Steel Next With the Tin Cup?

It would seem everyone is lining up for a state bailout nowadays. First it was the banks, mortgage lenders and insurance companies, now its the auto industry. What’s next, steel? Well it looks like it has already started. Corus the Anglo-Dutch steel producer owned by Tata of India is lobbying the UK government and EEC for state aid in return for keeping workers on garden leave rather than making them redundant. According to a report in the FT Corus  is hoping the tax payer will foot 70% of the bill.

Meanwhile Roman Abramovich, one of Russia’s richest men, owner of a small navy of mega yachts, countless homes and oh yes 42% of Evraz Holdings, Russia’s largest steelmaker, has secured $1.8bn in state aid. Apparently Roman (or at least his steel company) is facing debt problems following a heady acquisition and expansion spree over the last few years. Unfortunately for Mr Abramovich, his shareholdings have been on the slide and  are now worth a third of the original $3.2bn he invested. Never mind. Regardless of what the steel makers say, Evraz is probably still turning a healthy profit on a unit basis. The problem, as with all steel makers, is that demand is way down and they are all struggling to match capacity to demand.

Here in the US, just weeks after posting record profits, many steel makers are facing dwindling order books as construction, autos and industrial equipment sales all slide. It could be two years before the market comes back according to reports in the Associated Press. Meanwhile, revenues could fall by 35-40% as prices reportedly dropped from $1080/ton in July, to $785/ton last month and are still going down. Mind you so are raw material costs – steel scrap prices having reached a peak of $550/ton in July and are about $90/ton now which means mills are still making money on a per unit basis. The problems arise if they don’t sell enough units to cover their fixed costs. Still steel consumers and tax payers will not be keen seeing their hard earned dollars going to support an industry that was making record profits just a few months ago. Any firm that held onto its profits should be able to weather the current storm without needing tax payers’ money ” don’t think that won’t stop them asking though!

–Stuart Burns

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