Below is a presentation I made to the Steel Manufacturers Association’s annual members meeting in Washington, DC on May 20, 2008. The title was “Black Swans in the Steel Industry: What do They Mean?” (Of course the title is taken from the best selling book by Nassim Nicholas Taleb.) My presentation identifies what I believe are a few very significant recent developments in the industry and argues that these black swan events are manifestations of the seismic and systemic changes the industry is undergoing. Of course once you’ve seen a black swan, your perception of swans is forever changed.
Licenses for long products imports into the US increased from 257,000 short tons in March to 462,000 short tons in April, reaching their highest levels since July 2007. Rebar licenses increased from 77,000 tons in March to 189,000 tons in April, mainly due to Turkey, which didn’t apply for any licenses in March but applied for about 95,000 tons in April. Wire rod licenses increased from 78,000 tons in March to 159,000 tons in April; about 35,000 tons due to an increase in licenses from Turkey and the remainder from other countries such as Germany and Brazil. The spreadsheet below will be updated with March actuals as soon as they are available.
ArcelorMittal reported its Q1 2008 earnings today achieving $157/ton of EBITDA for the quarter, the same rate as Q4 2007. You can compare the EBITDA result against a number of other steel producers on the Nerds of Steel earnings spreadsheet. Or you can see the full set of company reports including video and audio of the webcast on the ArcelorMittal site.
Severstal recently closed its acquisition of the Sparrow’s Point mill owned by ArcelorMittal. The price paid by Severstal, $810 million, works out to just over $200 per ton of installed steel making capacity. This is well below what assets have been selling for in North America. As can be seen in the graph below, the acquisition cost per ton paid for steel making capacity has risen from around $200 per ton when the consolidation process started, to over $1,000 per ton in the last couple years.
Of course, Sparrows Point was not operating at capacity and generated only $25 million of EBITDA in 2007. So we’ll have to wait and see whether or not this was a good buy by Severstal. On the surface, however, $200 per ton for a fully integrated plant on deep water seems like a bargain.
Gerdau SA announced Q1 2008 earnings yesterday. EBITDA per ton was $203, up from an average of $170 in 2007. This is the best EBITDA per ton so far among the companies tracked in the Nerds of Steel earnings spreadsheet.
