[Federal Register: April 9, 2007 (Volume 72, Number 67)]
[Notices]
[Page 17633-17686]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09ap07-164]
[[Page 17633]]
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Part II
Department of Justice
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Antitrust Division
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Public Comment and Response on Proposed Final Judgement; Notice
[[Page 17634]]
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DEPARTMENT OF JUSTICE
Antitrust Division
Public Comment and Response on Proposed Final Judgment
Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C.
16(b)-(h), the United States hereby publishes below the comments
received on the proposed Final Judgment in United States v. Mittal
Steel Company, No. 1:06-CV-1360-ESH, which were filed in the United
States District Court for the District of Columbia, on February 13,
2007.
Copies of the comments and the response are available for
inspection at the Department of Justice Antitrust Division, 325 Seventh
Street, NW., Room 200, Washington, DC 20530, (telephone (202) 514-
2481), and at the Office of the Clerk of the United States District
Court for the District of Columbia, 333 Constitution Avenue, NW.,
Washington, DC 20001. Copies of any of these materials may be obtained
upon request and payment of a copying fee.
J. Robert Kramer II,
Director of Operations Antitrust Division.
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
United States of America, Plaintiff, v. Mittal Steel Company N.V.,
Defendant
[Civil Action No. 1: 06CV01360-ESH]
Response of Plaintiff United States to Public Comments
Pursuant to the requirements of the Antitrust Procedures and
Penalties Act, 15 U.S.C. section 16(b)-(h) (``APPA'' or ``Tunney
Act''), the United States hereby responds to the public comments
received regarding the proposed final Judgment in this case. After
careful consideration of the comments, the United States continues to
believe that the proposed Final Judgment will provide an effective and
appropriate remedy for the antitrust violations alleged in the
Complaint. The United States will move the Court for entry of the
proposed Final Judgment after the public comments and this Response
have been published in the Federal Register, pursuant to 15 U.S.C.
section 16(d).
On August 1, 2006, the United States filed the Complaint in this
matter alleging that the proposed acquisition of Arcelor S.A.
(``Arcelor'') by defendant Mittal Steel Company N.V. (``Mittal Steel'')
would violate Section 7 of the Clayton Act, 15 U.S.C. section 18.
Simultaneously with the filing of the Complaint, the United States
filed a proposed Final Judgment and a Hold Separate Stipulation and
Order (``HSSO'') signed by plaintiff and Mittal Steel consenting to the
entry of the proposed Final Judgment after compliance with the
requirements of the Tunney Act, 15 U.S.C. section 16. Pursuant to those
requirements, the United States filed its Competitive Impact State
(``CIS'') in this Court on August 1, 2006; published the proposed Final
Judgment and CIS in the Federal Register on August 24, 2006, see United
States v. Mittal Steel Company N.V., 71 Fed. Reg. 50084, 2006 WL
2431068; and published summaries of the terms of the proposed Final
Judgment and CIS, together with directions for the submission of
written comments relating to the proposed Final Judgment, in The
Washington Post for seven days beginning on September 10, 2006 and
ending on September 16, 2006. The 60-day period for public comments
ended on November 15, 2006, and three comments were received as
described below and attached hereto.
I. The Investigation and Proposed Resolution
On January 27, 2006, Mittal Steel announced its intention to
commence a tender offer to acquire control of Arcelor. At the same
time, Mittal Steel announced that it would subsequently sell Arcelor's
recently acquired Canadian subsidiary, Dofasco Inc. (``Dofasco'') to
ThyssenKrupp A.G. (``ThyssenKrupp'') if it acquired control of Arcelor.
For six months following the announcement of the tender offer, the
United States Department of Justice (``Department'') conducted an
extensive, detailed investigation into the competitive effects of the
Mittal/Arcelor transaction. As part of this investigation, the
Department obtained substantial documents and information from Mittal
Steel and issued eight Civil Investigative Demands to third parties.
The Department received and considered more than 45,000 pages of
material. More than fifty interviews were conducted with customers,
competitors, and other individuals with knowledge of the industry. The
investigative staff carefully analyzed the information provided and
thoroughly considered all of the issues presented. The Department
considered the potential competitive effects of the transaction with
respect to a number of steel products, obtaining information about
these products from customers, competitors, and other knowledgeable
parties. The Department concluded that the combination of Mittal Steel
and Arcelor likely would lessen competition in one market--Tin Mill
Products (``TMP'') sold to customers in the United States, east of the
Rocky Mountains (``Eastern United States''.) TMP are finely rolled
steel sheets, usually coated with a thin protective layer of tin or
chrome. TMP include black plate, electrolytic tin plate (``ETP''), and
tin free steel (``TFS''). Black plate is a light-guage cold-rolled bare
steel sheet that serves as a substrate for production of ETP and TFS.
Black plate is coated with tin to produce ETP and with chrome to
produce TFS. Both ETP and TFS are used primarily in manufacturing steel
cans for packaging a wide range of food products, such as soup, fruits,
and vegetables, and non-food products, such as paints, aerosols, and
shaving cream. For most TMP purchasers, particularly food can makers,
there are no close substitutes for TMP. Packaging alternatives, such as
plastic containers, are not viewed as close product substitutes. A
small but significant increase in price would not likely cause
sufficient TMP can customers to switch products or otherwise curtail
their TMP usage so as to render the increase unprofitable.
More than 89 percent of TMP sold in the Eastern United States is
manufactured by firms located either in the Eastern United States or
eastern Canada. A small but significant increase in price for TMP would
not cause TMP customers in the United States to substitute purchases
from outside the Eastern United States in sufficient quantities to make
such a price increase unprofitable. Mittal Steel, Arcelor, and
Arcelor's subsidiary Dofasco sell TMP to customers in the Eastern
United States.
As explained more fully in the Complaint and CIS, the acquisition
of Arcelor and Dofasco by Mittal Steel would substantially increase
concentration and lessen competition in the production and sale of TMP
in the Eastern United States, giving the top two TMP producers,
including Mittal Steel, a market share of more than 81 percent of
sales. Therefore, the Department filed its Complaint alleging
competitive harm in the TMP market in the Eastern United States and
sought a remedy that would ensure that such harm is prevented.
The proposed Final Judgment in this case is designed to preserve
competition in the production, manufacture, and sale of TMP in the
Eastern United States. The proposed Final Judgment requires the
divestiture of sufficient assets to prevent the increase in
concentration that resulted from the combination of Mittal Steel's
capacity and Arcelor's capacity to supply TMP to the Eastern United
States market. The proposed Final Judgment requires the
[[Page 17635]]
divestiture of a significant steel mill that manufactures TMP for sale
in the Eastern United States. Specifically, it directs a sale of
Dofasco to ThyssenKrupp or an alternative purchaser acceptable to the
United States. At the time the proposed Final Judgment was filed with
the Court, Mittal Steel already had executed a letter of intent to sell
Dofasco to ThyssenKrupp when and if Mittal Steel acquired Arcelor, at a
price comparable to the price Arcelor itself paid to acquire Dofasco in
early 2006. Dofasco, which has a history of successful operation as an
independent entity, has not been integrated into Arcelor and thus
remains a viable divestiture candidate.
Mittal Steel's announced plan to sell Dofasco to ThyssenKrupp upon
its acquisition of Arcelor would have mitigated the increase in post-
merger concentration in the Eastern United States that would have
resulted from its acquisition of Arcelor. As part of an effort by
Arcelor's Board of Directors to impede the tender offer, however,
Arcelor sought to prevent any figure effort by Mittal Steel to divest
Dofasco by transferring Arcelor's Dofasco legal title to an independent
Dutch foundation, known as the Strategic Steel Stichting (``S3'').
Since Mittal completed its acquisition of Arcelor, Arcelor and Mittal
Steel have requested that the S3 dissolve itself so as to permit the
sale of Dofasco to ThyssenKrupp. The board of the S3 nevertheless has
decided not to dissolve itself.
In negotiating the proposed Final Judgment, the parties recognized
that the existence of the S3 could prevent Mittal Steel from divesting
Dofasco in a timely manner. For this reason, the Department determined
that alternative assets, owned by Mittal Steel and not burdened with
any restrictions on sale, should be designated to accomplish the
intended preservation of TMP competition in the event that Mittal Steel
was unable to divest Dofasco within the time allowed by the decree. The
proposed Final Judgment requires Mittal Steel to divest one of two
steel mills--Sparrows Point or Weirton--if, despite its best efforts to
do so, it has not been able to carry out the divestiture of Dofasco
within the period allowed by the decree. Sparrows Point is a fully
integrated steel mill located near Baltimore, Maryland, which produces
a diversified portfolio of products, including hot-rolled sheet, cold-
rolled sheet, galvanized sheet, Galvalume, and TMP, for construction,
steel service center, container, appliance, and other end-use markets.
Weirton, located in Weirton, West Virginia, operates primarily as a TMP
finishing facility, converting steel slabs obtained from Mittal's
Sparrows Point and Cleveland plants.
In the Department's judgment, divestiture of Dofasco to
ThyssenKrupp or another qualified purchaser would remedy the violation
alleged in the Complaint because Dofasco is an integrated steel mill
that has the demonstrated capacity to make significant TMP sales in the
Eastern United States. In the event that Mittal fails to sell Dofasco
in a timely manner due to legal impediments arising from its control by
the S3 and the S3's refusal to permit its sale, the proposed Final
Judgment provides that the Department will determine whether Sparrows
Point or Weirton should be divested to remedy the violation alleged in
the Complaint. The Department is confident that these options allow it
to select an alternate facility the divestiture of which to a viable
qualified purchaser would remedy the violation. Each mill currently
makes substantial TMP sales in the Eastern United States, and the
successful continued operation of either mill by a viable qualified
purchaser would remedy the violation. The Department is currently
assessing which of these two mills is most likely to continue as an on-
going vigorous competitor for TMP sales in the event that Dofasco
cannot be divested. Sparrows Point is an integrated facility that
produces a variety of steel products in addition to TMP, and it
manufactures its own steel slabs, which are the basic raw material for
TMP fabrication. Weirton currently operates as a TMP finishing facility
that converts slabs obtained from Mittal Steel's Sparrows Point and
Cleveland mills. Mittal recently idled Weirton's slab-making facilities
because they were considered to be less efficient than other slab
manufacturing locations within the Mittal Steel organization, and the
Department is assessing whether those facilities could be reactivated
to produce slabs at Weirton on a cost-effective basis in the event of
Weirton's divestiture. Even if the Department concludes that cost-
effective slab production at Weirton is not likely to be feasible,
there still may be sources from which Weirton could obtain slabs with a
degree of consistency and reliability, and at a cost that would enable
it to compete successfully as an independent supplier of TMP to the
Eastern United States market. The Department will consider the
availability of slabs to Weirton and other relevant considerations in
determining whether Sparrows Point or Weirton should be divested to
remedy the violation alleged in the Complaint, and it will select the
mill that is most likely to continue to compete successfully for TMP
sales in the Eastern United States following its divestiture by Mittal
Steel. The proposed Final Judgment would permit this process to go
forward if Dofasco cannot be sold in a timely manner. Although entry of
the proposed Final Judgment would terminate this action, the Court
would retain jurisdiction to construe, modify, or enforce the
provisions of the proposed Final Judgment and punish violations
thereof.\1\
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\1\ The merger closed on August 1, 2006. In keeping with the
United States's standard practice, neither the HSSO nor the proposed
Final Judgment prohibited closing the merger. See ABA Section of
Antitrust Law, Antitrust Law Developments 387 (5th ed. 2002) (noting
that ``[t]he Federal Trade Commission (as well as the Department of
Justice) generally will permit the underlying transaction to close
during the notice and comment period''). Such a prohibition could
interfere with many time-sensitive deals and prevent or delay the
realization of substantial efficiencies. In consent decrees
requiring divestitures, it is also standard practice to include a
``preservation of assets'' clause in the decree and to file a
stipulation to ensure that the assets to be divested remain
competitively viable. That practice was followed here. Proposed
Final Judgment Sec. VIII. In addition, the HSSO has been filed and
entered by the Court in this case. That Order requires Mittal Steel
to preserve Weirton and Sparrows Point and to hold separate Dofasco,
pending the divestiture contemplated by the proposed Final Judgment.
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II. Summary of Public Comments and Responses
During the 60-day public comment period, the United States received
comments from Silgan Containers Corporation (``Silgan''), ThyssenKrupp,
and DaimlerCyrysler Corporation (``DaimlerChrysler''). Upon review, the
United States believes that nothing in the comments warrants a change
in the proposed Final Judgment or is sufficient to suggest that the
proposed Final Judgment is not in the public interest. The comments
include concerns relating to whether the proposed Final Judgment
adequately remedies the harms alleged in the Complaint. The United
States addresses these concerns below and explains how the remedy is
appropriate.
A. Public Comment Submitted by Silgan
1. Summary of Silgan's Comment
Silgan, the largest food can producer and the largest consumer of
TMP in the United Stats, submitted a 42-page comment with 44
attachments (attached hereto as Exhibit 1). Silgan's submission asserts
that only the divestiture of Dofasco has any prospect for success, and
that neither the divestiture of Weirton nor the divestiture of Sparrows
Point will be effective.
[[Page 17636]]
Silgan's comments may be summarized in three points. First, Silgan
argues that Weirton cannot long survive as an independent producer of
TMP, because it cannot produce slabs--the essential TMP substrate--at a
competitive cost and cannot obtain slabs from elsewhere at a
competitive cost. Thus, Weirton should not be divested.
Second, Silgan further asserts that, although Sparrows Point is
capable of surviving as a stand-along producer of TMP, it currently
provides 45 percent of the slabs used by Weirton. If Sparrows Point is
divested, Weirton will be separated from a significant portion of its
supply of slabs and will be unable to obtain a sufficient number of
slabs from other sources. Thus, if Sparrows Point is divested, Weirton
may cease TMP production even if it is kept in the Mittal Steel group.
Finally, Silgan concludes that since divestiture of either Weirton
or Sparrows Point likely will lead to the demise of Weirton as a TMP
producer, neither Mittal Steel mill should be divested. Instead, Silgan
argues that Dofasco should be divested even if accomplishing that
objective must await the expiration of the S3, and that the Final
Judgment should be modified to extend the period for divesting Dofasco
by several years. This would require that the stipulated HSSo, under
which Dofasco now is operating, be modified to extend for the entire
duration of the S3.\2\
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\2\ Silgan assets in its comment that the S3 has a 5-year term.
Although the actual term of the S3 is not public information, it is
many times longer than the period the proposed Final Judgment gives
Mittal Steel to effect the divestiture of one of the three mills.
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2. Response of United States to Silgan's Comment
The United States has carefully considered Silgan's concern that
Weirton will go out of business if the United States chooses Weirton or
Sparrows Point as an alternative divestiture, but disagrees.
Silgan's conclusion rests crucially on an assumption that slabs
suitable for use in TMP production would be readily or economically
available to Weirton from sources other than Sparrows Point. The United
States agrees that the supply of slabs is an important issue, but the
concerns raised by Silgan are overstated. If Sparrows Point is
divested, and Weirton remains part of Mittal Steel, for example, there
would be no concern about the availability to the divested mill.
Sparrows Point is a fully integrated steel mill that does not depend on
other Mittal Steel facilities for significant operational resources or
supplies and indeed, in recent years has produced more slabs than it
consumes. With respect to Wierton, even if the new owner of Sparrows
Point refused to sell slabs on reasonable terms to Mittal Steel for use
at Weirton, Mittal Steel would still own even blast furnaces in North
America, five of which are now operating, giving it ample ability to
supply Wierton with slabs. Further, Mittal could obtain additional
slabs for Weirton on the open market. If Weirton were divested from
Mittal and sought to acquire all of its slabs from other sources, the
supply of slabs would be somewhat less certain, but there is some
indication that Weirton could obtain sufficient slabs, including from
imports. Dofasco, as Silgan points out, obtains about 750,000 tons of
slabs per year from other firms, 400,000 tons of which comes from CST
in Brazil. Some of those slabs are used to make tin mill products. The
fact that Dofasco itself successfully imports a significant volume of
tin-quality slabs suggests that an independent Weirton might have
sufficient alternative sources for such slabs. The Department continues
to investigate the likelihood that a divested Weirton would be able to
manufacturer or purchase tin-quality slabs on a cost-efficient basis.
If the Department concludes for any reason that the lack of certainty
regarding Weirton's viability makes divestiture of Sparrows Point
preferable, the Final Judgment permits the Department to direct Mittal
Steel to divest Sparrows Point.
