The real story behind the cancellation of the Mon Valley project by US Steel
Most mainstream press coverage US Steel’s The cancellation of the giant Mon Valley plant modernization project focuses on several issues, from the delay authorization to US Steel declaring that a competing steelmaker plans to build a facility in another state.
The project, a planned $ 1.5 billion investment in Mon Valley work sites, would have added an endless casting and rolling facility to Edgar Thomson’s plant. In addition, it would have created a cogeneration facility at its Clairton plant.
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Mon Valley project details
The combined investments would have enabled US Steel to produce thin gauge HRCs at CRC gauges.
Purchasing organizations would have the option of paying less per tonne for this material than the cold rolled coil alternative. In other words, the price of steel in that line would likely have dropped somewhere between hot-rolled and cold-rolled prices.
Today only Nucor and Steel dynamics have that kind of ability.
In theory, these innovations would have helped US Steel increase HRC’s margins and gain rapid market acceptance for these high-end products.
Other benefits of the upgrades would have included reduced pollution and new jobs. In addition, the upgrades would have allowed US Steel to better compete with electric arc furnaces (EAF), in particular Nucor and SDI.
In essence, the project would have cleaned up all of US Steel’s facilities in the Mon Valley while also bringing advanced technology to its factories. This is a Chinese steel cleaning program, comparable to the massive changes underway in China as the country shifts from making dirty Basic Oxygen Furnace (BOF) steel to making steel. EAF.
The Coking Coal Announcement More Significant
But the crucial announcement, in our view, involves US Steel’s decision not to modernize its coking coal facilities.
In addition, it will permanently idle three batteries at the Clairton plant, according to the Pittsburgh Post-Gazette. In addition, US Steel will reduce its coke production by 17%. The move suggests that US Steel plans to reduce production of steel produced through BOF production methods.
These production cuts will likely impact the steel produced at the company’s Gary Works site, which has already closed capacity in Granite City.
Auto makers will feel the biggest impact
The rapidly changing landscape of domestic steel production will profoundly change the dynamics of annual or long-term contract negotiations.
Cleveland-Cliffs’ the acquisition of AK Steel and most of ArcelorMittal North American assets mean that auto parts makers who source very high strength steels produced only by BOF methods will have significantly less bargaining power.
US Steel’s decision to cut coke production should signal to the market that the company intends to tightly manage its capacity, which will further support steel prices.
Car manufacturers will want to improve their BATNAs (better alternative to a negotiated deal) by creating their own option.
HRC prices are around $ 1,500 / st. The steel industry knows that prices could drop quickly if too much capacity is brought into service in the second half of 2021.
But with each major producer announcement, the steel wall that many leading analysts are expected to enter the market has failed to materialize.
As MetalMiner often says, nothing kills high prices like high prices.
However, with bold strategic moves in the producer community – Cliffs, AK, ArcelorMittal and now US Steel (and its acquisition of Big River Steel), today’s industry leaders are quite different from their quack predecessors.
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