News: Analysis & Commentary: INDUSTRIES
THE BRIDGES STEEL IS BUILDING
Minimills head for cheap power and growth overseas
You'd think Nucor Chief Executive John P. Correnti would have plenty to keep him busy at home. His steel company is growing furiously, with new minimills opening every year or two. Indeed, he's pushing so hard that Nucor is almost certain to surpass USX Corp. as the largest steel company in the U.S. before the end of the decade.
So why did the busy executive journey in February to the blistering hinterlands of northeastern Brazil and tour textile factories? Correnti was scouting Nucor Corp.'s next generation of steelworkers. Turns out that, in addition to keeping up its expansion in the U.S., the Charlotte (N.C.) steelmaker feels the need to go abroad--to where the really big growth lies. Steel demand in China, India, and Brazil together is expected to grow 10% annually in coming years, three times the U.S. rate.
That growth is a lure for Correnti, and he's not alone. In less than a decade, minimills such as those operated by the likes of Nucor and LTV Corp. have swept across America's steel belt. Now the same players are gearing up to take their minimill formula overseas.
CROWDED MARKET. Even as LTV starts up its first minimill in Alabama with partners British Steel PLC and Sumitomo Corp., it is discussing plans to build other mills in Europe and Asia. Another likely global player is North Star Steel Co., a division of Cargill Inc., which is in an Ohio joint venture with Broken Hill Proprietary Co. that could be a model for foreign plants. "This technology is transferable," says David L. Stickler, a steel- industry investment banker at Cleveland's McDonald & Co. Securities Inc. "All you need is iron, cheap electricity, and 300 workers."
So far, Nucor has announced the most ambitious plan--a project with Brazil's Companhia SiderPound rgica Nacional (CSN) to build a $700 million steel mill in the state of Cear. Correnti calls it "a chance to whet our appetite in the international market, and to make money." Others are eager to follow suit. "If the Brazilians had offered a year or two from now, when we're a little better established, I probably would have jumped at it," says Keith Busse, chairman and CEO of Steel Dynamics Inc., a fast-growing young minimill in Butler, Ind.
This foreign push is new for the steel industry. While aluminum companies spread throughout the world, most American steelmakers focused on defending their home turf. But with the domestic market now crowded with new minimills, steel's hitting the road.
In Brazil, Nucor and its partner figure to land a lucrative tax and electricity deal from a state desperate for industry. Then they'll hire 300 or 400 local farmers and textile workers, give them a crash course in steelmaking, and put them at the controls of state-of-the-art furnaces, casters, and rolling mills. From its ocean port, the mill will be able to ship coils south to Brazil's industrial ports or to export them to Europe or the U.S. Correnti says the marketing plan is still under a feasibility study, "but we're definitely rounding second base."
Analysts expect the minimills to spread first into growth markets in South America and Asia. Already, Nucor is helping train steelworkers for a new mill in Thailand. LTV and its partners are eyeing the same territory. Other minimills are in the works for China and India. Meanwhile, minimills are cutting deals abroad to buy and sell their raw materials. Nucor is shipping iron from Brazil and processing it in Trinidad. And Birmingham Steel Corp. is setting up a joint venture with Japan's Mitsui & Co. to export 700,000 tons a year of scrap to Asia from California. "We're dipping a toe into the international waters," says Birmingham Chairman Robert A. Garvey.
They'd better hurry. The new low-cost minimill technology makes it easier for competitors to jump in. The costs of building a conventional mill shielded the steel giants from new rivals for decades. Now that mills are cheap, steelmakers know that no matter how many borders they cross, they won't be alone for long.By Stephen Baker in PittsburghReturn to top