Nerds of Steel

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.

MMK’s planned steel mill in southern Ohio just received final permits from the Ohio EPA. You will be able to see the permits (though they’re not yet online) at the Ohio EPA site. A number of other application documents were linked to from this post back in February.

Below is a presentation I made at Steel Business Briefing’s North American steel conference held in Chicago March 2008. The topic of my panel was “American Steel: Land of Opportunity”. My presentation deals with the recent acquisition of steel assets in North America by companies headquartered outside the region and argues that the North American steel industry is stronger because of the involvement of global consolidators. The presentation also argues that the restructured North American steel industry is a model for other regions, all of which are or will eventually experience a similar restructuring of ownership and thereby bring about a more sustainable global industry structure.

A good source of iron ore statistics are reports published by the UNCTAD secretariat (United Nations Conference on Trade and Development) in cooperation with the Raw Materials Group, based in Sweden. You can view all the available publications on the Raw Materials Group website, but you can read the full World Investment Report 2007 by downloading different chapters on the UNCTAD website. This report doesn’t provide all the iron ore statistics you may be looking for , but it does examine trends in commodity pricing and the future of the current “commodity price boom”.

Below is a presentation I made recently at the SMA Board of Directors meeting in Florida. It deals with the issue of organizational size in today’s steel industry and asks some questions (more than providing any answers) about how the structure of steel organizations will change as they deal with much different dimensions of scale and scope. It also contains some provocative “Zipfian” statistical analysis of industry structure that raises questions as to how consolidation might proceed both in the US and globally.

In the end, there is no argument for or against big or small organizations here. Mittal after all was producing less than 500KT 20 years ago. But in the future, our industry will be populated by much larger organizations than it is today. Organizational innovation is going to be vital to the strategic health of any company of any size that wants to remain successful and independent. Click on the presentation’s ‘Menu’ button (lower right) to see a larger view.