US Steel Firm Scrambles for Raw Materials
US Steel's steelmaking operations in Slovakia and Serbia in Eastern Europe are scrambling to find enough coke and iron ore to maintain last year's production levels as supply of these commodities remains tight, US Steel spokesman John Armstrong said.
Armstrong could not quantify how much production was being lost because of the supply situation but the company's financial results for the second quarter show that "capacity utilization" at US Steel Europe was 79.5 percent, compared to 96.5 percent in second quarter 2003.
US Steel Kosice, in eastern Slovakia near the Ukraine border, has production capacity of 5 million tons per year; the Serbian operation, US Steel Balkan (formerly Sartid), in northern Serbia, has production capacity of 2.4 million tons per year.
Armstrong said the company has been working on the issue for several months.
"We are looking to secure long-term arrangements in Europe that will stabilize the price and availability of coke and iron ore," Armstrong said.
"We have appointed [in mid-May] a person who's total responsibility now is raw materials [Karl Csensich]; that's how important this issue is."
Csensich, based in the US, has responsibility for the company's US and European operations. In the US, US Steel's force majeure on coke deliveries remains in effect as its supply of coal remains limited, Armstrong said.
It declared force majeure last December following the closure of the Pinnacle coal mine in West Virginia, its main coal supplier. US Steel plans to stop selling coke in 2006, after all of its current contracts expire, to free itself from being at the mercy of the coke market when prices surge as they have this year.
It produces coke at its Clairton Works and Gary Works operations and current customers include Weirton Steel, which shut a blast furnace down early this year on a coke shortage.
Despite the supply situation, Merrill Lynch painted a rosy picture for US Steel, which was replaced this year as the largest US integrated steel producer by International Steel Group, which has been acquiring old-line US steel mills, including LTV Steel and Bethlehem Steel, for the last three years. ISG's US production capacity is now over 20 million tons/year and US Steel's is just under 20-mil tons/year.
In its report, Merrill Lynch raised its 2005 earnings/share estimate for US Steel to $8.25/share from $4.55/share "due mainly to the outlook for continued strong steel prices and anticipated lower coke costs starting" in the fourth quarter of 2004.
It pointed out that, "Other raw materials costs (energy and steel scrap) remain high, but US Steel continues to move prices in step with raw material cost increases in the US. US Steel is well-protected with respect to its iron ore requirements in the US, having its own mines with labor contracts negotiated last year as part of the overall ag reement when it acquired National Steel."
|
