Ferrous Department

Tough Times Predicted for Steel Makers

“Survival” may have been a most appropriate word within the title of the “Steel Survival Strategies XIII” event held recently in New York City. The event, sponsored by American Metal Market and PaineWebber, featured remarks from a number of steel (and scrap) industry executives and analysts. Many of them foresee it being difficult for steel makers to sustain profits in the next several quarters.

“We are, starting in 1998, going to see a death spiral that is going to eliminate marginal producers,” declared PaineWebber managing director Peter F. Marcus. Despite the harshness of the death spiral phrasing, Marcus added, “we do not see [corporate] bankruptcies. Basically, we’re going to see more plants close down entirely, and other plants will have cutbacks in production.”

SCRAP SHORTAGE REVISITED

The gloomy forecast for the steel industry may not foreshadow similar troubles for the ferrous scrap segment for a number of reasons.

Four years ago, Marcus and the World Steel Dynamics subsidiary he directs came out with a forecast that predicted a shortage of ferrous scrap and other metallics used in steel making melts. Marcus and Karlis M. Kirsis, PaineWebber first vice president, reiterated that forecast at this year’s event.

“Basically we now are arriving at the same conclusion with a much higher degree of confidence,” declared Marcus of the scrap shortage. “We believe the impact on your businesses will be greater and sooner than you imagine,” he told the assembled steel executives. “We need roughly 350 million tons of metallics,” to make up the shortfall, said Marcus. “Scrap is gold.”

While such a forecast might initially seem to point to hiked prices for ferrous scrap, there is a growing scrap substitute industry creating a counterbalance. In addition to traditional direct reduced iron, advances in the use of rotary hearth furnaces and other hot iron systems may forestall any spike in ferrous scrap prices when the “shortage” hits. “I personally believe that the continuing development of low-cost iron units for use in an electric arc furnace will pace the future,” said Keith F. Busse, president and CEO of Steel Dynamics Inc., Butler, Ind.