Silgan proposes that, in lieu of diverting Weirton or Sparrows
Point, the proposed Final Judgment be amended to provide that Dofasco
be held separate for five years, which Silgan asserts is the duration
of the S3, after which it could and should be sold.\3\ This proposal
presents significant problems. To ensure Dofasco's operation separately
from Mittal Steel for such an extended period of time would be
difficult, if not impossible. Moreover, under the HSSO, ordinary and
customary business decisions that would be made promptly by an
independent entity cannot be made by Dofasco without certain notices
and approvals and, in some circumstances, Court permission. This
situation is tolerable as a temporary solution to effectuate a prompt
divestiture and to limit interference or collusion pending that
divestiture. As a long-term operating arrangement, however, it could
adversely affect the ability of Dofasco to operate efficiently. Given
that a prompt remedy is in the public interest and that the Final
Judgment provides a mechanism by which the Department can assure that
adequate and viable Mittal Steel assets are divested, there is no
reason to require the extraordinary and unprecedented imposition of a
long-term HSSO.
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\3\ The Department understands that Silgan's objective would
require an extension only for the duration of the S3, but Silgan is
correct that this would require an extension of multiple years.
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B. Public Comment Submitted by ThyssenKrupp
1. Summary of ThyssenKrupp's Comment
ThyssenKrupp is a large German steel manufacturer that has an
agreement in principle with Mittal Steel to purchase Dofasco.
ThyssenKrupp currently exports TMP to customers in the United States.
In its comment, attached hereto as Exhibit 2, ThyssenKrupp states that
only the divestiture of Dofasco will adequately remedy the alleged
anticompetitive effects set forth in the Complaint and that divestiture
of Weirton or Sparrows Point cannot remedy those anticompetitive
effects. ThyssenKrupp asserts that the proposed Final Judgment and CIS
``make clear that divestiture of Dofasco to ThyssenKrupp is the
preferred remedy for the competitive harm alleged to arise from Mittal
[Steel]'s acquisition of Arcelor[.]'' Ex. 2, ThyssenKrupp Comment at 3.
ThyssenKrupp's comment, however, does not address the question of what
should be done if Dofasco cannot be divested due to the existence of
the S3. ThyssenKrupp claims that neither Weirton nor Sparrows Point has
sufficiently modern and efficient facilities to compete in the TMP
market in a manner that would replace competition lost as a result of
the challenged acquisition. In this respect, ThyssenKrupp's comments
mirror those of Silgan.
2. Response of United States to ThyssenKrupp's Comment
The response of the United States to the Silgan Comment is equally
applicable to the comments made by ThyssenKrupp. In sum, for the
reasons given in Part II.A.2 above, the United States believes that the
Final Judgment provides a mechanism to ensure that assets sufficient to
remedy the violation alleged in the Complaint will be divested.
Notwithstanding ThyssenKrupp's evaluation of the equipment and
facilities at Weirton and Sparrows Point, the Weirton and Sparrows
Point assets have proved adequate consistently to supply large
quantities of TMP to the Eastern United States market. In 2005, Weirton
and Sparrows Point sold more
[[Page 17637]]
TMP in the Eastern United States than Arcelor and Dofasco combined.
While capacity to manufacture TMP for sale in the Eastern United States
is not the only factor, it is certainly a highly relevant factor in
assessing the competitive significance of mill assets. In determining
which alternate mill should be divested pursuant to the Final Judgment,
the Department will focus on questions relating to the relative ability
of Sparrows Point and Weirton to operate independently of Mittal Steel
as future suppliers of TMP to the Eastern United States market. The
fact that both mills have successfully supplied substantial quantities
of TMP to the market with their current equipment supports the
conclusion that the alternate mill that the United States selects to be
divested would accomplish the objectives of the Final Judgment.
As to ThyssenKrupp's statement that divestiture of Dofasco is the
``preferred'' remedy, we agree. As discussed above, Dofasco is an
attractive divestiture candidate for a number of reasons, and the
proposed Final Judgment requires Mittal Steel in the first instance to
use its best efforts to divest Dofasco. However, nothing in the
proposed Final Judgment or the Competitive Impact Statement indicates
that Dofasco is the only suitable divestiture candidate. Both Mittal
Steel and the Department realized that Mittal Steel might be unable to
accomplish the divestiture of Dofasco in a timely manner because the S3
might prevent its sale. Accordingly, the parties crafted alternative
relief--the divestiture of Sparrows Point or Weirton--that also would
preserve competition. Although the United States is satisfied that
divestiture of Dofasco would remedy the violation alleged in the
Complaint, if Dofasco cannot be sold within the period prescribed by
the proposed Final Judgment, the United States will decide which of the
two alternatives should be divested.
C. Public Comment Submitted by DaimlerChrysler
1. Summary of DaimlerChrysler's Comment
DaimlerChrysler is an automobile manufacturer in North America that
sources its steel from a number of North American steel producers,
including Mittal Steel and Dofasco. See DaimlerChrysler Comment
(attached hereto as Exhibit 3). DaimlerChrysler does not use TMP in the
production of automobiles and does not purchase TMP. It does, however,
use another type of flat steel product called hot dipped galvanized
steel, which it buys from Mittal Steel and Dofasco, and DaimlerChrysler
claims that the proposed acquisition will adversely affect competition
for that product. DaimlerChrysler asserts that consolidation in the
steel industry since 2001 has reduced the number of North American
manufacturers of hot dipped galvanized steel from nine to five, and
that after the acquisition of Dofasco, Mittal Steel will have
approximately 47 percent of North American capacity for this product.
DaimlerChrysler also states that there are no adequate substitutes for
this product, and that foreign producers are not suitable suppliers.
DaimlerChrysler asserts that the alleged harm to competition would be
alleviated if Mittal Steel were required to divest Dofasco, but that
the divestiture of either Sparrows Point or Weirton would not remedy
the harm because neither facility produces hot dipped galvanized steel
suitable for automotive purposes.
Although DaimlerChyrsler has no direct interest in the TMP market,
the company nevertheless asserts that the divestiture of Weirton or
Sparrows Point will not restore competition in TMP because neither
facility is capable of operating as a stand-alone facility.
DaimlerChrysler cites past financial troubles of Weirton when it was a
stand-alone company and Sparrows Point when it was operated by the
former Bethlehem Steel Company. DaimlerChrysler asserts that either
alternative facility is likely to close after divestiture. The result,
according to DaimlerChrysler, would be less competition in the market
for TMP.
2. Response of United States to DaimlerChrysler's Comment
DaimlerChrysler's principal argument is that the United States'
focus on TMP is misplaced, and that the United States should also have
alleged harm to competition for hot dipped galvanized steel. During its
investigation, the United States carefully and thoroughly reviewed the
competitive implications of Mittal Steel's acquisition of Arcelor (and
Dofasco) for a number of different potential relevant geographic and
product markets, including hot dipped galvanized products. Upon
completion of its review, the United States determined that it should
allege a violation and seek relief only with regard to sales to TMP in
the Eastern United States, and the Complaint filed in this case
reflects that determination. The decision regarding the filing of a
complaint as to any particular market lies within the prosecutorial
discretion of the United States.
With respect to the market for TMP, the United States disagree with
the DaimlerChrysler comments relating to the adequacy of a divestiture
of either of the alternative assets. As discussed more thoroughly
above, the United States has considered the capabilities and economic
viability of each of the alternative facilities and is confident that
these options allow it to select an alternate facility the divestiture
of which to a viable qualified purchaser would be sufficient to restore
competition to the market for the sale of TMP in the Eastern United
States.
III. Conclusion
The issues raised in the public comments were among the many
considered during the United States' extensive and through
investigation. The United States has determined that the proposed Final
Judgment as drafted provides an effective and appropriate remedy for
the antitrust violations alleged in the Complaint, and is therefore in
the public interest. The United States will move this Court to enter
the proposed Final Judgment after the comments and response are
published.
Dated: February 13, 2007.
Respectfully submitted,
Lowell R. Stern (D.C. Bar 440487),
Attorney, United States Department of Justice, Antitrust Division,
Litigation II Section, 1401 H Street, NW., Suite 3000, Washington,
DC 20530, Telephone: (202) 307-0924, Facsimile: (202) 307-6283.
Certificate of Service
I hereby certify that on the 13th day of February, 2007, I caused a
copy of the foregoing Plaintiff United States's Response to Public
Comments to be mailed, by U.S. mail, postage prepaid, to the attorneys
listed below and I caused the attachments thereto to be delivered by
electronic transmission to the attorneys listed below:
Lowell R. Stern,
For Mittal Steel Company N.V.:
Mark Leddy, Esquire; Brian Byrne, Esquire; Jeremy J. Calsyn,
Esquire; Cleary Gottlieb Steen & Hamilton LLP., 2000 Pennsylvania
Avenue, NW., Washington, DC 20006.
For Arcelor S.A.:
John M. Nannes, Esquire; Michael V. Sosso, Esquire; Skadden,
Arps, Slate, Meagher & Flom LLP., 1440 New York Avenue, NW.,
Washington, DC 20005.
For Silgan Containers Corporation:
Daniel L. Porter, Esquire; Vinson & Elkins LLP., 1455
Pennsylvania Avenue, NW., Suite 600, Washington, DC 20004-10009.
For ThyssenKrupp A.G.:
Steven K. Bernstein, Esquire; James F. Lerner, Esquire; Weil,
Gotshal & Manges LLP., 767 Fifth Avenue, New York, NY 10153-0119.
[[Page 17638]]
A. Paul Victor, Esquire; Dewey Ballantine LLP., 1301 Avenue of
the Americas, New York, NY 10019-6092.
For DaimlerChyrsler Corporation:
Thomas B. Leary, Esquire; Janet L. McDavid, Esquire; Hogan &
Hartson LLP., Columbia Square, 555 Thirteenth Square, NW.,
Washington, DC 20004.
Exhibit 1
Willkie Farr and Gallagher LLP
Theodore Case Whitehouse, 202 303 1118, whitehouse@willkie.com, 1875
K Street, NW., Washington, DC 20006-1238, Tel: 202 303 1000, Fax:
202 303 2000.
23 October 2005
By Hand Delivery
Maribeth Petrizzi, Esq., Chief, Litigation II Section, Antitrust
Division, U.S. Department of Justice, Suite 3000, 1401 H Street,
NW., Washington, DC 20530
Re: Comments of Silgan Containers Corp. on Proposed Consent Decree
in United States v. Mittal Steel Co., NV, No. 1:06-CV-01360-ESH
(D.D.C.)
Dear Ms. Petrizzi:
Transmitted with this letter, on behalf of Silgan Containers
Corporation (``Silgan'') and pursuant to the Antitrust Procedures
and Penalties Act (15 U.S.C. 16), are Silgan's comments on the
proposed consent decree submitted by the Division to the United
States District Court for the District of Columbia in August 2006.
Silgan and its counsel would be pleased to enlarge upon or
explain any aspect of Silgan's comments and would be pleased to meet
with you and your staff to discuss any issue or concern relating to
this matter.
Sincerely,
Theodore Case Whitehouse
cc (w/encl.): Kerrie J. Freeborn, Esq.
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
United States of America, Plaintiff, v. Mittal Steel Company N.V.,
Defendant
[Civil Action No. 1: 06CV01360-ESH]
Comments of Silgan Containers Corporation on the Proposed Final
Judgment and Competitive Impact Statement Regarding Competition in the
Tin Mill Products Market
Willkie Farr and Gallagher LLP., 1875 K Street, NW., Washington, DC
20006-1238, (202) 303-1000.
Thomas Prusa, Ph.D., Professor of Economics, Rutgers University, New
Brunswick, New Jersey.
October 23, 2006
Table of Contents
Introduction and Summary of Comments
I. Divestiture of Dofasco is the Best Option
A. Dofasco Has a Proven Track Record of Operating as a Highly
Profitable, Independent Company
B. Dofasco Is Far Better Suited To Operate as a Stand-Alone
Facility Than Either Weirton or Sparrows Point
C. Dofasco Is More Committee To Investing in the Future of the
Tin Mill Steel Market
D. The Decree Should Be Amended if Necessary To Require
Divestiture of Dofasco on the Earliest Date on Which It May Legally
Be Divested Free of the Stichting Arrangements, and the Hold-
Separate Order Should Continue in Effect Until That Divestiture Is
Accomplished
II. A Stand-Alone Weirton Operation Will Fail in the Immediate
Future and Undermine the Departments Objective of Preserving
Competition in the Market
A. Weirton's Ironmaking and Steelmaking Assets Are Not
Competitive
1. Weirton Has Small, Inefficient Blast Furnaces
2. Weirton's Steelmaking Operations Are Also Antiquated and High
Cost
3. An Independent Weirton Operating Its Ironmaking Facilities
Would Lack Any Captive Raw Material Supplies
4. Weirton's Geographic Location Guarantees Higher Costs for
Basic Inputs
5. Weirton's Limitations as a Fully-Integrated Steel Maker
Producing Tin Mill Steel Are Recognized by Mittal and Outside
Observers
B. Prospects for a Stand-Alone Weirton Enterprise Operating as a
Rolling and Finishing Operation Are Limited
1. Weirton's Rolling and Finishing Assets Require Substantial
Investment To Be Competitive
2. Weirton Would Be Committed To Producing Primarily Tin Mill
Steel, Limiting Production Flexibility
3. Weirton Would Have Difficulty Securing the Quality and Volume
of Slab Necessary To Maintain Its Operations
4. Even if a Stand-Alone Weirton Rolling and Finishing Operation
Found a Consistent Source of Slab Supply, the Market Dynamics for
Tin Mill Steel Would Limit Profitability
5. A Stand-Alone Weirton Enterprise Running Only Its Tin Line
Would Have Difficulty Securing Sufficient Volumes of Black Plate
C. There Are No Legitimate Suitors for Weirton
D. Divesting Weirton Will Have an Adverse Impact on Competition
III. A Divestiture of Sparrow's Point Would Also be a Far Less
Effective Remedy Than Divesting Dofasco
A. Divestiture of Sparrows Point Is Unlikely To Enhance
Competition Over the Long Term
1. Dofasco Is an Unlikely Replacement for Sparrows Point in
Supplying Slabs to Weirton
2. It Is Unlikely That Mittal Steel's Other North American Slab
Producers Will Divert Scarce Feedstock to Weirton
3. It Would Make no Economic Sense for Mittal's Brazilian
Affiliate CST To Supply Slabs to Weirton
B. Divesting Sparrows Point Will Have an Adverse Impact on
Competition in the Medium to Long Term
Conclusion
Introduction and Summary of Comments
Silgan Containers Corporation, the largest U.S. food can producer
and single largest consumer of tin mill steel products in the United
States, hereby provides comments on the proposed final judgment in
United States v. Mittal Steel Company, the civil action concerning the
effects of Mittal Steel's acquisition of Arcelor in the tin mill steel
market in the Eastern United States. These comments are submitted in
response to the invitation of the Antitrust Division of the United
States Justice Department set forth in the August 24, 2006 edition of
the Federal Register. Silgan appreciates the opportunity to submit
comments.
Silgan wholeheartedly agrees with the Department's conclusions that
(1) Mittal Steel's acquisition of Arcelor ``further consolida[tes] an
already highly concentrated market'' and (2) ``the likely effect of
this acquisition would be to lessen competition substantially'' among
suppliers of tin mill steel products in the Eastern United States, and
(3) ``this loss of competition would likely result in higher prices,
lower quality, less innovation and less favorable delivery terms to
customers'' of tin mill steel.\1\ Silgan submits that such conclusions
are amply supported by the evidence.
---------------------------------------------------------------------------
\1\See United States v. Mittal Steel Company, Proposed Final
Judgment and Competitive Impact Statement, 71 Fed. Reg. 50084,
50085, 50093 (August 24, 2006) (Attachment 1).
---------------------------------------------------------------------------
The proposed decree provides for two alternative divestiture
scenarios. The first is to require divestiture by Mittal of Dofasco, a
Canadian integrated steel producer. The alternative remedy, to be
available only if Mittal is ``unable'' despite ``best efforts'' to
accomplish the divestiture of Dofasco, would be divestiture of either
the Sparrows Point integrated steel operation or the Weirton steel mill
operation (which includes only a rolling mill capability at this time).
Silgan wholeheartedly agrees with the Department that the preferred
remedy to address this lessening of competition in the tin mill steel
market is to require the divestiture of Dofasco. Indeed, Silgan submits
that a proper understanding of both the market participants and the
competitive dynamics affecting the market participants demonstrates the
following:
Weirton would not be able to survive as an independent
operation.
