Optima Sees Fracking Increasing Specialty Steel Demand
Demand for specialty-steel products used in hydraulic fracking is poised to continue rising next year as energy companies step up exploration and production in shale-rock formations, Optima Specialty Steel Inc. said.
Optima’s sales of steel tubing to natural gas producers have climbed 15 percent in 2012, and a similar increase is forecast for 2013, said Kevin Stevick, chief executive officer of the closely held company. Growth at the Miami-based company is coming from fracking in states including Ohio, West Virginia, Pennsylvania and New York, he said.
“Those regions are really building,” Stevick said in a Nov. 21 telephone interview. “We don’t see that slowing down.”
Optima competes with companies including ArcelorMittal (MT), Nucor Corp. (NUE) and Republic Steel Corp. in specialty steel for energy and auto markets. Demand for special-bar quality steel, which is used in some specialty-steel products, has increased 9 percent this year, compared with 7.5 percent in the overall steel market, Ken Hoffman, an analyst for Bloomberg Industries, said yesterday.
U.S. onshore gas production has risen year-over-year since 2009, according to data compiled by Bloomberg Industries.
“Overall, the prognosis for gas rigs continues to be positive, driven by shale-gas drilling,” Kuni Chen, an analyst for Stamford, Connecticut-based CRT Capital Group LLC, said yesterday in a telephone interview.
Optima said Nov. 19 it agreed to acquire KES Acquisition Co., which owns a mill producing special-bar quality steel. It will pay New York-based ALJ Regional Holdings Inc. (ALJJ) $112.5 million for KES. Optima’s Niagara Lasalle Corp. unit, which makes cold finished steel bars for auto markets, is KES’s largest customer, Stevick said.
The acquisition will increase Optima’s annual sales to about $700 million and improve its ability to fill orders quickly, the CEO said. The company’s mills have waiting times as long as 12 months, he said.
Two of the company’s major customers that drill for gas increased orders by 20 percent since 2011, Stevick said, declining to name them for competitive reasons.
Optima operates in a niche market for specialty steel that comprises about 2 percent to 3 percent of the total steel market, he said.
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