Strong As Steel: Soaring Prices Spark a Steel Renaissance in Minnesota

By Jennifer Bjorhus, Pioneer Press, St. Paul, Minn.

Jun. 22–It takes roughly four hours for workers to shred a flattened Dodge Ram pickup, melt it and roll the billets into steel rods at Gerdau Ameristeel Corp.’s minimill in St. Paul. It’s an ear-splitting process of old industrial might — and music to Jerry Goodwald’s ears.

His company’s stock is hot, production is up and steel prices are soaring.

‘We haven’t seen these kind of numbers in our history,’ says Goodwald, the minimill’s vice president. ‘Life is good.’

While the country struggles through a stealth recession and shocks at the fuel pump, steel is enjoying remarkable global demand driven by the BRIC countries (Brazil, Russia, India and China) and heavy construction in the Middle East in such cities as Dubai.

Meanwhile, supplies of raw materials used to make steel are tight, and a weak greenback has kept steel imports out of the U.S. and stoked exports. Steel prices, which have doubled in less than five years, have been spiking since January. It all has U.S. steelmakers flexing new muscle — a remarkable comeback for an industry that was on its knees five years ago.

The same dynamics have sparked the renaissance on Minnesota’s Iron Range. India’s Essar Steel Holdings Inc. is slated to break ground this summer on a $1.6 billion ore-to-steel plant near Nashwauk in Itasca County. Essar expects to start casting slabs in about five years.

In the Twin Cities, steel’s boom looks like a lot of squashed cars and rebar — and lately, an extra 30

percent tacked onto the union paychecks issued each Thursday.

“We can’t complain whatsoever,” said Ben Hallas, president of the United Steelworkers of America Local 7236 that represents most of Gerdau’s 400 or so employees in St. Paul.

Gerdau’s long brown buildings emblazoned with oversized digits sit across the Mississippi from South St. Paul, where they’ve been for years, known to most as North Star Steel. Gerdau Ameristeel, the publicly traded company majority-owned by Brazil steel giant Gerdau Group, bought North Star Steel from Cargill Inc. in 2004, retaining its union work force.

It’s a minimill, which means it uses electric arc furnaces to recycle scrap into steel, unlike large integrated mills that produce virgin steel from raw materials generally fired in blast furnaces.

St. Paul’s is one of 19 minimills Gerdau Ameristeel operates in North America, and it is the only steel producer in Minnesota and the Dakotas. It supplies small and mid-sized fabricators in a 500-mile radius, and it also happens to be the main supplier to the Interstate 35W bridge being rebuilt in Minneapolis.

The house specialty is rebar, the long reinforcing rods used in road building and construction, as well as bars for other

industries, proprietary construction products and brown bars that form the anchor bolts of cell phone towers, for instance.

Gerdau doesn’t publicly break out financials by mill. Goodwald will say only that the price of U.S. rebar was $845 per net ton in May — 32 percent higher than a year ago. Imported rebar, by contrast, rose 50 percent to a more expensive $875 per net ton.

“I’m looking pretty good these days,” Goodwald quipped.

Rising prices coupled with Gerdau’s aggressive acquisitions have both saddled the company with heavy debt and sucked cash, all the while pushing it to record profits. In the first quarter, Gerdau Ameristeel’s profits rose 22 percent to $163 million on a 51 percent increase in sales, although those results include its acquisition last fall of Midlothian, Texas-based Chaparral Steel Co.

Rocketing prices are hardly great news for steel buyers. It’s a problem for the metalworking market, according to Tom Stundza, who issues Purchasing Magazine’s Steel Flash Report. Stundza characterizes some of the spot-buying steel markets as “a vipers’ pit.”

Dan Yerks, district manager for Ambassador Steel Corp.’s Minneapolis office, is one buyer who says he can’t just pass rising steel and transportation costs on to the builders he works for. Yerks buys his rebar from Gerdau’s competitor, Nucor, in Illinois, and supplies steel for the new Twins stadium.

“At this point, we’re being clobbered by it,” Yerks said.

Dave Semerad, head of Associated General Contractors of Minnesota, said sky-scraping steel prices are squeezing his members but have not displaced fuel as the top concern.

How long will steel’s wings last? Peter Fish, owner of MEPS (International) Ltd., a leading steel consultancy in Sheffield, U.K., said current high prices will likely come down about 10 percent over the next six to nine months but that steel will remain elevated for the next few years because of tight supplies of inputs such as ore and scrap.

“We’re not going back to the 2007 raw-material cost levels,” Fish said in an interview.

Other analysts say the elevated prices simply aren’t sustainable. The price tags on raw materials just don’t justify them, and buyers will soon push back.

That’s Semerad’s concern.

“Steel is one of a number of construction components where the prices have increased at least two if not three times what the consumer price index has increased,” Semerad said. “At what point do we say, ‘OK, we’ve got these increases in all of these different building materials … we stop building’?”

At least in Minnesota, he said, they haven’t reached that point yet.

Jennifer Bjorhus can be reached at 651-228-2146.

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Copyright (c) 2008, Pioneer Press, St. Paul, Minn.

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