Given its location, its old, small, and currently inoperative blast
furnaces, and the limited capabilities of Weirton's rolling facilities,
Weirton cannot survive as an independent producer. Neither
[[Page 17639]]
running Weirton's ironmaking and steelmaking operations nor purchasing
slab in the merchant market would be a viable strategy. Consequently, a
remedy allowing the divestiture of Weirton would simply cause
substantial tin mill steel capacity to exit the market, which would
make the available tin mill steel supply even more concentrated.
No existing integrated steel mill has a serious interest
in acquiring Weirton, because it makes no economic sense.
Weirton's only realistic hope of surviving is to operate as one
facility within a large, diversified enterprise capable of supplying
Weirton with key inputs and averaging costs across a larger production
base. Weirton currently enjoys that status as part of Mittal. No viable
alternative integrated steel mill is likely to come forward to replace
Mittal.
Although Sparrows Point Is a Superior Mill to Weirton, It
Is Uncertain Whether Divesting Sparrows Point Would Preserve
Competition Over the Mid- to Long-Term.
Within the Mittal system, Sparrows Point is a key supplier of slab
for Weirton. A Sparrows Point facility operating outside the Mittal
system would eliminate a guaranteed supply of this key feedstock to
Weirton and thereby threaten the ongoing viability of Weirton. Without
Sparrows Point's slab capacity, the likelihood that Mittal will ration
Weirton's slab supply is greatly increased because Weirton will not be
the best use of Mittal's limited slab supply in the Midwest that can be
used in more profitable operations. Such fact is evidenced by the
statements of Mittal Steel officials that Weirton is the least
desirable facility among Mittal Steel's North American operations. In
short, divesting Sparrows Point would almost certainly lead to
Weirton's demise even within the Mittal enterprise, thereby diminishing
overall capacity to the detriment of consumers and frustrating the goal
of the decree.
In the pages below, Silgan discusses and documents these factual
conclusions in considerable detail. Silgan submits that these factual
conclusions require the Department to adopt the following approach in
designing an appropriate remedy to address the reduced competition in
the tin mill steel market. First, the Department should make every
effort to accomplish the divestiture of Dofasco. Press reports
immediately after publication of the consent decree suggest a lack of
interest by Mittal-Arcelor of seriously pursuing divesting Dofasco. The
Department needs to push Mittal-Arcelor to accomplish the divestiture
of Dofasco.
Second, if immediate divestiture is not possible, Silgan strongly
recommends the consent decree be modified to wait the five years
reportedly necessary to eliminate any existing legal impediments to the
divestiture of Dofasco. An independent Dofasco in five years is better
than any of the other alternatives for preserving competition. A long
run solution to the issue is better than a short term fix.
Silgan makes this recommendation because the other options under
consideration--divesting Weirton or divesting Sparrows Point--will not
accomplish the Department's objective of enhancing competition in the
tin mill steel market. These other options will only protect
competition if one believes that Weirton has better than a 64% chance
of surviving over the next two or three years, either outside or within
the Mittal enterprise. However, no knowledgeable industry observer
would give Weirton better than a 10-20% chance of surviving if either
Weirton or Sparrows Point is divested. Therefore, the only appropriate
remedy is to divest Dofasco as soon as possible, even if this means
waiting for the alleged legal impediments to such a divestiture to
expire.
To summarize:
Divestiture of Dofasco is the most pro-competitive
outcome.
If divestiture of Dofasco is not possible now (because
of the stichting arrangements reportedly engineered by Arcelor), the
second best option is continued independent operation of Dofasco for
the life of the trust, (reportedly 5 years) followed by divestiture
to a firm not a U.S. tin-mill producer.
A less desirable but feasible outcome would be
divestiture of Sparrows Point to a firm not a U.S. tin-mill producer
(with appropriate assurance that Sparrows Point's tin-mill activity
will be continued).
Divestiture of Weirton under any scenario would be
counterproductive from a competition perspective and would hurt the
market because Weirton would not survive and its capacity would be
permanently lost.
I. Divestiture of Dofasco Is the Best Option
A combined Mittal-Arcelor would have three tin mill steel
production facilities supplying the Eastern United States market,
resulting in an excessively concentrated supply situation. To remedy
that undesirable outcome, the Department has determined that Dofasco
should be divested.\2\ The Department is correct in that determination:
Divesting Dofasco remains the preferred remedy to address the loss of
competition in the tin mill steel market resulting from the Mittal-
Arcelor merger.
---------------------------------------------------------------------------
\2\ Id.
---------------------------------------------------------------------------
In assessing divestiture options the Department must consider
whether the divested firm can operate independently and serve the
changing needs of consumers. Any divested tin mill steel entity must be
viable on its own, making Dofasco the most logical choice for
divestiture.
A. Dofasco Has a Proven Track Record of Operating as a Highly
Profitable, Independent Company
In sharp contrast to Weirton or Sparrows Point (both of which are
discussed below), Dofasco is recognized as one of the best steel mills
in the world. A leading steel consultancy and benchmarking firm, World
Steel Dynamics (``WSD''), ranked Dofasco in the Top 25 of all global
steelmakers. The same assessment ranked Dofasco the highest of all
North American producers.\3\ Dofasco scored a remarkable 9 out of 10 in
the WSD analysis for profitability over the 2000-04 period.\4\
---------------------------------------------------------------------------
\3\ World Steel Dynamics (2005) (Attachment 2).
\4\ Id.
---------------------------------------------------------------------------
The WSD analysis, which covers the period through June 2005,
presents an independent, expert assessment of Dofasco prior to its
acquisition by Arcelor, when the facility stood as a fully independent
entity. Dofasco's performance during that period provides a strong
indication of its likely performance if separated from Mittal.
B. Dofasco Is Far Better Suited To Operate as a Stand-Alone Facility
Than Either Weirton or Sparrows Point
Compared to either Weirton or Sparrows Point, Dofasco is far better
suited to survive and thrive as a stand-alone facility. Four
differences stand out: (1) Dofasco has a much deeper product line, (2)
Dofasco has a larger scale operation, (3) Dofasco owns its own raw
materials, and (4) Dofasco has much more cold-rolled capacity to feed
its tin mill steel production. Silgan discusses these below.
First, Dofasco has production capability that covers the full
spectrum of flat-rolled products, from hot-rolled steel to cold-rolled
and galvanized, as well as tin mill steel. Dofasco also produces
tubular products in operations that consume the hot-rolled and cold-
rolled steel it produces. Indeed, Dofasco Tubular Products is the
largest and most diversified producer of tubular products in North
America.\5\ Finally, Dofasco is a significant player in the high margin
auto sheet market, in which there are
[[Page 17640]]
few significant North American suppliers.\6\
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\5\ See http://www.dofascotube.com/Default.htm (Attachment 3).
\6\ The leading North American suppliers are Mittal (non-
Sparrows Point production), U.S. Steel, AK Steel and Dofasco. See
Peter Marsh, Massive Bids on Table as Giants Fight for Dofasco,
Financial Times (January 13, 2006) (Attachment 4). According to
long-time steel analyst Charles Bradford, Sparrows Point ``doesn't
have those (automotive) grades.'' Scott Robertson, Mittal Sparrows
Point Mill May Be On Auction Block, American Metal Market (June 2,
2006) (Attachment 5).
---------------------------------------------------------------------------
This breadth of production capability allows Dofasco to remain
viable even if the tin mill steel market turns down. Neither Weirton
nor Sparrows Point has the same breadth of production. Weirton's
product line is quite limited. Indeed, Silgan's understanding is that
the vast majority of Weirton's total steel production is just tin mill
steel. Sparrows Point is not much better. Other than tin mill steel,
Sparrows Point predominantly focuses on commodity grades of cold-rolled
and galvanized flat-rolled steel.
Second, Dofasco is also a larger scale operation, with just over 4
million of tons of steelmaking capacity compared to 3.4 million tons at
Sparrows Point and zero operating steelmaking capacity at Weirton.
Dofasco also has larger rolling assets, with 4.9 million tons of hot
strip capacity available compared to 3 million tons at Sparrows Point
and 3.8 million tons at Weirton.\7\ This larger scale allows Dofasco to
operate more efficiently and profitably than either Weirton or Sparrows
Point.
---------------------------------------------------------------------------
\7\ See generally 2005 Directory of Iron and Steel Plants,
Association for Iron and Steel Technology (2005) (Attachment 6).
---------------------------------------------------------------------------
Third, Dofasco has access to captive supplies of both coke and iron
ore, reducing its exposure to price volatility in raw material markets.
Neither Weirton nor Sparrows Point has any such assets. Like the larger
scale, these captive supplies of key feedstock allow Dofasco to operate
more cost effectively and profitably than Weirton or Sparrows Point.
Finally, as detailed in the chart below, Dofasco has a much more
favorable ratio of tin mill steel capacity to cold-rolled capacity.
Figure 1.--Ratio of Tin Mill Capacity to Cold-Rolled Capacity
----------------------------------------------------------------------------------------------------------------
Dofasco Sparrows Point Weirton
----------------------------------------------------------------------------------------------------------------
Cold-Rolled Capacity (000 tons)................................. 3100 1580 1000
Tin steel production (000 tons)................................. 418 828 800
Fraction of tin mill capacity to cold-rolled.................... 13.5% 52.4% 80%
----------------------------------------------------------------------------------------------------------------
The ratio of tin mill capacity to cold-rolled capacity at Dofasco is
just 13.5 percent. In contrast, the ratio of tin mill steel capacity to
cold-rolled capacity at Sparrows Point is greater than 50%, and is
roughly 80% at Weirton. Dofasco's more limited tin mill steel capacity
relative to its cold-rolled capacity means a much larger portion of its
cold-rolled capacity is immediately available for sale in often more
profitable cold-rolled or galvanized markets. Weirton and Sparrows
Point, on the other hand, have limited opportunity to serve cold-rolled
and galvanized markets while at the same time keeping their more
substantial tin mill steel lines operating at efficient capacity
utilization rates.
C. Dofasco Is More Committed to Investing in the Future of the Tin Mill
Steel Market
A key factor for the Department's consideration should be which
entity will support the tin mill steel market for the long term. It is
Silgan's opinion that Mittal is not interested in this product and will
not support the tin mill steel market, whereas Dofasco has demonstrated
a concrete willingness to support the product.
Prior to its acquisition of International Steel Group, Mittal had
no significant involvement in the tinplate market from any of its
worldwide operations. With ISG, Mittal acquired the former Bethlehem
Steel tinplate operations at Sparrows Point, MD and the former Weirton
Steel tinplate operations in Weirton, WV. Since the acquisition of ISG,
these operations have been scaled back, not expanded, and Mittal has
shown little or no interest in their long-term viability. As
importantly, since its acquisition of ISG, Mittal has met is
contractual volume commitment to Silgan, but has declined to ship
additional volumes requested by Silgan. Efforts to engage Mittal in
discussions toward extending the current supply commitment to Silgan
have not been successful.
The experience with Dofasco has been much different. Time and again
Dofasco has demonstrated a willingness to commit to the long term
production and supply of tin mill steel. For example, Dofasco
understood the desire of can companies for wider and wider coils to
enhance can making productivity. Dofasco, unlike other suppliers,
decided to invest in additional wide coil capacity, and now is one of
the few suppliers in the world to offer extra-wide coils. Another
example is Dofasco's willingness to talk about and agree to longer-term
supply arrangements. There is no question that producing tin mill steel
is in Dofasco's long term plans.
D. The Decree Should Be Amended if Necessary To Require Divestiture of
Dofasco on the Earliest Date on Which It May Legally Be Divested Free
of the Stichting Arrangements, and the Hold-Separate Order Should
Continue in Effect Until That Divestituture Is Accomplished
Because of the obvious superiority, from the standpoint of
competitive supply of tin mill steel products, of a divstiture of
Dofasco over either alternative divestiture contemplated by the
proposed decree, the Decree should be amended to ensure that Dofasco is
divested and that any short-term impediment to that divestiture arising
from the stichting arrangements erected by Arcelor to frustrate
Mittal's efforts to acquire Arcelor does not wind up producing long-
term harm to the tin mill steel market in the Eastern United States.
Dofasco's long history of successful operation as a stand-alone entity
and its modern plant and facilities make it highly likely that Dofasco
could exist and prosper under the hold-separate order now in place for
at least five years and remain a viable and attractive divestiture
candidate at the end of that period. Thus, there is no reason for the
Department or the Court to accept the plainly less effective--and
potentially counterproductive--alternatives of divesting either
Sparrows Point or Weirton.
[[Page 17641]]
II. A Stand-Alone Weirton Operation Will Fail in the Immediate Future
and Undermine the Department's Objective of Preserving Competition in
the Market
There is no viable business model for a stand-alone Weirton
operation that ensures even the intermediate term survival of the
company. As a fully-integrated steel producer making raw steel through
to tin mill products (``tin mill steel''), Weirton is not competitive.
The Weirton facility's ironmaking and steelmaking assets are antiquated
and effectively unusable. Indeed, the ironmaking and steelingmaking
assets are currently not operating for this very reason.\8\ The lack of
any captive raw material assets and the costs associated with
transporting bulk raw materials such as iron ore to the Weirton site
only make the prospects for restarting the ironmaking and steelmaking
assets in a stand-alone configuration that much more untenable.
---------------------------------------------------------------------------
\8\ See Mark Reutter, The Strange Case of Weirton Steel,
MakingSteel.Com (April 25, 2006) (emphasis aded) (Attachment 7).
---------------------------------------------------------------------------
As a finishing operation consuming either slab or more advanced
downstream inputs (i.e., hot-rolled band or black plate), it is also
highly doubtful that Weirton would survive as a stand-alone entity.
First, the proposition that a stand-alone Weirton operation would have
access to the quality or volume of steel inputs at the cost necessary
to run the facility efficiently is highly speculative. Second,
limitations at Weirton's rolling operations would further hinder the
facility's ability to operate a flexible production base or meet the
ever-increasing quality demands of tin mill steel consumers.
A. Weirton's Ironmaking and Steelmaking Assets Are Not Competitive
1. Weirton Has Small, Inefficient Blast Furnaces
It is generally agreed within the steel industry that blast
furnaces with an annual production capacity of less than 1.5 million
tons per year are not of efficient scale. Most, if not all, world-class
blast furnaces exceed 3 million tons in annual capacity. While blast
furnace size is not necessarily dispositive with respect to cost
competitiveness, it is considered among the most important factors.\9\
---------------------------------------------------------------------------
\9\ Other competitiveness factors one might consider include the
coking rate of the furnace and any alternative charging technologies
utilized by the furnace to reduce that rate and increase
productivity. For a discussion of these alternative techniques, see
William T. Hogan and Frank T. Koelbe, Fewer Blast Furnaces, But
Higher Productivity, New Steel (November 1996) (Attachment 8). Note,
however, that reliance on alternative charging techniques has
presented new cost problems for some blast furnace operations. In
particular, for those blast furnaces relying on natural gas
injection to reduce coking rates (including Weirton), they
successfully lowered their coking rates and boosted productivity,
but were later hit with heavy costs as natural gas prices rose
dramatically.
---------------------------------------------------------------------------
The U.S. Domestic steel industry's own trade association
acknowledges the weaknesses and fate of small blast furnaces, as does
the U.S. Department of Energy (``DOE''). According to an article posted
on the American Iron and Steel Institute's web page, ``[b]last furnaces
will survive into the next millennium because the larger, efficient
furnaces can produce hot metal at costs competitive with other iron
making technologies.'' \10\ Similarly, a study of alternative
ironmaking technologies funded by DOE concluded that ``the primary
problem (sic) the Blast Furnace approach is that many of these Blast
furnaces are relatively small, as compared to newer larger furnaces;
thus are relatively costly and inefficient to operate.'' \11\
---------------------------------------------------------------------------
\10\ See How a Blast Furnace Works, AISI (emphasis added)
(Attachment 9).
\11\ Ironmaking Process Alternative Screening Study--Volume I,
Summary Report, Lockwood Greene study for the Department of Energy
(Oct. 2000) at 1-1 (Attachment 10).
---------------------------------------------------------------------------
Weirton's blast furnaces--none of which is currently in operation--
are among the smallest blast furnaces in North America. Weirton's
primary No. 1 furnace has a rated annual capacity of 1.46 million tons.
The facility's No. 4 furnace, the only other furnace at the Weirton
site in any condition to be restarted,\12\ has a rated capacity of just
1 million tons.\13\ By contrast, the would-be competitors of a stand-
alone Weirton enterprise operate the largest blast furnaces in North
America.\14\
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\12\ Weirton's No. 4 furnace needs repairs before being
restarted. Weirton's former owner ISG intended to make such repairs.
See Jim Leonard, ISG To Repair, Restart Second Blast Furnace at
Weirton Unit, American Metal Market (July 12, 2004) (Attachment 11).
