After sale of three steel mills, less is more at Severstal unit: CEO
New York (Platts)--1Apr2011/616 pm EDT/2216 GMT
Less than 24 hours after concluding a $1.2 billion sale of three steel
mills to New York-based Renco Group, Severstal North America's CEO Sergei
Kuznetsov sounded both excited and relieved Friday.
"We're smaller in size, capacity-wise," he said in an interview, "but
we'll soon be shipping at a rate of 6 million tons per year with just 2,100
employees -- and that makes us one of the most efficient producers in the
After divesting its Warren, Ohio; Wheeling, West Virginia; and Sparrows
Point, Maryland, steel plants, the Russian-owned flat-rolled steelmaker
dropped from the US' fourth-largest flat-rolled steelmaker with about 13
million st/year of capacity to the sixth biggest.
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It retained its electric-furnace based mini-mill in Columbus,
Mississippi, and its automotive-market stronghold mill in Dearborn, Michigan,
also its US headquarters. "We're a new company today," Kuznetsov beamed.
Both of those mills are operating at full capacity, according to
Kuznetsov, but he was even more thrilled Friday about what's coming -- as he
took time from a one-day vacation to speak with Platts.
Severstal's development of the Dearborn plant includes a $740 million
modernization program that consists of a new cold rolling complex and
galvanizing line targeting automotive customers and other original equipment
The $550 million expansion project at the Columbus plant will increase
annual steel production to 3.4 million st and double the plant's galvanizing
After the capital improvements, combined annual steelmaking capacity will
reach 6.0 million st, cold rolling capacity at Dearborn and Columbus will
increase to 3.6 million st, and galvanizing capacity will be 2.4 million st.
Although the company's respected president of operations at Columbus --
Jim Hrusovsky -- resigned earlier this week, Kuznetsov emphasized that SNA has
accelerated the timetable for completing most of its improvements and that
these will be finished on schedule. The second electric furnace at Columbus,
he said, will start in June.
"Jim Hrusovsky was a very strong member of the team. It was his own
decision to pursue other opportunities. That's all I can say," he said.
Kuznetsov said the two mills complement each other nicely. He said
Dearborn typically sells 70% of its output on a contract basis given its
greater reliance on automotive customers and 30% to the spot market, while
Columbus is "more 70% spot-market, 30% contract sales," when formula-based
pricing is included in the spot segment.
As far as end-markets go, Kuznetsov said the new SNA will probably ship
"30-35% to automotive, 15-25% to pipe and tube manufacturers," and the
remainder to service centers/distributors, appliance and other manufacturing.
"Our order intake from automotive [so far in 2011] is much greater than
we anticipated," he added. "Dearborn is completely booked. We're less exposed
now than we used to be and we're planning to grow our automotive market share,
but auto and pipe/tube are our two biggest markets," Kuznetsov said.
SECURE RAW MATERIALS SUPPLY
The Severstal CEO said it has a long-term supply agreement with
Ohio-based Cliffs Natural Resources for the supply of 100% of its iron ore
needs to feed the Dearborn blast furnace.
The smaller, "B" blast furnace at Dearborn was damaged in an accident a
couple of years ago, but Kuznetsov said it could be rebuilt "if we decide to
He noted that the contracts with Cliffs are formula-based and can
fluctuate, but he stopped short of revealing pricing specifics for
confidentiality reasons. "All I'll say is that Platts [IODEX] is widely used
and recognized as an indicator," Kuznetsov said.
Dearborn is also "fully covered in coke," due the retention of the 50%
ownership of Mountain State Carbon's Follansbee, West Virginia, plant.
At the scrap-based Columbus electric furnace, Kuznetsov said the typical
charge is 80% scrap and 20% pig iron. "We're looking at developing our
upstream scrap sourcing and would like to make some investments via joint
ventures or off-take agreements," but probably not by acquiring a major scrap
dealer, he added. "We'd just like to better control some of our scrap
collection and supply."
CURRENT FLAT-ROLLED MARKET IS STABLE IN US
Kuznetsov maintained that current flat-rolled spot pricing is stable, but
has not weakened. "It's stabilized recently, but our order books are still
strong. Some people [buyers] think they should sit tight on making purchases,
but that's normal," he said.
He said SNA is expecting strong orders through June, despite the fact
that buyers are "sitting back" a little more and the tone of the market is
slightly more "tentative" in recent days in anticipation of new supply. "But
I'm optimistic and positive about the outlook, and don't see [prices] changing
that much, quite frankly," he added.
Meanwhile, Kuznetsov's opinion on the Platts midpoint spot-price
assessment of US-made hot-rolled coil at $870/st ex-works Indiana (ex-works
Indiana for a 1,000 st order being delivered in May) was that of a true
steelmaker's CEO. Its "maybe a little higher than that," he said.
--Joe Innace, email@example.com