forged in steel?Fate of Steelton plant tied to potential buyers, uncertainty in industry
With at least two potential buyers expressing interest in ArcelorMittal's Steelton facility, the future of steelmaking in Central Pennsylvania is once again in focus.
But while it is critical to the region, Steelton's future also is tied to trends that are sending shock waves throughout the worldwide steel industry, prompting calls for stronger government action to protect domestic producers and combat what many see as Chinese “dumping” of low-cost surplus onto international markets.
Greater support, observers say, is necessary to level the playing field for American producers.
“In my opinion, in order for the U.S. economy to thrive, the U.S. economy needs to be fully supported by the U.S., from the individual consumer to the government,” said Babette Freund, CEO of Cumberland County-based Ritner Steel, a supplier and custom fabricator.
Nearly one out of every three tons of steel sold in the U.S. in 2015 was produced outside the country, according to Lisa Harrison, a spokeswoman for the Washington D.C.-based American Iron and Steel Institute.
“A huge part of the problem is the global overcapacity in steel — in part due to massive subsidization by foreign governments like China,” said Harrison, whose organization has been calling for relief from “trade-distorting policies and practices.”
Steelton in play
Company spokeswoman Mary Beth Holdford acknowledged Steelton sale talks are underway.
“ArcelorMittal confirms it is in discussions concerning the sale of certain long product mills in the United States, including Steelton. These discussions may or may not result in an offer being accepted,” Holdford told CPBJ. “The company appreciates the importance of such developments to employees and stakeholders and will give further updates as appropriate.”
State Rep. Patty Kim, whose Steelton office stands in the factory's shadow on South Front Street, said she has spoken with one potential buyer, and is aware of another, although she declined to name the parties.
“It's so preliminary right now,” the Dauphin County Democrat said.
“They're just trying to gauge support,” Kim added. “They're looking for state support as well.”
According to ArcelorMittal's website, the 380-acre complex employs more than 650 people and is one of only three plants in North and South America that manufactures rail for railroads.
The former Bethlehem Steel Corp. facility, which has been the site of steel manufacturing since 1867, also produces specialty blooms, flat bars and forging-quality ingots, and can produce 1 million tons of raw steel annually, the company says.
To the outside observer, Kim said, the plant still seems to be doing what it was designed to do. Indeed, Holdford acknowledged that a new walking beam furnace went online in the first quarter of 2015, “and replaces existing capacity (old soaking pits) and improves quality, yield, energy consumption and productivity.”
What people on the street may not fully realize, Kim said, is how much the parent company is struggling, although she said she has not seen any of ArcelorMittal's numbers relative to the Steelton plant.
Indeed, change is in the wind for the Luxembourg-based steel conglomerate, which is still the world's biggest steelmaker by volume, but which has been wounded by Chinese exports, its officials have said.
In December, it was announced that ArcelorMittal Americas CEO Lou Schorsch would retire at the end of February, while ArcelorMittal USA CEO Andy Harshaw would retire March 31 after just over a year in the post. In a blog on the company's website, Harshaw frequently discussed responses to the macroeconomic challenges facing ArcelorMittal, ranging from revised health care plans to labor negotiations.
The successors to Schorsch and Harshaw are being asked to boost earnings before interest, taxes, deductions and amortization by $1 billion in 2016.
November brought bleak news. Reports released two months ago showed a net loss of $711 million in the third quarter, down from a profit of $22 million for the same period in 2014. Quarterly revenue, meanwhile, had fallen 22 percent year over year, to $15.6 billion.
The China syndrome
Just how did China's boom and bust turn into the global steel industry's nightmare?
AISI's Harrison said that between 2000 and 2014, Chinese steel production increased by 540 percent, while U.S. production declined 13 percent.
“China's industrial and trade policies encourage steel production there to proceed unabated, even as demand for steel in China has fallen for the last two years, causing steel prices to fall and Chinese producers to lose money,” Harrison said. “To make up for this falling demand at home, China has been shipping out ever-greater quantities of steel at below-market prices.”
To get a sense of the impact, look across the pond. On Monday, Indian multinational Tata Steel announced 1,000 job cuts at plants in the United Kingdom.
“The job cuts reinforce everything we have been saying about the importance of swift action by all involved to tackle the problems facing our steel industry,” said Gareth Stace, director of London-based UK Steel.
According to statistics from UK Steel, China produced 441 million more tons of steel than it consumed last year. Some 70 percent of China's steelmakers are state-owned, UK Steel says, and it is believed that they lose money on what they produce.
Stace and his agency have called on the European Union to enforce anti-dumping measures.
Action by any one government — U.K., E.U. or U.S. — may not be enough.
Estelle Tran, a Pittsburgh-based editor who reports on steel market trends for Platts, noted that the U.S. imposes duties on many Chinese steel products, including hot-rolled coil and rebar.
Even if the U.S. isn't importing those products, “ultra-low priced Chinese steel products are going to other markets and depressing prices,” Tran noted.
And Chinese policy isn't the only threat to American steel.
Tran explained that the strong U.S. dollar has made importing foreign steel more attractive, while falling oil and gas prices have driven down demand for energy tubulars.
Meanwhile, she added, American steelmakers are hoping the U.S. will levy hefty duties on imported steel products from South Korea, Turkey, China, India and other countries.
There are some positive signs for the industry as a whole, though they are muted.
Spending on construction, which consumes about 40 percent of steel production, is expected to increase 6 percent in 2015 and another 6 percent in 2016, Harrison said.
Automotive demand, which accounts for about a quarter of steel consumption, also should continue to help the industry, Tran added.
With experts saying they could not speculate on Steelton's future, it's hard to say what a sale could mean for the local plant.
“However, I can say that there have been as many as 12,000 announced layoffs in the past year in the steel industry,” Harrison said, “and they are largely due to the flood of unfair foreign imports coming in at record levels.”
Kim, meanwhile, expressed cautious optimism about the interest of potential buyers.
“I'm excited about the prospect, I really am,” she said. “It's just so important for us to have the right buyer. You want someone who's committed.”
Over on the West Shore, Ritner's Freund expressed a similar sentiment.
“It really depends on who buys it,” she said. “The most detrimental would be for it to remain vacant.”