With Mittal's acquisition of Weirton, it was determined that Weirton
would no longer produce raw steel and the repair work was never
initiated. See Mark Reutter, The Strange Case of Weirton Steel,
MaingSteel.Com (April 25, 2006) (Attachment 7).
\13\ While age is less indicative of the efficiency of a
furnace, Weirton's furnaces are very old. The No. 1 furnace was
built in 1919; the No. 4 furnace was built in 1953. Through rebuilds
and modifications, these furnaces have been made more efficient, but
they remain high cost. Indeed, by Mittal's own admission, Silgan
knows they are at least the highest cost furnaces in the Mittal USA
system. See Mark Reutter, The Strange Case of Weirton Steel,
MakingSteel.Com (April 25, 2006) (Attachment 7).
\14\ Capacity data for the Weirton blast furnaces derived from
2005 Directory of Iron and Steel Plants, Association for Iron and
Steel Technology (2005) (Attachment 6). Capacity data for Mittal,
Sparrows Point ``L'' furnace derived from Mittal Steel USA Works to
Restore Furnace at Sparrows Point, PRNewswire (July 14, 2006)
(Attachment 12). Capacity data on Mittal, Indiana Harbor No. 7
furnace derived from Ispat Inland Accelerates Maintenance Outages,
Ispat Inland Press Release (March 7, 2005) (Attachment 13).
Figure 2.--Comparison of Blast Furnace Size
----------------------------------------------------------------------------------------------------------------
Annual capacity
Company/operation Blast furnace Year built (million tons)
----------------------------------------------------------------------------------------------------------------
Mittal, Indiana Harbor................... No. 7............................ 1980 4.0
U.S. Steel, Gary Works................... No. 14........................... 1974 3.4
Mittal, Sparrows Point................... ``L''............................ 1977 3.2
Weirton.............................. No. 1............................ 1919 1.5
Weirton.............................. No. 4............................ 1953 1.0
----------------------------------------------------------------------------------------------------------------
Weirton's furnace limitations have long been known; in 1982, National
Steel proposed shutting down Weirton's furnaces and operating Weirton
as a rolling mill.\15\
---------------------------------------------------------------------------
\15\ Weirton Workers Buyout from Online NewsHour, September 23,
1983; http://www.pbs.org/newshour/bb/business/july-dec83/steel_9-23-83.html.
(Attachment 14).
---------------------------------------------------------------------------
In any case, assessing the competitiveness of the Weirton blast
furnaces is strictly an academic exercise. Both the Weirton No. 1 and
No. 4 furnaces are no longer hot banked, but now sit completely cold.
The costs of restarting the furnaces from a cold state are uncertain,
but could be significant depending on any damage resulting from the
cool down. Such costs may in fact be prohibitive to any would-be
investor.
2. Weirton's Steelmaking Operations Are Also Antiquated and High Cost
Weighed down by the high cost of its ironmaking operations, the
Weirton facility inherently is a high cost steel
[[Page 17642]]
producer. Leaving no doubt, Weirton's slab costs have been rated by a
leading steel consultancy as the highest in the world.\16\ These
results are consistent with Mittal's own top-down review of the Mittal
USA system, which found the Weirton steelmaking assets to be the least
economical among its many U.S. facilities.\17\
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\16\ High Production Costs Hamper AK Steel's Middletown Works,
Steel Business Briefing (Aug. 10, 2006) (Attachment 15).
\17\ See Mark Reutter, The Strange Case of Weirton Steel,
MakingSteel.Com (April 25, 2006) (Attachment 7).
---------------------------------------------------------------------------
Weirton's continuous caster is also an old, four-strand caster.\18\
A new, single strand caster is necessary to achieve better yield loss
and quality control in important tin mill grades of steel.
---------------------------------------------------------------------------
\18\ 2005 Directory of Iron and Steel Plants, Association for
Iron and Steel Technology (2005) at 130 (Attachment 6).
---------------------------------------------------------------------------
3. An Independent Weirton Operating Its Ironmaking Facilities Would
Lack Any Captive Raw Material Supplies
A stand-alone Weirton enterprise utilizing its ironmaking assets
does not fit the paradigm of successful integrated steel makers (i.e.,
those operating blast furnaces and basic oxygen furnaces to produce
steel) operating in the U.S. market. That paradigm includes access to
captive supplies of at least some raw material requirements (coal,
coke, or iron ore).
Integrated steel producers consume massive amounts of raw materials
in the form of coal, coke, and iron ore to run their blast furnaces. To
insulate themselves from volatility in raw material markets, integrated
producers tend to maintain captive supplies of at least some of their
raw material needs. Although all U.S. mills have largely divested
themselves of their U.S. coal assets, maintaining captive coke supplies
remains a common practice among integrated producers. This practice
continues given the high costs associated with building new coke plants
in today's regulatory environment and the fact that the coke market
tends to be in very tight supply. The largest producers also maintain
captive iron ore assets.
Figure 3.--Integrated Mill Raw Material Assets \19\
------------------------------------------------------------------------
U.S. iron ore
Company U.S. coke assets assets
------------------------------------------------------------------------
U.S. Steel..................... Yes................ Yes.
Mittal Steel................... Yes................ Yes.
AK Steel....................... Yes................ No.
Wheeling-Pittsburgh Steel...... Yes................ No.
WCI Steel...................... No................. No.
Severstal-Rouge Steel.......... Yes................ No.
Sparrows Point................. No................. No.
Dofasco \20\................... Yes................ Yes.
Weirton........................ No................. No.
------------------------------------------------------------------------
The Weirton facility does not operate coke ovens, nor does it own
any iron ore assets. As a stand-alone enterprise operating its blast
furnaces, Weirton's lack of raw materials assets would leave it
dependent on outside supply, including supply from other U.S. tin mill
steel producers.
---------------------------------------------------------------------------
\19\ See Various Annual Reports from producers listed in the
above table below.
\20\ Dofasco has iron ore assets in Canada. See Maria Guzzo,
Dofasco seals $251m purchase of Canadian iron ore miner QCM,
American Metal Market (July 26, 2005) (Attachment 16).
---------------------------------------------------------------------------
With respect to coke, the implication of Weirton's outside supply
dependency is documented in Weirton's recent past. In 2004, Weirton
experienced a coke supply disruption when U.S. Steel (a tin mill steel
producer) declared force majeure on a supply contract with Weirton in a
very tight market for coke, forcing Weirton to limit operations in that
year.\21\
---------------------------------------------------------------------------
\21\ Scott Robertson, Force Majeure Clobbers Coke-Short
Steelmakers: Weirton Eyes Options, Blast Furnace Closure, American
Metal Market (Jan. 9, 2004) (Attachment 17).
---------------------------------------------------------------------------
Although the first new coke ovens built in the United States in
seven years were completed in 2005, shipments of metallurgical coal to
U.S. coke plants show a decline over the last 5 years due to the tight
specifications needed for coal to produce coke.\22\ Key sources of
imported coke, such as China, now consume a larger portion of that
supply in their own domestic markets.\23\ With a tight world market for
metallurgical coal coupled with U.S. supply disruptions that occurred
in 2005, the average delivered price of coal to U.S. coke plants
increased by 36.2 percent to reach an average price of $83.79 per short
ton in 2005. This, in turn, caused coke prices to skyrocket.\24\
---------------------------------------------------------------------------
\22\ U.S. Coal Supply and Demand: 2005 Review, Department of
Energy, Energy Information Administration.
\23\ For a discussion of the tight market for coke during 2004
and the factors that drive tight coke supplies, see Peter Krouse,
Heat Back on Steel Makers, The Plain Dealer (February 26, 2004)
(Attachment 18).
\24\ U.S. Coal Supply and Demand: 2005 Review, Department of
Energy, Energy Information Administration.
Figure 4.--U.S. Metallurgical Coal Supply and Prices to U.S. Coke Plants
[Million short tons and nominal dollars per short ton]
----------------------------------------------------------------------------------------------------------------
2001 2002 2003 2004 2005
----------------------------------------------------------------------------------------------------------------
Consumption Average....................... 26.1 23.7 24.2 23.7 23.4
Delivered Price........................... $46.42 $50.67 $50.63 $61.50 $83.79
----------------------------------------------------------------------------------------------------------------
Even Weirton's union representatives acknowledge the coke problem:
``Union spokesman David Gosset said raw materials are the root of
Weirton's problem. Weirton does not have a coke plant and must buy it
at a high cost on the open market.'' \25\
---------------------------------------------------------------------------
\25\ Vicki Smith, Furnace Will Stay Idle at Weirton Steel Mill,
Associated Press (Dec. 2, 2005) (Attachment 19).
---------------------------------------------------------------------------
[[Page 17643]]
The raw material paradigm bears out in the experience of other
integrated steel producers. Operations with no captive supplies are
vulnerable and tend to have poorer operating performance. WCI Steel,
for example, also retains no raw material assets. Not surprisingly,
like Weirton, it was also the victim of the coke supply disruption that
occurred in 2004.\26\ WCI emerged from nearly three years of bankruptcy
only this year.
---------------------------------------------------------------------------
\26\ See Peter Krouse, Heat Back on Steel Makers, The Plain
Dealer (February 26, 2004) (Attachment 18).
---------------------------------------------------------------------------
4. Weirton's Geographic Location Guarantees Higher Costs for Basic
Inputs
Unlike competitors along the Great Lakes and elsewhere, which have
access to water transportation to bring in raw materials, Weirton must
resort to more expensive truck and rail options to supply such basic
bulk inputs as iron ore.\27\ As a stand-alone enterprise not affiliated
with a larger integrated steel operation, Weirton would have no ability
to average higher transportation costs over a broader asset base or
leverage lower transportation prices with service providers serving
more than the Weirton facility.
---------------------------------------------------------------------------
\27\ According to the Minneapolis Federal Reserve ``water
transport via inland ports is estimated to be at least five times
more efficient than rail and trucks at delivering similar cargo on a
fuel cost-per-gallon basis. U.S. inland waterways move about 15
percent of interstate commerce for bulk commodities at only 2
percent of the cost.'' Marcia Jedd, Minneapolis Federal Reserve
fedgazette, January 2003, http://minneapolisfed.org/pubs/fedgaz/03-01/shipping.cfm
(Attachment 20); See also Vicki Smith, Furnace Will
Stay Idle at Weirton Steel Mill, Associated Press (Dec. 2, 2005)
(Attachment 19) (``Weirton also must buy iron ore and have it
shipped by rail. Mittal's mill in Cleveland can get iron ore shipped
in cheaper on Lake Erie'').
---------------------------------------------------------------------------
5. Weirton's Limitations as a Fully-Integrated Steel Maker Producing
Tin Mill Steel Are Recognized by Mittal and Outside Observers
There is no dispute that Weirton suffers from severe limitations as
a fully-integrated steel producer, even among those parties with an
immediate interest in, or who are otherwise knowledgeable about, the
facility. Consider the comments of Mittal USA CEO Leo Schorsch shortly
after Mittal acquired Weirton and made the decision to shut down its
steelmaking operations:
This was a very difficult decision, since the Independent
Steelworkers Union and all employees have worked so hard to beat the
odds trying to maintain steelmaking at Weirton,'' said Louis L.
Schorsch, chief executive of Mittal Steel USA. ``However, the
structural disadvantages of Weirton for these processes entail costs
that are too high to support competitive downstream facilities.\28\
---------------------------------------------------------------------------
\28\ Mark Reutter, The Strange Case of Weirton Steel,
MakingSteel.Com (April 25, 2006) (Attachment 7).
At the same time, noted industry analyst and expert on ironmaking/
---------------------------------------------------------------------------
steelmaking assets Michael Locker stated:
The negative of the consolidation process is that you have a
comparison going on of plants * * * within the Mittal family.
If they come out on the short end of the stick, they can't
justify standing alone--even with all the hopes of cost reduction
and efforts by the union, which were mighty.\29\
---------------------------------------------------------------------------
\29\ Vicki Smith, Furnace Will Stay Idle at Weirton Steel Mill,
Associated Press (Dec. 2, 2005) (emphasis added) (Attachment 19).
Other commentary from the period is consistent with that above
---------------------------------------------------------------------------
concerning Mittal's own internal assessment of the Weirton facility:
Unknown to Weirton workers as well as to many ISU officers,
Mittal Steel kept obsessive track of all financial aspects of its
five integrated mills (Burns Harbor and Indiana Harbor in addition
to Cleveland, Sparrows Point, and Weirton). The mills were compared
and ranked according to their raw material inputs, manufacturing
costs, and product profit margins. At the bottom of the list lay the
``swing'' plant--the facility that, in times of low demand, didn't
generate enough money to please the steelmasters in London.
Weirton was the ``swing'' plant.
It was hobbled by higher raw material costs, especially for
coke, than the other mills.\30\
\30\ Mark Reutter, The Strange Case of Weirton Steel,
MakingSteel.Com (April 25, 2006) (Attachment 7).
---------------------------------------------------------------------------
Based on this commentary, it is clear that Weirton, even as part of
a vast integrated steel enterprise, is incapable of being competitive
running its ironmaking and steelmaking assets. As an independent
enterprise running those assets, prospects would only diminish from bad
to worse.
B. Prospects for a Stand-Alone Weirton Enterprise Operating as a
Rolling and Finishing Operation Are Limited
Even if Weirton's ironmaking and steelmaking assets remain closed
and the facility continues operating as a rolling and finishing
operation, the viability of such an operation on a stand-alone basis is
doubtful. The Weirton rolling operations--long neglected by its
previous and current owners--require substantial investment to remain
competitive. Moreover, the production emphasis on tin mill steel, as
well as the configuration and limitations at the mill, mean that it
would have limited production flexibility to maximize profitability by
reacting to changes in up- and down-stream flat-rolled steel markets.
Finally, the prospect of limited availability of merchant slab or black
plate substrate could lead to supply disruptions and limit capacity
utilization at the mill, such that it could not generate sustainable
profits.
1. Weirton's Rolling and Finishing Assets Require Substantial
Investment To Be Competitive
The Weirton facility, both as an independent entity and as part of
the International Steel Group and Mittal Steel, has been a consistent
industry laggard. Years of losses have led to years of neglect at the
mill.\31\ At the tin line, alone, Mittal has publicly identified the
need for in-line edge-cutting and tension leveling equipment to keep
the mill competitive.\32\ Mittal, however, has not committed to that
investment, which it identified as important shortly after it acquired
the Weirton assets from the International Steel Group.\33\
---------------------------------------------------------------------------
\31\ Weirton filed for Chapter 11 Bankruptcy protection in May
2003 after racking up more than $700 million in losses over the
previous five years. Vicki Smith, Weirton Files for Ch. 11; 1,100
Ohio Jobs Affected, Associated Press (May 20, 2003) (Attachment 21).
Such financial performance is not conducive to investment in the
capital-intensive steel industry.
\32\ See Hearing Transcript, In the Matter Of: Tin and Chromium-
Coated Steel Sheet from Japan, Inv. No. 731-TA-860 (Review) (April
27, 2006) (testimony of Bill Stephans, Division Manager for TMP at
Mittal Steel USA's Weirton Facility) (Attachment 22).
\33\ Mark Reutter, The Strange Case of Weirton Steel,
MakingSteel.Com (April 25, 2006) (Attachment 7).
---------------------------------------------------------------------------
Given Weirton's historically poor financial performance, it is
likely that other major maintenance at the mill has been severely
neglected. If Weirton has any chance at all of being a viable, stand-
alone operation, any new investor would have to be committed to
substantial new capital spending to improve the competitive position of
the mill. The rolling and finishing lines as they currently exist are
not ``turn-key'' operations that would be immediately competitive in
today's market.
2. Weirton Would Be Committed to Producing Primarily Tin Mill Steel,
Limiting Production Flexibility
In today's steel industry, few mills consistently make money
producing only one product. This is particularly true for mills that
maintain hot-rolled through galvanizing assets and have to cover the
fixed costs associated with each stage of flat-rolled steel production.
Large integrated operations such as these seek a balance, shifting
production upstream and downstream to adjust to changing market
conditions in each segment while also attempting
[[Page 17644]]
to preserve efficient capacity utilization rates at each stage of
production. Weirton cannot make similar adjustments.
At the front of the flat-rolled production chain, hot-rolled steel,
Weirton would lack the ability to challenge more nimble and cost
competitive minimill producers that have long dominated the commodity
hot-rolled market. The economics of buying slab dictate that stand-
alone Weirton rolling and finishing operation move downstream to higher
value-added products in order to capitalize on steel grades that
minimills find more difficult to produce.
