Nucor Looks to Even the Playing Field

Nucor Steel is the second largest steel company in the U.S. Since forming, the company has led a charge as the electric arc furnace steel mini-mill sector continues to gain marketshare from integrated steel mills.

However, acute problems in the steel industry have hammered both mini-mills as well as the integrated steel industries. In a two-part interview, Dan DiMicco, president and CEO of Nucor, Charlotte, N.C., talks about the dynamics of the steel industry, and steps that Nucor is taking to grow during these difficult times.

Q. With steel industry capacity going off line, do you see some of these shuttered facilities restarting when steel markets improve?

A. That is literally the $100 million question. I believe you will see a mix. I believe you will see some facilities remain shuttered, and I believe you will see some restarted.What will determine that will obviously be the marketplace number one. And number two will be the equipment available in those facilities. How recent and up to date is the technology? What is the cost to get it updated? Really, we have a major issue in our industry globally.

Worldwide, we have global overcapacity that is forcing situations to exist where really there are no highly profitable steel companies. And when I mean no highly profitable steel companies, I mean companies consistently earning their cost of capital at a minimum. Nucor may be one of the few. There may be one or two more. It is a major issue worldwide, not just in the United States.

Should some of this capacity stay off line? Absolutely. The more the better. But there will be some facilities out there that have been constructed the last five to ten years that have the latest technology that probably should be restarted at some time at the expense of operations that have not proven themselves to have the best technology. Sometimes facilities shut down not because of technologies but because of the business acumen of the management, how they ran their business; how their labor and management relations were. Did they take care of their customers? And so on.

There are a variety of reasons for the shut down. I believe the facilities with the latest technologies will come back on stream at least in the United States.

Q. Do you see significant consolidation coming into the United States?

A. Bigger isn’t always better. Corus (a combination of British Steel and Dutch steelmaker Hoogovens)would tell you that right now. They are going through a lot of pains associated with being bigger, although it seems like they are getting a handle on things. As far as consolidation, what we are seeing is worldwide there is an overcapacity of, depending on whom you listen to, 150 million to 300 million tons. And all that overcapacity is outside North America. North American steel producers cannot at the present time produce all the steel that is needed in our marketplace.  The reason why is that quite honestly the bulk of the industry has not been able to earn its cost of capital to justify our reinvestment.

We have 30-40 million tonsof dumped steel coming into the United States from overseas because of the overcapacity that exists. At the prices you can’t justify making further investments, which is really sad because it ought to be a great opportunity forcompanies like Nucor to continue to grow with the latest technologies, to be the most environmentally friendly, the most energy efficient, the most productive. But because of market conditions you aren’t able to now.

The consolidation globally is taking place ahead of the United States, only in the sense that there are these mergers going on. There are some rationalizations coming from that. But they have situations over there that have allowed them to do that.

Principally the antitrust laws overseas, whether in Europe or Asia, are nowhere near as stringent as the United States. The United States has the most stringent antitrust laws by far. And so bringing companies together to form these large steel companies. It’s very difficult for those things to happen in the United States. It would take very special circumstances to allow that to happen. Worldwide the industry is extremely fragmented.

I support 110 percent what people in other parts of the country are doing to consolidate and hopefully to rationalize permanently because there is this excess capacity, all outside the United States. Be it Russia or Eastern Europe, or Brazil or Japan. All these places have much more capacity than they can consume internally. And thetechnology they utilize and the productivity and efficiencies they run at are no better than what we have in the United States at most of our best operations, whether they are at Nucor or even at the integrated plants that have modernized over the years.

Q. With the present administration, is moreconsolidation possible?

A. We are hopeful that the administration will work to allow that to happen because this is a global issue. Our antitrust laws are important for domestic issues. But when you have a global marketplace, you need to allow the U.S. producers to be able to compete and consolidation will be an important part of that process. But also what our government needs to do is create a fair and level playing field for steel. I won’t comment on other products, but it is way out of whack for steel.As evidence by the fact that virtually every time we file a trade suit we win.

Q. Nucor was a party to a suit just recently for hot rolled steel.

A. Preliminary findings on a variety of steel products. Nucor is a relative newcomer into this trade issue. But we did it first on beams at our Nucor Yamato joint venture working with Chaparral and Northwestern and won handily. The duties were assessed against Japan and Korea. Now we are joining with other mini-mills and integrated mills with a hot-banded sheet suit, which the preliminary findings are very much in our favor. My point here is that every time we say “Hey they are breaking our trade laws,” they are dumping illegally in our country.

We go to the courts; we put the facts on the table. Forget about the rhetoric you here from the EU and Japan. Of course they are going to say the things that they do about marketplace. They survive by shipping their own incremental tonnage into our country and North America. They would be foolish not to fight. We understand it. It doesn’t make them right.

We find that when we have the facts presented and work through legal challenges with the ITC (International Trade Commission) and the Department of Commerce, we are proven to be right and they are proven to be dumping illegally into our country and North America.

What we need our government to do is put in place a trade law system that is proactive and not reactive. We know the process when it starts. We know what it looks like. You don’t necessarily need to have it stare you in the face. This is the process that is initiating. The prices are going down, the volumes are going up, based upon imported numbers.  Hey, we are headed toward the same direction. Our government needs to put in place an early warning system and needs to allow the process to happen more rapidly. All this is WTO consistent.

Canada has a system now.They have an early warning system through import licenses they issue. Also, it doesn’t take them more than six months for a ruling. It takes us a year and a half, sometimes two years before things are taken care of. If our government would do that, we aren’t asking for subsidies, we aren’t asking for handouts, we aren’t asking for loan guarantees. You put together a level playing field for us and take away their ability to dump their countries’ products, we will be able to compete worldwide and it will force the consolidation and rationalization (the shutting down of capacity) of facilities worldwide to get rid of the excess capacity because they won’t have anywhere to send it. Right now the Europeans and Japanese have these under-the-table agreements that in this country would be illegal, not to dump in each other’s backyard. We are fearful that if we would do something like that . . .

Excess capacity is coming in from Russia, Korea and [other parts of] Europe. Russia would have nowhere to move their material except their own markets, and they don’t want to do that. So they fight like hell. It’s understandable, but it doesn’t make it right. And doesn’t make it fair, and it doesn’t make it legal. So this is a major issue for our government. This is where they should step in. This is a proper role of government -- to create a fair and level playing field. We aren’t asking for any handouts, even though the Europeans have all the legacy costs forgiven by the government and paid for by the taxpayers where. They have that advantage. We can still deal with that if we have a level playing field. We are the most efficient market in the world.

Q. Are their positive signs out there in the NorthAmerican industry?

A. I think there are signs.You have to say the industry and the manufacturing sector is in a recession. Take a look at profits of manufacturing, including high-tech manufacturing. Not just basic industries like steel. Earnings are terrible. [But] there are some improvements in the economy. We see construction has picked up a little bit.  We see consumer confidence and we see the index of purchasing managers starting to turn a little bit. We have the Federal Reserve doing things to turn the economy around. But make no doubt about it, we are in a recession in manufacturing. We are hopeful there will be a turnaround in the second half. How much better? I was reading the Conference Board on the GDP and they are predicting 2.6 for the first quarter and we came in at 2. They are showing  5 percent, 3-5 percent for the year. So I certainly hope their predictions are accurate.

The following is Part I of a two-part question and answer interview with the CEO of Nucor Steel. Thesecond half of the article will appear Monday, May 28^th.