Nov. 4 (Bloomberg) -- Esmark Inc. is poised to reenter the U.S. steel industry little more than a year after taking advantage of record prices for the metal to sell its business to Russia’s OAO Severstal for about $775 million.

Esmark is starting to buy service centers that are having trouble getting financing, rebuilding the cold-rolled steel distribution business that the Chicago-based company sold to Severstal, Vice Chairman Craig Bouchard said in an interview. Closely held Esmark has submitted a letter of intent and the first deal may close as soon as Nov. 14, he said, declining to identify the company because of a non-disclosure agreement.

The time is right for a company like Esmark, bolstered with cash from the Severstal sale, to start the consolidation, Bouchard said. U.S. steel production dropped 44 percent this year through Oct. 31, and the industry is at 63 percent of capacity, the American Iron and Steel Institute says.

“I would view right now, the next six months just to pick a rough number, as maybe one of the greatest buying opportunities that has existed in the manufacturing sector in the history of the United States,” Bouchard, 55, said in Chicago yesterday. “It’s one of those times when, with a little bit of intelligence and a little bit of capital, it’s almost impossible to go wrong because everything is cheap.”

Bouchard started Esmark in 2003 with his brother James Bouchard, who is chairman, and an investment of $2.4 million. They built Esmark into the fourth-largest U.S. steelmaker through nine acquisitions and received a listing on the Nasdaq Stock Market after the hostile takeover of Wheeling-Pittsburgh Steel Corp. in 2006.

Bouchards Build Esmark

From 2003 to 2008, the Bouchards made acquisitions that expanded Esmark’s sales from $4 million to $3 billion and increased its employee base from 22 to 3,600. They started consolidating steel service centers in 2003 with the purchase of East Chicago, Indiana-based Electric Coating Technologies Inc. and Chicago Heights, Illinois-based Sun Steel.

Esmark retained its name and became closely held after the steel assets were sold to Severstal in August 2008. Craig Bouchard detailed Esmark’s growth and sale in a 2009 book called “America for Sale,” co-written with James V. Koch.

A non-compete clause expired in August and the brothers are again looking for steel distribution assets to add to Esmark’s holdings in oil and gas exploration, aviation, real estate and sports management, Craig Bouchard said.

Recession Hurts Prices

The Bouchards sold to Severstal just before the global recession sapped demand for steel, hurting prices. The spot- market price for hot-rolled sheet, the benchmark product used in cars and appliances, fell from a record $1,068 a ton in July 2008 to $380 in June, the lowest since January 2004. Prices since recovered to $535 a ton in October, according to Purchasing magazine.

Esmark will repeat its initial strategy of buying the service centers that cut and shape the metal into parts and will not venture back into steel production, Bouchard said.

“We will stick to our knitting,” he said. “We are not going to go back into the mill business. The timing of that is over. Consolidation there has only left a few mills out there, and they are all too big for us.”

Steel demand in the U.S. has dropped from 120 million tons a year to about 100 million tons a year and consumption may remain stuck at that level over the next three years as the U.S. economy makes “a very slow recovery,” Bouchard said. Demand for steel has been “crushed,” he said.

Conditions in the steel service center industry are now very similar to when Esmark began its initial string of acquisitions in 2003 and “quite a number” of companies are for sale right now, Bouchard said.

“Service centers are having trouble financing themselves; prices are very weak,” Bouchard said. “Our original purchases on the service center side were all done at distressed prices. That’s in abundance right now.”

To contact the reporter on this story: Edmond Lococo in Boston at elococo@bloomberg.net.

Last Updated: November 4, 2009 13:35 EST