At the end of the production chain, the Weirton facility is
incapable of competing in the galvanized sheet market, whether using a
hot-rolled or cold-rolled substrate. Weirton's galvanizing lines were
determined to be the highest cost operations in the Mittal system and
closed.\34\ It is difficult to conceive of a cost environment in which
Weirton could reliably purchase slab and produce a sustainable profit
running steel through such a high cost facility.
---------------------------------------------------------------------------
\34\ Sam Kusic, ISU Irked by Mittal Steel's Plan To Shut Weirton
Galvanizing Line, American Metal Market (Feb. 3, 2006) (Attachment
23).
---------------------------------------------------------------------------
Finally, Weirton's cold-rolling mill, while potentially capable of
producing competitive cold-rolled, would have limited capacity to do so
since it is dedicated to serving the tin operations, creating constant
pressure to keep the tin mill operating at efficient rates to cover
costs.
3. Weirton Would Have Difficulty Securing the Quality and Volume of
Slab Necessary To Maintain Its Operations
Tin mill steel is a high grade steel product that must meet strict
metallurgical and physical tolerances in order to satisfy customer
demands. The steelmaking and slab casting phases of production are
every bit as critical to achieving these qualities as are the rolling
and finishing phases. As a slab roller, it would be necessary for a
stand-alone Weirton enterprise to secure tin mill steel-grade slab from
as few committed sources as possible in order to control uniformity and
quality. Failure to do so would lead to circumstances with which the
Weirton facility is all too familiar: Unreliable, quality-deficient
supply. This was the outcome in 1999, when Weirton experimented as an
independent producer rolling slab acquired from other producers.
Delivery and inventory management were poorly handled. Slab arrived
late and in inconsistent quality and tolerances.\35\ It is unlikely
that the Weirton facility could achieve better results in today's
market.
---------------------------------------------------------------------------
\35\ Weirton's resort to purchased slabs and the problems
created by that strategy were cited in testimony during the 2000
antidumping case on TMP imports from Japan (Attachment 24).
---------------------------------------------------------------------------
A stand-alone Weirton Enterprise rolling purchased slab would find
it difficult to secure, on an economic basis, the 800 thousand to 1
million tons of tin mill steel-grade slab necessary for its operations
from high quality suppliers. In this regard, Brazil is recognized as
the low-cost, high quality producer of merchant slab (i.e., slab
produced for sale) in the world and would be the logical supplier to
the Weirton facility. However, current Brazilian merchant slab supply
is largely allocated among an existing global customer base.\36\
Indeed, free supplies will be further limited with CSN's anticipated
acquisition of U.S. steelmaker Wheeling-Pittsburgh, which currently
maintains 600,000 tons in excess hot-rolling capacity that would be
filled by CSN slab.\37\ That tonnage could increase substantially if a
decision is made to shut Wheeling-Pittsburgh's aging blast furnace.\38\
---------------------------------------------------------------------------
\36\ In 2006, Brazilian merchant slab supply became extremely
tight, with prices rising to $555 a ton, as Brazilian producer CSN
struggled to make up for production losses due to an accident at its
No. 3 blast furnace. A looming increase in export taxes on Chinese
slab put further pressure on the market as Chinese producers pulled
back from export markets. See Diana Kinch, Brazil Slab hits $555/T
In Tight Export Market, American Metal Market (June 5, 2006)
(Attachment 25).
\37\ Wheeling-Pittsburgh Makes Loss, Despite Rising Market,
Steel Business Briefing (May 11, 2006) (Attachment 26).
\38\ A competitor for the Wheeling-Pittsburgh assets, Esmark,
envisions shutting down the last Wheeling-Pittsburgh blast furnace
in an indication of the perceived or assessed costs of running that
facility. See Esmark To Shut Wheeling-Pitt BF If Bid Succeeds, Steel
Business Briefing (August 23, 2006) (Attachment 27).
---------------------------------------------------------------------------
While the Brazilian slab industry has committed to a substantial
expansion of its slab-making capacity, there is little prospect that an
economically viable volume of this forthcoming slab capacity would be
available to a stand-alone Weirton in the quality required to produce
tin mill steel. As documented in the following table, virtually all of
the new Brazilian slab would be unavailable to Weirton. Much of the
planned slab capacity expansion among Brazilian producers targets
either Brazilian domestic demand or other offshore demand (via existing
business relationships). Timing considerations make it even more
improbable that Brazil can source slab for a newly-divested and
independent Weirton mill: A significant fraction of Brazil's new slab
capacity will ramp up years from now, an unsuitably long period of
time.
Figure 5.--Brazilian Slab Capacity Expansions
----------------------------------------------------------------------------------------------------------------
New slab capacity (million
Producer/project tons) Expected startup Comments
----------------------------------------------------------------------------------------------------------------
CST (Arcelor Brazil) \39\..... 2.5......................... End of 2006................ Expected to add 2.5
million tons of hot-
rolled coil capacity
by 2008, which will
capture much of this
expansion. Also
intends to ship
substantial
additional tonnage
to Arcelor-affiliate
Dofasco, which is
slab-deficient.
Gerdau Acominas SA \40\....... 3 (initially 1.5)........... Mid-2008................... Discussions are
already underway
with ``possible
clients abroad.''
CSA \41\ (Thyssen/CVRD)....... 4.4......................... 2008....................... Much of this capacity
is to be dedicated
to Thyssen Steel's
offshore operations,
including a proposed
U.S. greenfield mill
expected to produce
4.5 million tons of
finished steel.
Ceara Steel \42\ (CVRD/Donguk 1.5......................... 2009....................... Donguk Steel is
Steel/Danieli & C. SpA). expected to consume
at least 50 percent
of the slab produced
at the facility.
CSN/Baosteel \43\............. 4.5......................... 2011....................... Two projects are
envisioned, with
feasibility studies
to be finalized by
the end of 2006.
Baosteel is a
projected partner in
one project, with
the expectation that
a portion of the
production would be
directed at
Baosteel. Other
available capacity
would also serve
CSN's rolling
operations abroad,
with the remainder
available to third
parties.
[[Page 17645]]
Usiminas/CVRD \44\............ 5........................... 2010-2012.................. Usiminas is seeking a
partner among
companies that
already have, or
plan to set up,
rolling capacity
abroad.
----------------------------------------------------------------------------------------------------------------
The Russian producer Severstal is also a low-cost producer capable
of meeting international quality standards and therefore might be an
economical option for a stand-alone Weirton facility dedicated to
rolling slab. This option, however, is limited. Severstal's acquisition
of Rouge Steel limits its ability to supply high volumes of merchant
slab while meeting its commitment to Rouge.\45\
---------------------------------------------------------------------------
\39\ Diana Kinch, Arcelor Brasil Sets Sights on New Slab Plant,
American Metal Market (May 1, 2006) (Attachment 28); Diana Kinch,
CST to Hike Slab Sales to Dofasco, American Metal Market (March 22,
2006) (Attachment 29).
\40\ Diana Kinch, Gerdau Acominas Charging Into Slab Mart,
American Metal Market (June 30, 2006) (Attachment 30).
\41\ Diana Kinch, CSA Steel Project Receives License, American
Metal Market (July 6, 2006) (Attachment 31); Scott Robertson, North
American at Top of TK's Agenda, American Metal Market (August 11,
2006) (Attachment 32).
\42\ Diana Kinch, Groundwork Laid For Brazil's Ceara Slab
Project, American Metal Market (December 16, 2005) (Attachment 33).
\43\ Diana Kinch, CSN May Lift Slab Capacity of Two Projects,
American Metal Market (September 1, 2006) (Attachment 34).
\44\ Diana Kinch, Brazil's Usiminas Casts Sights Ahead for New
Slab Project Partner, American Metal Market (August 29, 2006)
(Attachment 35).
\45\ At the time of acquisition, Severstal expressed its intent
to revitalize the Rouge facility by shipping low-cost slab to Rouge
from its Russian production base. See Russia's Severstal Wants to
Ship More Steel to U.S., Reuters (February 2, 2004) (Attachment 36).
---------------------------------------------------------------------------
In short, the market situation for merchant slab would likely force
a stand-alone Weirton to source tin mill steel-quality slab piecemeal
from multiple sources. As Weirton's 1999 experience showed, this is
precisely the sourcing situation Weirton would want to avoid since it
would raise the prospect of supply disruptions and production problems
related to uneven slab consistency.
4. Even if a Stand-Alone Weirton Rolling and Finishing Operation Found
a Consistent Source of Slab Supply, the Market Dynamics for Tin Mill
Steel Would Limit Profitability
Ultimately, even if Weirton could secure an adequate source of slab
from third parties, the market dynamics for tin mill steel would create
significant profitability problems as the market for flat rolled steel
ebbs and flows. In the flat-rolled steel market, the relationship
between slab prices and prices for mainstream flat-rolled steel--hot-
rolled, cold-rolled and galvanized products--tends to remain more
stable. A more consistent pricing spread is maintained as prices for
slab rise and fall. A very different pattern emerges for tin mill
steel, given the very small and specialized market it serves. The
pricing spread between slab and tin mill steel grows or shrinks
substantially as the overall market for flat-rolled steel strengthens
or weakens. For a tin mill steel producer relying on merchant slab, it
is more difficult to preserve profit margins as markets for hot-rolled,
cold-rolled, and galvanized steel expand and cause slab prices to rise.
This is evidenced in the figure below tracking prices for imported
slab, as well as the U.S. market prices for hot-rolled, cold-rolled,
galvanized, and tin mill steel.\46\
---------------------------------------------------------------------------
\46\ Slab prices reflect average unit values for carbon steel
slab imported from Brazil, tracking U.S. harmonized tariff schedule
items 7207.12.0050 and 7207.20.0045. U.S. market prices for hot-
rolled, cold-rolled and galvanized sheet were sourced from Steel
Business Briefing and are FOB Midwest U.S. mill. U.S. market prices
for TMP were sourced from Tin- and Chromium-Coated Steel Sheet from
Japan, Inv. No. 731-TA-860 (Review), USITC Pub. 3860 (June 2006) at
V-8 (Attachment 37).
---------------------------------------------------------------------------
[[Page 17646]]
[GRAPHIC] [TIFF OMITTED] TN09AP07.000
Figure 1 captures both the significantly depressed steel market in
2003 and the extremely strong steel market that followed in 2004 and
2005. The substantial swing in pricing for hot-rolled, cold-rolled, and
galvanized sheet is in sharp contrast to the much flatter pricing
trajectory of tin mill steel. Indeed, during much of 2004, the market
price for commodity grade cold-rolled steel (i.e., the product most
similar to tin mill steel substrate) was actually higher than the tin
mill steel price, despite the substantial additional value-added
associated with tin mill steel production. While the visual depiction
of pricing suggests tin mill steel also maintains a manageable pricing
spread over time, the reality is very different. Consider that, over
the 2000-2005 period, U.S. tin mill steel producers, as an industry,
recorded their largest loss in 2003, when it appears from the figure
above that their raw material costs would have been the most
manageable.\47\
---------------------------------------------------------------------------
\47\ Tin- and Chromium-Coated Steel Sheet from Japan, Inv. No.
731-TA-860 (Review), USITC Pub. 3860 (June 2006) at Table III-8
(Attachment 38).
---------------------------------------------------------------------------
Just as important, the additional overhead and fixed costs
associated with running rolling and finishing assets from the very
first stage of flat rolled steel production through to tin mill steel
production means that margins from tin mill steel production become
extremely tight in a strong steel market. Yet, this is precisely when
tin mill steel producers would logically seek to recoup losses from
weak years. This phenomenon has two important implications. First, a
tin mill steel producer reliant on merchant slab is unable to
capitalize on a strong market through better margins on a higher volume
of steel shipped. Second, a tin mill steel producer reliant on merchant
slab is at a competitive disadvantage in the acquisition of slab on the
open market against other slab rollers producing traditional flat-
rolled products. In particular, because of the pricing spread, these
other slab rollers have greater bidding power to secure the volumes
necessary for their operations. These two factors combine to produce a
very difficult competitive environment for any tin mill steel producer
wishing to rely exclusively on merchant slab. Weirton would not be an
exception to this reality.
5. A Stand-Alone Weirton Enterprise Running Only Its Tin Line Would
Have Difficulty Securing Sufficient Volumes of Black Plate
Real world experience indicates that even if a stand-alone Weirton
enterprise reduced its operations to only its tin lines and sourced
only the substrate for tin mill steel, black plate, it would be unable
to source enough substrate to run its operations on a profitable basis.
In this regard, Silgan notes that the Weirton tin lines are
substantial, capable of running 800,000 tons of tin mill steel. To
achieve economies of scale, it needs to operate those lines at better
than 70 percent, meaning it would have to secure as much as 560,000
tons of black plate to run efficiently.
Consider, however, the experience of Ohio Coatings, a tin mill
steel producer configured to finish black plate. Despite being owned
by, or in close affiliation with, integrated steel producers with the
capacity to produce black plate,\48\ Ohio Coatings has been unable to
secure more than 60 percent of its black plate requirement. This is
true even though the mill is capable of producing only 300,000 tons of
tin mill steel. The fact that an owner of the facility is unwilling to
supply Ohio Coatings with its material requirements speaks volumes
about whether a stand-alone Weirton
[[Page 17647]]
finishing black plate into tin mill steel, with far more substantial
tin mill steel capacity, could source enough black plate as a stand-
alone producer looking to the open market.
---------------------------------------------------------------------------
\48\ Ohio Coatings is a 50-50 joint venture between Wheeling-
Pittsburgh Steel and Donguk Steel of Korea. Wheeling-Pittsburgh is a
producer of black plate and supplies Ohio Coatings that input.
Nippon Steel is Ohio Coatings's exclusive distributor, and is also a
major producer of black plate.
---------------------------------------------------------------------------
Ohio Coatings' problem, which is the same problem a stand-alone
Weirton enterprise would face if similarly operated, relates back to
the flat-rolled pricing dynamics discussed in the previous section.
Steelmakers must make choices regarding the products they choose to
market. The decision begins at the raw steel phase, since steel
chemistry will dictate what finished steel products can be made. In a
strong market for hot-rolled, cold-rolled, or galvanized sheet, the
incentive to produce black plate for tin mill steel production is
diminished. A steelmaker will seek to maximize profitability and
throughput by focusing on those products generating the strongest
margins. The difference in profit margins between tin mill steel and
the other traditional flat-rolled products can be so great that there
is no economic justification for producing black plate. The result is
Ohio Coating's dilemma--a 60 percent capacity utilization rate and no
ready supply of black plate from either its parent company, companies
with close ties to it, or other outside suppliers. There is no
expectation that a stand-alone Weirton, similarly configured, would
fare better. It would likely fare worse, given the lack of any
affiliated supplier of black plate.
C. There Are No Legitimate Suitors for Weirton
Weirton has long been perceived as one of the weakest and least
competitive steel producers in the U.S. industry. To Silgan's
knowledge, the only individual to surface expressing a desire to
acquire the Weirton assets, Mitch Hecht, is not taken seriously by
Mittal and has presented no viable business plan.
Mr. Hecht's estimates on start-up costs to get the Weirton blast
furnaces running are overly optimistic, including a proposed initial
investment of just $10 million, including the purchase price. Hecht has
been even more ambiguous about working capital needs and what he sees
as necessary longer term investment in the ``several'' tens of millions
of dollars.\49\ These ``estimates'' apparently do not even consider the
necessary investment in the rolling assets, but focus only on the blast
furnaces, although Mr. Hecht has expressed interest in acquiring the
rolling assets as well.\50\
---------------------------------------------------------------------------
\49\ Scott Robertson, Mittal Shows Little Interest in Weirton
Furnace Sale, American Metal Market (May 5, 2006) (Attachment 39).
\50\ Mittal Steel Plans to Sell Dofasco, Hecht Waits for
Weirton, Steel Business Briefing (August 16, 2006) (Attachment 40).
---------------------------------------------------------------------------
D. Divesting Weirton Will Have an Adverse Impact on Competition
Given that there is no existing steel entity interested in buying
Weirton and since an independent Weirton would be entirely
unprofitable, a decision to divest Weirton will result in an increase
in the HHI. As detailed in the chart below, using the public data
available to us, Silgan estimates that prior to the Mittal-Arcelor
merger the HHI for the Eastern U.S. tin industry was 3058. With the
Mittal-Arcelor merger, Silgan estimates that the HHI now stands at
3446. Assuming that Weirton is divested and it survives as a standalone
entity, the HHI would fall to 2761.\51\
---------------------------------------------------------------------------
\51\ The full analysis is provided at Attachment 41 (``HHI
Impact of Alternative Divestiture Scenarios'').
