Should the US Government Allow a Chinese Steel Mill to Invest in Steel Technology They ... - 1 views
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[Ed. Note According to a May 24 AMM post, the investment will also go toward building four re-bar plants (not one) and one flat rolled product mini-mill, all based in the US)
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Dive under the surface a bit, and the investment by Anshan raises serious concerns not only among steel producers but also for any US manufacturing organization in general.
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Let’s examine rebar consumption. First, we’ll examine apparent consumption (apparent consumption is net domestic consumption plus imports) and then we’ll calculate capacity utilization: 2007 – 9.824m short tons 2008 – 8.374 m short tons 2009 – 5.359 m short tons 2010 – based on current 2010 run rates, the industry will ship 5.1m short tons If you compare the peak of the market (2007) with today, the US rebar industry operates at a 62% capacity utilization rate; the overall steel industry operates at a 72.9% capacity utilization rate as of June 26, 2010. Two rebar facilities are currently shut down, one in New Jersey and one in Oklahoma. Many of the other facilities that run both mixed merchant/rebar mills are also running at less than capacity If we were to develop a map of the United States and mark US rebar plant locations by geography (assuming each mill can ship up to a 300 mile
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First, the last time the US steel market was at 120m tons of consumption was in 2006. The 2009 estimated steel consumption was 59m tons, data courtesy of the USGS. Prior to 2006, the only other year in which apparent steel consumption met or exceeded 120m tons was in 2005. The rest of this past decade, steel consumption hovered in the lower 100m ton range (e.g. less than 110m tons)
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we’d see a glut of capacity in the US Southeast. The only argument one could make for building a rebar mill may be to move it somewhere out West, but even that may be a tenuous argument
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And we all know that US construction markets (the biggest application for rebar products) remain in troubled waters. Take a look at annual expenditures for both commercial and residential construction here. Incidentally, 2010 data is tracking 8% below 2009 numbers. In other words, rebar capacity utilization rates are even less than overall steel industry capacity utilization rates
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We can’t see the business case to add rebar capacity in the US. Clearly the PE firm involved in Steel Development Corp is banking on the management team.
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If our politicians think this is about jobs, we can assure them that this may be a short term win (in terms of new jobs in Mississippi) – but they will result in a net loss for US manufacturing, as the current US domestic rebar industry has already laid off thousands of workers. And by giving this technology to the Chinese, well, we know what that will mean long term….