[[Page 17648]]
Figure 7.--HHI Anlaysis: Post-Merger and Weirton Market Exit
----------------------------------------------------------------------------------------------------------------
HHI impact
----------------------------------------------------------------------------------------------------------------
Pre-merger...................................... 3058
Post-merger (no divestiture).................... 3446
Remedy-Divest Weirton........................... 2761 (if Weirton survives).
3645 (if Weirton fails).
----------------------------------------------------------------------------------------------------------------
Unfortunately, as the above discussion makes clear, the divestiture
of Weirton will almost certainly result in failure and the exit of
Weirton from the tin industry. Assuming that Weirton is divested and it
does not survive as standalone entity, the HHI will rise to 3645.
It is Silgan's belief that this latter scenario is quite likely;
indeed, Silgan knows of no industry expert who would give a stand-alone
Weirton more than a 20% chance of surviving. Consequently, this implies
that the expected result of a Weirton divestiture is a higher, not
lower, HHI. In fact, unless the DOJ believes that a stand-alone Weirton
has a better than a two out of three chance of surviving (an unduly
optimistic belief in Silgan's opinion), the expected result of a
Weirton divestiture is a less competitive market.\52\ Given Weirton's
poor prospects as a standalone producer, allowing Mittal to divest
Weirton runs contrary to the goal of improving competition in tin
market.
---------------------------------------------------------------------------
\52\ The full analysis is provided at Attachment 42
(``Probability that Divestiture Will Improve Competition'').
---------------------------------------------------------------------------
The increase in HHI is only one probable consequence of a
divestiture of Weirton. A failed Weirton would remove more than 800,000
tons of tin-making capacity from the market. With Weirton in the market
can-makers are often put on allocation and struggle to get delivery of
product. The removal of about 20% of U.S. production capacity will make
the current bad situation truly dire.
[[Page 17649]]
III. A Divestiture of Sparrow's Point Would Also Be a Far Less
Effective Remedy Than Divesting DoFasco
A. Divestiture of Sparrows Point Is Unlikely To Enhance Competition
Over the Long Term
As discussed above, Weirton does not have the ability to survive on
its own. And, without Sparrows Point, Weirton is unlikely to survive as
part of the Mittal-Arcelor enterprise. The reason is straightforward:
Without Sparrows Point, Weirton will not be able to secure sufficient
volumes of feedstock to produce tin mill steel.
Within the Mittal system, Sparrows Point is a key supplier of slab
for Weirton. For example, Silgan's understanding is that all the tin
free steel (``TFS'') originating at the Weirton facility is produced
using Sparrows Point slab. A Sparrows Point facility operating outside
the Mittal system would limit the supply of this key feedstock to
Weirton and thereby threaten the ongoing viability of Weirton.
And, as importantly, all indications are that other slab producers
within Mittal Steel's collection of facilities either cannot or are
unlikely to become reliable suppliers to Weirton's tin mill steel
operations. Specifically, (1) Dofasco's current product mix and sales
make Dofasco an unlikely replacement for Sparrows Point as a supplier
of feedstock to Weirton, (2) given lower tin mill steel profitability
compared to other flat-rolled products, it is unlikely that Mittal
Steel's other U.S. slab producers will divert scarce feedstock to
Weirton, and (3) it would make no economic sense for Mittal's Brazilian
affiliate, CST, to supply slabs to Weirton.
Silgan discusses these points below.
1. Dofasco Is an Unlikely Replacement for Sparrows Point in Supplying
Slabs to Weirton
As discussed above, if Sparrows Point is divested, it is unlikely
that Dofasco would replace Sparrows Point as a key supplier of slab to
Weirton. First, Dofasco is already a producer of tin mill steel and,
while Sparrows Point may claim the same status, Dofasco is also a key
supplier to the auto sheet market,\53\ where profit margins are among
the strongest in the industry. Sparrows Point is not a significant
player in that market.\54\ There would be virtually no economic
incentive for Mittal to divert slabs from Dofasco and reduce production
in the high margin auto sheet segment. Dofasco's slab production must
also support other Dofasco downstream operations, including its hot-
rolled, cold-rolled and pipe facilities.\55\
---------------------------------------------------------------------------
\53\ Dofasco is the fourth-largest producer of auto sheet in the
North American market, at roughly 1 million tons, behind the multi-
site operations of Mittal Steel, U.S. Steel and AK Steel. See Peter
Marsh, Massive Bids on Table as Giants Fight for Dofasco, Financial
Times (January 13, 2006) (Attachment 4).
\54\ According to long-time steel analyst Charles Bradford,
Sparrows Point (``doesn't have those (automotive) grades.'' Scott
Robertson, Mittal Sparrows Point Mill May Be On Action Block,
American Metal Market (June 2, 2006) (Attachment 5).
\55\ 2005 Directory of Iron and Steel Plants, Association for
Iron and Steel Technology (2005) at 98-101 (listing flat-rolled
assets) (Attachment 6). Dofasco Tubular Products is the largest and
most diversified producer of tubular products in North America. See
http://www.dofascotube.com/Default.htm (Attachment 3).
---------------------------------------------------------------------------
More importantly, Dofasco is not self-sufficient in slabs, but
itself requires as much as 750,000 tons in purchased slab to feed its
rolling and finishing operations.\56\ Thus, to maintain efficient
capacity utilization rates at all of its production lines, Dofasco
needs every ton of slab it produces and acquires.
---------------------------------------------------------------------------
\56\ Diana Kinch, CST to Hike Slab Sales to Dofasco, American
Metal Market (March 22, 2006) (Attachment 29).
---------------------------------------------------------------------------
2. It Is Unlikely That Mittal Steel's Other North American Slab
Producers Will Divert Scarce Feedstock to Weirton
Divesting Sparrows Point will cause Mittal Steel to have one fewer
steel-making facility. With one less blast furnace operating to support
its operations, Weirton becomes more vulnerable to blast furnace
outages--some planned, some unplanned--that aer a regular occurrence in
the steel industry. Blast furnace relines as well as accidents can
cause significant supply disruptions, particularly if slab supply is
already tight. Any problem at Mittal's other steel-making facilities in
Burns Harbor, Cleveland, or Indiana Harbor will result in a reduction
of slab supplied to Weirton's tinning lines. Facing a supply shortage,
Mittal USA would have a strong incentive to divert its limited supply
of slabs away from the downsized tin mill steel market in order to
maintain production volumes in the more robust galvanized and cold-
rolled markets. The result would be significant production delays at
Weirton. Given the tight timing requirements for tin mill steel, where
can-makers demand just-in-time delivery, such delays would be
devastating to Weirton's customers.
Without Sparrows Point's slab capacity, the likelihood that Mittal
will ration Weirton's slab supply is greatly increased. As the chart
below makes clear, the difference in profit margins between other flat-
rolled products and tin mill steel is just too great to justify sending
scarce feedstock to Weirton.
Figure 8.--Comparison of U.S. Industry Profitability for Flat-Rolled
Products
[Operating margin]
------------------------------------------------------------------------
2004 2005
------------------------------------------------------------------------
Galvanized \57\.................... 10.9% 5.4%
Plate \58\......................... 22.0% 25.4%
Hot-Rolled \59\.................... 22.1% Not available.
Tin Mill \60\...................... -0.9% -0.7%
------------------------------------------------------------------------
Very simply,Weirton will not be the best use of Mittal's limited slab
supply in the Midwest that services more profitable operations.
---------------------------------------------------------------------------
\57\ ITC Prehearing Staff Report, Certain Carbon Steel Products
from Australia, Belgium, Brazil, Canada, Finland, France, Germany,
Japan, Korea, Mexico, Poland, Romania, Spain, Sweden, Taiwan, and
the United Kingdom, Inv. Nos. AA1921-197 (Second Review); 701-TA-
319, 320, 325-328, 348, and 350 (Second Review); and 731-TA-573,
574, 576, 578, 582-587, 612, and 614-618 (Second Review) (September
25, 2006) at Table CORE-III-8 (Attachment 43).
\58\ Id. at Table CTL-III-9.
\59\ Certain Hot-Rolled Flat-Rolled Carbon-Quality Steel
Products From Brazil, Japan, and Russia, Inv. Nos. 701-TA-384 and
731-TA-806-808 (Review), USITC Pub. 3767 (April 2005) at Table III-
11 (Attachment 44).
\60\ Tin and Chromium Coated Steel Sheet from Japan, Inv. No.
731-TA-860, USITC Pub. 3860 (June 2006) at Table III-8 (Attachment
38).
---------------------------------------------------------------------------
3. It Would Make No Economic Sense for Mittal's Brazilian Affiliate CST
To Supply Slabs to Weirton
Within Mittal's global steel operations, its Brazilian affiliate
CST (Arcelor/Brazil) is a significant producer of slab for sale in
export markets. CST also has plans to expand its slab capacity in the
very near term, with the introduction of some 2.5 million tons of new
slab capacity at the close of this year. CST, however, is an unlikely
candidate to ship a significant tonnage of slab to Weirton.
CST is already a major supplier of slab to Dofasco, shipping some
400,000 tons with plans to increase that amount, perhaps to meet all of
Dofasco's merchant slab requirements (750,000 tons).\61\ It would make
more economic sense to ship this slab to Dofasco, a high profit margin
producer that needs the slab to fill capacity in high demand, than to
Weirton.
---------------------------------------------------------------------------
\61\ Id.
---------------------------------------------------------------------------
The window in which CST might ship to Weirton is also limited since
it has plans to increase its own hot-rolled sheet capacity by 2.5
million tons by 2008, the same amount as its slab
[[Page 17650]]
capacity expansion.\62\ Between servicing this new hot-rolled capacity
and other profitable global accounts, CST would be very reluctant to
allocate slab for supply to Weirton. Under the circumstances, as a
rational economic actor seeking to maximize profits, there is no
justification for Mittal to ship slabs from CST to Weirton.
---------------------------------------------------------------------------
\62\ Diana Kinch, Arcelor Brasil Sets Sights On New Slab Plant,
American Metal Market (May 1, 2006) (Attachment 28)
---------------------------------------------------------------------------
B. Divesting Sparrows Point Will Have an Adverse Impact on Competition
in the Medium to Long Term
From the standpoint of consumer impact, the divestiture of Sparrows
Point is, at best, a highly risky policy option. As detailed in the
chart below, Silgan estimates that, prior to the Mittal-Arcelor merger,
the HHI for the Eastern U.S. tin industry was 3058; following the
merger, Silgan estimates that the HHI will be 3446. Assuming that
Sparrows Point is divested and that such divestiture neither adversely
impacts Weirton's viability nor alters Sparrow Point's commitment to
tin, the HHI would fall to 2836.\63\
---------------------------------------------------------------------------
\63\ The full analysis is provided at Attachment 41 (``HHI
Impact of Alternative Divestiture Scenarios'').
Figure 9.--Weirton and Sparrows Point HHI Analysis
------------------------------------------------------------------------
HHI impact
------------------------------------------------------------------------
Pre-merger............................. 3058.
Post-merger (no divestiture)........... 3446.
Remedy-Divest Sparrows Point........... 2836 (if both W & SP survive).
3421 (if Weirton fails).
3495 (if SP does not maintain
its tin operations).
------------------------------------------------------------------------
Regrettably, the necessary conditions for an improvement in the
concentration metric (both Weirton and Sparrows Point surviving upon
divestiture) are unrealistic and not likely to materialize. As
explained above, the divestiture of Sparrows Point will significantly
threaten the reliable supply of quality slab to the Weirton facility
and hence will jeopardize Weirton's viability. While Weirton would not
likely fail immediately, the lack of reliable captive slab supply will
result in the exit of Weirton from the tin industry. Such exit from the
industry would cause the HHI to rise to 3421. Said differently, if the
divestiture of Sparrows Point results in Weirton failing, the Sparrows
Point divestiture would be totally ineffectual in restoring competitive
balance to the tin industry.
Further weakening the benefits of a Sparrows Point divestiture is
the question of Sparrows Point's commitment to the tin market. As
discussed, Sparrows Point has never operated as a stand-alone facility
and is not only likely to invest insufficiently in making its tin lines
world class. If a stand-alone Sparrows Point is not committed to its
tin facility, the HHI would be 3495. Again, this implies that the
Sparrows Point divestiture would be totally ineffectual in restoring
competitive balance to the tin industry.
In sum, the divestiture of Sparrows Point is a risky gambit. The
Department of Justice's competition policy should not be based on hope
and a prayer. If the DOJ believes that either of the above two
scenarios has more than a one in two chance of occurring, the expected
result of a Sparrows Point divestiture is a less competitive market.
Conclusion
For all the foregoing reasons, we ask that the Department adopt the
following approach in designing an appropriate remedy to address the
reduced competition in the tin mill steel market.
First, the Department should make every effort to
accomplish the divestiture of Dofasco.
Second, if immediate divestiture is not possible, Silgan
strongly recommends the consent decree be modified to wait the five
years reportedly necessary to eliminate any existing legal impediments
to the divestiture of Dofasco. An independent Dofasco in five years is
better than any of the other alternatives for preserving competition.
Respectfully submitted,
Theodore C. Whitehouse
James P. Durling
Daniel L. Porter
Matthew McCullough
Willkie Farr & Gallagher LLP, 1875 K Street, NW., Washington, DC
20006, (202) 303-1000.
List of Attachments
1. United States v. Mittal Steel Company, Proposed Final Judgment
and Competitive Impact Statement, 71 Fed. Reg. 50084, 50085, 50093
(August 24, 2006).
2. World Steel Dynamics (2005).
3. http://www.dofascotube.com/Default.htm.
4. Massive Bids on Table as Giants Fight for Dofasco, Financial
Times (January 13, 2006).
5. Mittal Sparrows Point Mill May Be On Auction Block, American
Metal Market (June 2, 2006).
6. Excerpts from 2005 Directory of Iron and Steel Plants,
Association for Iron and Steel Technology (2005).
7. The Strange Case of Weirton Steel, MakingSteel.com (April 25,
2006).
8. Fewer Blast Furnaces, But Higher Productivity, New Steel
(November 1996).
9. See How a Blast Furnace Works, AISI.
10. Ironmaking Process Alternative Screening Study--Volume I,
Summary Report, Lockwood Greene study for the Department of Energy
(Oct. 2000).
11. ISG To Repair, Restart Second Blast Furnace at Weirton Unit,
American Metal Market (July 14, 2004).
12. Mittal Steel USA Works to Restore Furnace at Sparrows Point,
PRNewswire (July 14, 2006).
13. Ispat Inland Accelerates Maintenance Outages, Ispat Inland
Press Release (March 7, 2005).
14. Weirton Workers Buyout from Online NewsHour, September 23,
1983; http://www.pbs.org/newshour/bb/business/july-dec83/steel_9-23-83.html
.
15. High Production Costs Hamper AK Steel's Middletown Works, Steel
Business Briefing (Aug. 10, 2006).
16. Dofasco Seals $251m Purchase of Canadian Iron Ore Miner QCM,
American Metal Market (July 26, 2005).
17. Force Majeure Clobbers Coke-Short Steelmaking: Weirton Eyes
Option, Blast Furnace Closure, American Metal Market (Jan. 9, 2004).
18. Heat Back on Steel Makers, The Plain Dealer (February 26,
2004).
19. Furnace Will Stay Idle at Weirton Steel Mill, Associated Press
(Dec. 2, 2005).
20. The shipping news & forecast: District ports face many
competitive challenges, but whether they sink or
[[Page 17651]]
swim over the long term will likely depend on infrastructure
improvements, Minneapolis Federal Reserve fedgazette (January 2003).
21. Weirton Files for Ch. 11; 1,000 Ohio Jobs Affected, Associated
Press (May 20, 2003).
22. Testimony of Bill Stephans, Division Manager for TMP at Mittal
Steel USA's-Weirton Facility from Hearing Transcript, In the Matter Of:
Tin and Chromium Coated Steel Sheet from Japan, Inv. No. 731-TA-860
(Review) (April 27, 2006).
23. ISU Irked by Mittal Steel's Plan To Shut Weirton Galvanizing
Line, American Metal Market (Feb. 3, 2006).
24. Excerpts of Testimony from Hearing Transcript, In the Matter
Of: Tin and Chromium Coated Steel Sheet from Japan, Inv. No. 731-TA-860
(F) (June 29, 2000).
25. Brazil Slab Hits $555/T In Tight Export Market, American Metal
Market (June 5, 2006).
26. Wheeling-Pittsburg Makes Loss, Despite Rising Market, Steel
Business Briefing (May 11, 2006).
27. Esmark To Shut Wheeling-Pitt BF If Bid Succeeds, Steel Business
Briefing (Aug. 23, 2006).
28. Arcelor Brasil Sets Sights On New Slab Plant, American Metal
Market (March 22, 2006).
29. CST to Hike Slab Sales to Dofasco, American Metal Market (March
22, 2006).
30. Gerdau Acominas Charging Into Slab Mart, American Metal Market
(June 30, 2006).
31. CSA Steel Project Receives License, American Metal Market (July
6, 2006).
32. North America at Top of TK's Agenda, American Metal Market
(August 11, 2006).
33. Groundwork Laid For Brazil's Ceara Slab Project, American Metal
Market (September 1, 2006).
34. CSN May Lift Slab Capacity Of Two Projects, American Metal
Market (September 1, 2006).
35. Brasil's Usiminas Casts Sights Abroad For New Slab Project
Partner, American Metal Market (August 29, 2006).
36. Russia's Severstal Wants to Ship More Steel to U.S., Reuters
(February 2, 2004).
37. Tin and Chromium Coated Steel Sheet from Japan, No. 731-TA-860
(Review), USITC Pub. 3860 (June 2006) at V-8.
38. Tin and Chromium Coated Steel Sheet from Japan, Inv. No. 731-
TA-860 (Review), USITC Pub. 3860 (June 2006) at Table III-8.
39. Mittal Shows Little Interest in Weirton Furnace Sale, American
Metal Market (May 5, 2006).
40. Mittal Plans to Sell Dofasco, Hecht Waits for Weirton, Steel
Business Briefing (August 16, 2006).
41. ``HHI Impact of Alternative Divestiture Scenarios''.
42. ``Probability that Divestiture Will Improve Competition''.
43. ITC Prehearing Staff Report, Certain Carbon Steel Products from
Australia, Belgium, Brazil, Canada, Finland, France, Germany, Japan,
Korea, Mexico, Poland, Romania, Spain, Sweden, Taiwan, and the United
Kingdom, Inv. Nos. AA1921-197 (Second Review); 701-TA-319, 320, 325-
328, 348, and 350 (Second Review); and 731-TA-573, 574, 576, 578, 582-
587, 612, and 614-618 (Second Review) (September 25, 2006) at Tables
CORE-III-8 and CTL III-9.
44. Certain Hot-Rolled Flat-Rolled Carbon-Quality Steel Products
From Brazil, Japan, and Russia, Inv. Nos. 701-TA-384 and 731-TA-806-808
(Review), USITC Pub. 3767 (April 2005) at Table III-11.
Attachment 1--United States v. Mittal Steel Company, Proposed Final
Judgment and Competitive Impact Statement 71 FR 50084, 50085, 50093
(August 24, 2006)
The attachment is available in the Federal Register, 71 FR 50084.
Attachment 2--World Steel Dynamics (2005)
Positioning of 23 World-Class Steelmakers as of June 2005
[Version A--by Factor Weight]
1=least favorable \1\ 10=most favorable \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Anshan Bao- Blue- China
Arcelor Steel Steel Scope Steel Corus CSN CST Dofasco Gerdau JFE
E.U China China Australia Taiwan UK Brazil Brazil Canada Brazil Japan
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annual Steel Shipments ........... 53 10 19 8 12 23 5 5 5 15 30
(million tons).............
Factor Weight
(percent)
1 Cash operating costs...... 10 6 8 8 8 7 5 10 10 6 7 6
2 Harnessing technological 10 6 7 8 7 5 4 4 6 6 5 7
revolution.................
3 Profitability in 2000-2004 6 4 8 10 9 8 4 10 8 9 10 6
4 Balance sheet............. 6 7 4 8 8 10 8 7 5 7 9 7
5 Dominance country/region.. 6 4 10 10 4 3 2 8 8 3 7 2
6 Domestic market growth.... 5 6 7 8 7 5 4 4 6 6 5 7
7 Expanding capacity........ 5 3 10 9 6 3 2 6 10 3 8 3
8 Access to outside funds... 4 7 6 10 9 9 5 6 9 9 8 8
9 Cost-cutting efforts...... 4 10 9 7 7 6 10 6 6 6 6 10
10 Downstream businesses.... 4 5 3 4 9 3 7 5 3 4 6 10
11 Environment and safety... 4 9 9 9 9 9 9 9 9 9 9 9
12 Iron ore and coking coal 4 3 7 4 4 3 3 7 3 5 4 3
mines......................
13 Liabilities for retired 4 6 6 8 6 6 10 7 10 7 8 6
workers....................
14 Location to procure raw 4 6 7 8 8 8 8 7 8 6 5 8
materials..................
15 Alliances, mergers, 4 10 9 9 7 6 4 7 7 7 10 9
acquisitions and JVs.......
16 ``Pricing Power'' with 4 8 4 8 8 10 8 7 5 7 7 8
large buyers...............
17 Threat from nearby 4 5 4 5 8 8 5 7 6 6 7 7
competitors................
[[Page 17652]]
18 Product quality.......... 4 9 5 9 8 8 8 7 8 9 6 10
19 Skilled and productive 4 8 5 7 8 8 8 7 9 10 8 10
workforce..................
20 Stock market performance 4 9 9 9 9 9 9 9 9 9 9 9
(3-year)...................
Average Score........... ........... 6.55 6.85 7.90 7.45 6.70 6.15 7.00 7.25 6.70 7.20 7.25
Ranking \1\............. ........... 18 14 4 7 15 23 13 9 15 11 9
Weighted-Average Score.. ........... 6.07 6.75 7.61 7.05 6.22 5.60 6.80 6.98 6.19 6.81 6.66
Ranking \1\............. ........... 20 12 4 7 18 23 10 8 19 9 13
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Many of these rankings are subjective and some are duplicative.
\2\ Plants in many countries, includes lspat International.
Source: WSD estimates.
Positioning of 23 World-Class Steelmakers as of June 2005
[Version A--by Factor Weight]
1=least favorable \1\ 10=most favorable \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Mittal Nippon Tata Thyssen/ U.S.
\1\ Maanshan Steel Nucor POPSO SDI USA Severstal Shagang Steel Krupp Steel Wuhan Avg.
Steel China Japan USA S.K. Russia China India Germany USA China
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annual Steel Shipments 62 8 30 20 34 4 13 5 5 19 21 10 18
(million tons)...............
Factor:
1 Cash operating costs.... 7 7 6 8 8 8 10 6 10 5 6 7 7.4
2 Harnessing technological 7 6 7 10 9 9 6 7 7 6 5 6 6.5
revolution...............
3 Profitability in 2000- 7 7 6 7 10 9 9 8 10 4 4 8 7.6
2004.....................
4 Balance sheet........... 8 6 7 6 10 4 8 4 8 6 6 6 7.0
5 Dominance country/region 6 10 2 2 6 2 8 10 10 2 2 10 5.5
6 Domestic market growth.. 7 6 7 10 9 9 6 7 7 6 5 6 6.5
7 Expanding capacity...... 8 10 3 10 4 10 9 10 10 5 3 9 6.6
8 Access to outside funds. 10 6 8 10 10 9 9 5 10 7 7 6 8.0
9 Cost-cutting efforts.... 10 9 9 6 6 6 6 6 8 8 8 8 7.5
10 Downstream businesses.. 5 7 10 10 7 6 7 2 5 10 3 2 6.0
11 Environment and safety. 9 9 9 9 9 9 9 9 9 9 9 9 9.0
12 Iron ore and coking 7 5 3 ....... 4 ....... 10 3 10 3 7 3 4.9
coal mines...............
13 Liabilities for retired 7 6 6 10 8 10 8 10 6 6 5 6 7.4
workers..................
14 Location to procure raw 8 6 8 6 8 6 7 8 10 5 8 6 7.2
materials................
15 Alliances, mergers, 10 7 7 10 8 10 8 8 9 9 10 8 8.2
acquisitions and JVs.....
16 ``Pricing Power'' with 8 4 8 4 10 3 9 3 8 7 5 4 6.8
large buyers.............
17 Threat from nearby 6 4 7 4 10 4 8 4 7 5 5 4 6.0
competitors..............
18 Product quality........ 7 5 10 7 10 7 6 5 8 9 9 6 7.7
19 Skilled and productive 8 5 10 10 10 10 7 7 8 9 9 5 8.2
workforce................
20 Stock market 10 9 9 9 9 9 10 5 9 9 9 9 8.9
performance (3-year).....
Average Score............. 7.75 6.70 7.10 7.79 8.25 7.37 8.00 6.35 8.45 6.50 6.25 6.40 7.16
Ranking \1\............... 6 15 12 5 2 8 3 21 1 19 22 20 .......
Weighted-Average Score.... 7.21 6.52 6.54 7.10 7.87 6.75 7.65 6.27 8.11 5.93 5.70 6.29 6.76
Ranking \1\............... 5 15 14 6 2 11 3 17 1 21 22 16 .......
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Many of these rankings are subjective and some are duplicative.
\2\ Plants in many countries, includes Ispat International.
Source: WSD estimates.
[[Page 17653]]
Attachment 3--http://www.dofascotube.com/Default.htm
The attachment is available at the following Web site, http://www.dofascomarion.com/Default.htm
Attachment 4--Massive Bids on Table as Giants Fight for Dofasco,
Financial Times (January 13, 2006)
Massive Bids on Table as Giants Fight for Dofasco
Scarcity and an iron ore mine drive the battle between Arcelor and
ThyssenKrupp for the Canadian steelmaker, says Peter Marsh.
By Peter Marsh
13 January 2006
Financial Times
(c) 2006 The Financial Times Limited. All rights reserved
The global steel industry has been through a transformation as
spectacular as any to have affected the business world in the past few
years.
That is confirmed in the bidding battle between Arcelor and
ThyssenKrupp, two giants of the European steel industry, for Dofasco, a
mid-sized Canadian steelmaker that both companies are valuing at more
than USDollars 4bn.
Luxembourg-based Arcelor is considering whether to make a fresh bid
for the Ontario company higher than that tabled by its German rival--
and other companies could still enter the fray. Just before Christmas,
Lakshmi Mittal, chairman and majority owner of Mittal Steel, the
world's biggest steelmaker, indicated he had not ruled out making an
offer for Dofasco, even though such a move is considered unlikely. Mr.
Mittal has been a prime initiator of steel industry mergers since 2000
that have increased the size of the main players in the sector and put
them in a much stronger position to dictate terms to customers. At the
same time, steel prices have rocketed due to rapacious demand from
China as its economy has expanded to suck in about 30 percent of world
steel output.
As a consequence, share prices of quoted steel companies in recent
years have been among the best performers on global stock markets,
despite a downturn in recent months. Thyssen's most recent January 3
offer of CDollars 63 a share values Dofasco at CDollars 4.9bn
(USDollars 4.2bn). It was pitched at the same level as a rival bid by
Arcelor--which started the effort to acquire Dofasco through a CDollars
56-a-share bid in November. But the Canadians regard Arcelor as a
predator and the Dofasco board is backing the Germans, at least in part
because if it sells to another suitor, Dofasco would have to hand
Thyssen a CDollars 100m break-up fee.
Mike Locker, of Locker Associates, a US steel consultancy, says the
magnitude of both bids is ``eye-popping'', given that Dofasco is a
relatively small player with production last year estimated at about 5m
tonnes. In the first nine months of 2005, Dofasco turned in net income
of CDollars 142.6 m on sales of CDollars 2.69bn, with the earnings
figure well down on the CDollars 280.1m net income recorded in the
first nine months of 2004, a result of tougher conditions generally in
the steel industry in the early part of last year.
But in spite of the earnings drop, Mr. Locker still thinks the high
price of the offers can be justified, given Dofasco's strong position
in higher-value segments of the steel industry--particularly in flat
galvanized sheet used for car bodies. About 75m tonnes of this
material--which has to be made using special processes so it is
especially shiny and resistant to corrosion--is made each year, with
Arcelor being the world leader with about 10m tonnes.
While Thyssen is well behind with 5m tonnes, both are keen to
expand in this field in North America--where Dofasco is the fourth
biggest producer with output estimated at about 1m tonnes a year.
Mittal Steel and US Steel are the two largest producers of automotive
sheet steel in the region--with global output of 6m tonnes and 5m
tonnes respectively, most of this coming from their US plants.
The third player in North America, with 2m tonnes, is AK Steel--
which has been in financial difficulties and is burdened by healthcare
and pensions liabilities estimated at Dollars 3.5bn. ``Since neither
Mittal nor US Steel is available, and AK is probably ruled out, there
is a scarcity value about Dofasco (in automotive steel) which
inevitably increases its price,'' says Mr. Locker.
Another attraction of the Canadian company is its ownership of QCM,
an iron ore mine in Quebec. This raw material has been in short supply
in the past two years, with a consequent big increase in price.
Michelle Applebaum, of Michelle Applebaum Research, an Illinois-
based consultancy, says ``roughly a third'' of the money Arcelor and
Thyssen are prepared to pay for Dofasco could be linked to ownership of
the mine--which produces about 16m tonnes of ore a year, most for sale
to other steelmakers.
Attachment 5--Mittal Sparrows Point Mill May Be On Auction Block,
American Metal Market (June 2, 2006)
Mittal Sparrows Point Mill May Be on Auction Block
By Scott Robertson
PITTSBURGH--Mittal Steel Co. NV reportedly is shopping its
integrated steel mill in Sparrows Point, Md., as part of what appears
to be a contingency plan if its proposed acquisition of Arcelor SA,
Luxembourg, falls through.
Executives from ThyssenKrupp AG, which is in line to buy Dofasco
Inc. if Mittal acquires Arcelor, toured the Sparrows Point plant last
week and have expressed interest in it, according to Mittal sources.
Mittal reportedly is entertaining a sale of the Sparrows Point
plant, formerly owned by Bethlehem Steel Corp. and later by
International Steel Group Inc., in an antitrust maneuver.
Mittal is interested in acquiring Arcelor and has reached an
agreement to sell Dofasco--currently held in a trust created by
Arcelor--to ThyssenKrupp if it succeeds in getting Arcelor.
Arcelor, however, has reached an agreement to acquire Russian steel
producer OAO Severstal that could take Mittal out of the picture. The
possible sale of the Sparrows Point plant to ThyssenKrupp might be a
contingency plan should Mittal be unable to complete the promised sale
of Dofasco as part of an Arcelor takeover.
A spokesman for Mittal Steel USA Inc., Chicago, said Thursday that
its Rotterdam-based parent expects to complete the Arcelor purchase and
to move forward with its sale of the Dofasco mill in Hamilton, Ontario,
to ThyssenKrupp. In that case, he said, ``no other moves would be
necessary.''
The U.S. Department of Justice already has granted conditional
approval to the Mittal merger with Arcelor. The conditions stipulate
that it dispose of certain operations--interpreted to be Dofasco.
Calls to managers at the Sparrows Point plant, to Mittal Steel
offices in London and to ThyssenKrupp in Dusseldorf, Germany, were not
returned by late Thursday.
It is not unusual for representatives of steel producers to tour
each other's plants, so in some respects a ThyssenKrupp tour of
Sparrows Point could be viewed as something done in the normal course
of business. The appearance of ThyssenKrupp representatives at the
plant, however, sparked widespread industry chatter that the plant was
on the block and
[[Page 17654]]
could be part of a Mittal-ThyssenKrupp contingency plan.
When it announced last month it was improving its bid for Arcelor,
Mittal Steel said it would consider selling other North American assets
if it could not complete the sale of Dofasco to ThyssenKrupp.
Several sources said that while the contingency plan idea might be
true, a ThyssenKrupp acquisition of Sparrows Point would not mesh with
its goals for the North American market. ThyssenKrupp, which lost out
in a bidding war with Arcelor for Dofasco earlier this year, in the
past has been rumored to be interested in acquiring AK Steel Corp.,
Middletown, Ohio, or U.S. Steel Corp., Pittsburgh, in an effort to gain
entry to the North American automotive market.
``Sparrows Point doesn't have those (automotive) grades,'' longtime
steel industry analyst Charles Bradford said. ``If (Mittal) were going
to get rid of something in North America, I don't think it would be
Sparrows Point. I think if they had their druthers, they'd sell
Weirton, but that does not meet what ThyssenKrupp needs, either.
``I think it would be more likely that they would get rid of
Inland,'' he said, referring to the former Ispat Inland plant in East
Chicago, Ind. that is now part of Mittal's Indiana Harbor division.
``It used to be said that Inland and Dofasco were like brother and
sister in terms of the things they did, so that would make more sense
to me. Getting rid of Sparrows Point does not make sense from an
antitrust perspective because it is not related to automotive like
Inland and Dofasco are.''
Bradford added that ThyssenKrupp's presence in the global stainless
steel market and its ownership of ThyssenKrupp Budd Co., an automotive
parts manufacturer in Troy, Mich. also make an acquisition of Sparrows
Point unlikely.
``They (Budd) are a parts-maker and chassis maker,'' Bradford said.
``Again, that does not fit with what Sparrows Point does. But you
always go and take a look whenever a competitor gives you that
opportunity, you take advantage of it.''
Another market source close to the Sparrows Point plant said the
visit could be nothing more than a smokescreen. ``ThyssenKrupp
announced a few days ago it will downsize its steel business,'' he
said. ``So while an outpost in North American could be good for
ThyssenKrupp, since they won't get Canada's Dofasco (in the case of a
Severstal-Arcelor merger), there might be less to this than meets the
eye.
``Maybe this was done on behest of Mittal to raise interest among
other (potential) investors,'' he said. ``I know ThyssenKrupp and
Mittal are pretty tight at the moment.''
Attachment 6--Excerpts from 2005 Directory of Iron and Steel Plants,
Association for Iron and Steel Technology (2005)
Iron and Steel Plant Facilities
[CSN USA--Cont'd]
----------------------------------------------------------------------------------------------------------------
Capacity,
Identification tons/year Bases Furnaces Atmosphere
----------------------------------------------------------------------------------------------------------------
Batch Annealing
----------------------------------------------------------------------------------------------------------------
308,000 12 4-high stack...... 6 100% H2
----------------------------------------------------------------------------------------------------------------
Product size, thickness x width, in.
Identification Nominal width, in. Capacity, tons/--------------------------------------------------- Configuration
year Low C Motor Lam.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Temper/Skinpass Mill
--------------------------------------------------------------------------------------------------------------------------------------------------------
Max width: 73 600,000 0.012 min............... 0.025 min.............. Single stand 4-h.
untrimmed, 72 trimmed.
Min. width: 34......... .............. 0.100 max............... 0.040 max.............. Dynamic Shape Roll.
85 in. max OD.
38 in. min OD.
85,000 max. wt.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Product thickness x width, in.
Type Capacity tons/year ------------------------------------------------------------------------ Differential coating
Cold roll Hot roll Width
--------------------------------------------------------------------------------------------------------------------------------------------------------
Galvanizing
--------------------------------------------------------------------------------------------------------------------------------------------------------
Hot dip........................ 350,000................ min. 0.012............ min. 0.050............ min. 34............... Yes.
max. 0.080............ max. 0.130............ max. 73...............
--------------------------------------------------------------------------------------------------------------------------------------------------------
Unit capacity,
Identification tons/year No. of units Product size range Configuration
----------------------------------------------------------------------------------------------------------------
Slitting
----------------------------------------------------------------------------------------------------------------
Pro-Eco........................... .............. 1 0.010-0.175 x 72..... Driven slit and
85,000 max wt........ slitter assist
tension unit Kor-
flex leveler.
----------------------------------------------------------------------------------------------------------------
[[Page 17655]]
DOFASCO INC.
Hamilton, Ont., Canada
--------------------------------------------------------------------------------------------------------------------------------------------------------
Oven dimensions, ft-in.
Battery Ovens per --------------------------------------
Battery identification Type capacity, tons/ battery Width, Byproducts recovered
year Height avg. Length
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cokemaking
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.................................... Gun.................... 148,607 25 13-0 17 39-11\1/8\ Tar, ammonium sulfate,
light oil, sulfur.
2.................................... Gun.................... 208,050 35 13-0 17 39-11\1/8\
3.................................... Gun.................... 267,493 45 13-0 17 39-11\1/8\
4.................................... Gun.................... 322,478 53 13-0 17 39-61\1/8\ Tar, anhydrous ammonia,
light oil, hydrogen.
5.................................... Gun.................... 322,478 53 13-0 17 39-6\1/8\
6.................................... Compound/underjet...... 402,412 35 20-5/32 17 48-1\1/2\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Iron and Steel Plant Facilities
--------------------------------------------------------------------------------------------------------------------------------------------------------
Capacity Hearth
Identification ---------------------------------------- Total height, dia. ft- Working vol. Injectants No. of
tons/day tons/year ft-in. in. cu. ft stoves
--------------------------------------------------------------------------------------------------------------------------------------------------------
Blast Furnace
--------------------------------------------------------------------------------------------------------------------------------------------------------
No. 2.............................. 2650* 758,300............... 108-9** 20-9 32,600 Oil, oxygen.......... 3
No. 3.............................. 2750* 846,600............... 108-10\1/2\ ** 21-6 31,900 Oil, oxygen.......... 2
No. 4.............................. 4850* 1.4 million........... 118-9\3/4\** 28-0 56,320 Oil, oxygen.......... 3
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Instantaneous smelting rate.
** lip ring to foundation pad.
----------------------------------------------------------------------------------------------------------------
Heat
Shop Identification Process Capacity, tons/ No. of size, Gas cleaning
year vessels tons
----------------------------------------------------------------------------------------------------------------
Steelmaking--Oxygen
----------------------------------------------------------------------------------------------------------------
K-OBM............. 2.75 million...... 1 330 Scrubber and
screen.
----------------------------------------------------------------------------------------------------------------
Capacity, tons/ No. of Heat size, Transformer
Process year vessels tons Gas cleaning rating, MVA
----------------------------------------------------------------------------------------------------------------
Steelmaking--Electric Arc Furnace
----------------------------------------------------------------------------------------------------------------
Twin-shell, AC................. 1.35 million..... 1 180 Baghouse......... 120
----------------------------------------------------------------------------------------------------------------
Total capacity, tons/ No. of Heat size,
Type year units tons Injectants
----------------------------------------------------------------------------------------------------------------
Vacuum Degassing
----------------------------------------------------------------------------------------------------------------
Tank................................ 1.5 million............ 1 290 Aluminum for
deoxidation after
vacuum.
----------------------------------------------------------------------------------------------------------------
Heat size, Transformer
Total capacity, tons/year No. of units tons Injectants rating, kVA
----------------------------------------------------------------------------------------------------------------
Ladle Metallurgy
----------------------------------------------------------------------------------------------------------------
2.37 million (aim)...................... 1 reheat furnace, 2 high- 330 (avg.) Nil 40,000
flow stirring stations, 2
deslag stations.
1.35 million............................ 1 reheat furnace to handle 180 1 20,000
two ladle cars (twin-
shell).
----------------------------------------------------------------------------------------------------------------
Ladle
Capacity, tons/year Strands capacity, tons Product size range, in. Shroud
----------------------------------------------------------------------------------------------------------------
Continuous Casting
----------------------------------------------------------------------------------------------------------------
2.75 million (aim)............ 2 300 8.5 x 30.5-63 x 177-374 Argon
1.35 million.................. 1 180 8.5 x 30.5-63 x 177-374 Argon.
----------------------------------------------------------------------------------------------------------------
[[Page 17656]]
No. of Capacity, tons/
Mill served Type furnaces hr/furnace Hearth dimensions
----------------------------------------------------------------------------------------------------------------
Reheating Furnaces
----------------------------------------------------------------------------------------------------------------
No. 2 hot strip mill................ Walking beam.......... 2 400 47.4 x 12.0 m
----------------------------------------------------------------------------------------------------------------
Iron and Steel Plant Facilities
[DOFASCO INC.--Cont'd]
----------------------------------------------------------------------------------------------------------------
No. and configuration
Nominal width, in. Capacity, tons/ Finished size, -------------------------------------
year thickness x width, in. Roughing stands Finishing stands
----------------------------------------------------------------------------------------------------------------
Hot Strip Mill
----------------------------------------------------------------------------------------------------------------
68............................ 3.2 million...... 0.060-0.500 x 30-62 2-hi reversing 7-stand, 4-hi, 30
with attached and 60 x 68.
edgers.
Horizontal 54\1/
2\ x 72,
vertical 42 x
43\1/2\.
----------------------------------------------------------------------------------------------------------------
Capacity, tons/ Strip thickness x
Identification year width, in. Acid used
----------------------------------------------------------------------------------------------------------------
Pickling
----------------------------------------------------------------------------------------------------------------
No. 2.................................... 660,000 0.075-0.110 x 24-56 HCl.
No. 3.................................... 1,100,000 0.075-0.200 x 24-66 HCl.
No. 4.................................... 750,000 0.055-0.275 x 24-62 HCl.
CPCM..................................... 1,000,000 0.075-0.215 x 24-62.5 HCl.
----------------------------------------------------------------------------------------------------------------
Nominal width, Capacity, tons/ Finished size,
Identification in. year thickness x width, in. Configuration
----------------------------------------------------------------------------------------------------------------
Cold Reduction Mill
----------------------------------------------------------------------------------------------------------------
66 in............................ 66 260,000 0.0195-0.1650 x 24-61 4-hi, single-stand
reversing.
No. 1 tandem..................... 56 450,000 0.0072-0.0456 x 24-49 4-hi, 5-stand
tandem.
No. 2 tandem..................... 72 1,400,000 0.011-0.0125 x 24-61.5 4-hi, 5-stand
tandem.
CPCM............................. 68 1,000,000 0.008-0.100 x 23.5-62 4-hi, 5-stand
continuous.
----------------------------------------------------------------------------------------------------------------
Capacity, tons/ Strip thickness x
Identification year width, in. Fuel type
----------------------------------------------------------------------------------------------------------------
Continuous Annealing
----------------------------------------------------------------------------------------------------------------
No. 2 tower anneal....................... 280,000 0.0077-0.036 x 40 max. Electric.
No. 1.................................... 80,000 0.007-0.025 x 18-48
No. 2.................................... 110,000 0.007-0.040 x 18-48
----------------------------------------------------------------------------------------------------------------
Capacity, tons/
Identification year Bases
------------------------------------------------------------------------
Batch Annealing
------------------------------------------------------------------------
Sheet mill batch............... 575,000 10 x 60-in. radiant
tube, HNX, single
stack.
112 x 72-in. radiant
tube, HNX, single
stack.
48 x 72-in. direct-
fire, HNX, single
stack.
4 x 86-in. direct-fire,
100% H2, single stack.
Open coil anneal............... 52,200 3 x 108-in. radiant
tube, HNX, single
stack.
11 x 114-in. radiant
tube, HNX, single
stack.
2 x 114-in. direct-
fire, HNX, single
stack.
16 x 114-in. radiant
tube, HNX, single
stack.
------------------------------------------------------------------------
Nominal
Identification width, Capacity, Product size, thickness x Configuration
in. tons/year width, in.
----------------------------------------------------------------------------------------------------------------
Temper/Skinpass Mill
----------------------------------------------------------------------------------------------------------------
42 in............................ 42 317,200 0.0061-0.0350 x 20-39.5 4-hi, 2-stand.
56 in............................ 56 341,000 0.0051-0.0480 x 20-52 4-hi, 2-stand.
No. 1............................ 66 372,800 0.018-0.135 x 20-61 4-hi, single-stand.
No. 2............................ 66 475,900 0.018-0.135 x 20-61 4-hi, single-stand.
No. 5-56......................... 56 300,000 0.012-0.040 x 24-50 4-hi, single-stand.
----------------------------------------------------------------------------------------------------------------
[[Page 17657]]
Product thickness x
Type Capacity, tons/year width, in. Differential coating
----------------------------------------------------------------------------------------------------------------
Galvanizing
----------------------------------------------------------------------------------------------------------------
No. 1 hot dip........................ 170,000................ 0.012-0.080 x 24-48 Galvalume/galvanize.
No. 2 hot dip........................ 320,000................ 0.024-0.0168 x 24-60 Galvanneal/galvanize.
No. 3 hot dip........................ 254,000................ 0.010-0.080 x 24-52 Galvanneal/galvanize.
No. 4 hot dip........................ 305,000................ 0.012-0.080 x 24-60 Galvanize.
DJG hot dip.......................... 400,000 (Dofasco 50% 0.0157-0.0787 x 24-72 Galvanneal/galvanize.
ownership).
DSG hot dip.......................... 450,000 (Dofasco 80% 0.0196-0.0787 x 36-72 Galvanneal/galvanize.
ownership).
Sorevco hot dip...................... 125,000 (Dofasco 50% 0.012-0.0787 x 24-50 Wipe coat/galvanize.
ownership).
----------------------------------------------------------------------------------------------------------------
Capacity, tons/ Product thickness x width,
Type year in.
----------------------------------------------------------------------------------------------------------------
Tinplate
----------------------------------------------------------------------------------------------------------------
No. 2 E line...................................................... 144,600 0.0055-0.0230 x 18-40
No. 3 E line, tin/chrome.......................................... 273,200 0.0055-0.0230 x 58-43
----------------------------------------------------------------------------------------------------------------
Unit capacity, No. of
Identification tons/year units Product size range Configuration
----------------------------------------------------------------------------------------------------------------
Slitting
----------------------------------------------------------------------------------------------------------------
48 in.............................. 64,000 1 19-48.................
60 in.............................. 350,000 1 0.059-0.100 x 9-64
entry to 2 min. out.
62 in.............................. 300,000 1 0.100-0.375 x 17-64
entry to 2\1/4\ min.
out.
----------------------------------------------------------------------------------------------------------------
Capacity, tons/ No. of
Unit year units Product size range
----------------------------------------------------------------------------------------------------------------
Miscellaneous
----------------------------------------------------------------------------------------------------------------
Prep Line.............................................. 320,000 1 0.005-0.023
No. 1 Cleaning Line.................................... 220,000 1 0.006-0.026
No. 2 Cleaning Line.................................... 360,000 1 0.077-0.140 x 18-68
Rewind Line............................................ 200,000 1 0.010-0.100 x 25-62
No. 3 Shear Line....................................... 50.000 1 0.0081-0.048 x 12.5-40
No. 5 Shear Line....................................... 150,000 1 0.014-0.135 x 12.5-67
----------------------------------------------------------------------------------------------------------------
Iron and Steel Plant Facilities
[International Steel Group--Cont'd.]
----------------------------------------------------------------------------------------------------------------
No. of Heat size,
Type Capacity, tons/year units tons Injectants
----------------------------------------------------------------------------------------------------------------
Vacuum Degassing
----------------------------------------------------------------------------------------------------------------
RH 5-stage steam ejection unit..... 1 million............. 2 340 Argon, aluminum
----------------------------------------------------------------------------------------------------------------
No. of Heat size,
Type Capacity, tons/year units tons Injectants
----------------------------------------------------------------------------------------------------------------
Ladle Metallurgy
----------------------------------------------------------------------------------------------------------------
Ladle stirring and Trim Station..... 3,000,000 1 340 Argon, carbon,
aluminum, manganese
and scrap.
CAS-OB.............................. 3,000,000 1 340 Argon, oxygen,
nitrogen, carbon
aluminum, manganese,
titanium.
----------------------------------------------------------------------------------------------------------------
Ladle
Capacity, tons/year Strands capacity, tons Product size range, in. Shroud
----------------------------------------------------------------------------------------------------------------
Continuous Casting
----------------------------------------------------------------------------------------------------------------
3,000,000........................... 4 340 32-48 x 9 x 400 max. Argon gas submerged
ladle shroud; Fused
silica and alumina
graphite.
----------------------------------------------------------------------------------------------------------------
No. of Capacity, tons/
Mill served Type furnaces hr/furnace Hearth dimensions, ft
----------------------------------------------------------------------------------------------------------------
Reheating Furnaces
----------------------------------------------------------------------------------------------------------------
54-in. hot mill..................... Walking beam.......... 2 350 35 x 155
----------------------------------------------------------------------------------------------------------------
[[Page 17658]]
Number and configuration
Nominal width, in. Capacity, tons/ Finished size, -------------------------------------
year thickness x width, in. Roughing stands Finishing stands
----------------------------------------------------------------------------------------------------------------
Hot Strip Mill
----------------------------------------------------------------------------------------------------------------
54............................ 3.8 million...... 0.056-0.50 x 23-49 1 4-hi reversing, 7-stand, 4-hi.
1 4-hi
continuous.
----------------------------------------------------------------------------------------------------------------
Nominal width, Capacity, Finished size, thickness x
Identification in. tons/year width, in. Configuration
----------------------------------------------------------------------------------------------------------------
Cold Reduction Mill
----------------------------------------------------------------------------------------------------------------
No. 7 tandem................... 52 725,000 0.0065-0.0359 x 22\1/2\-48 5-stand, 4-hi
No. 8 tandem................... 52 699,000 0.0193-0.138 x 22\1/2\-48 4-stand, 4-hi
No. 9 continuous tandem........ 52 991,000 0.0065-0.060 x 24\1/2\-48 5-stand, 4-hi
----------------------------------------------------------------------------------------------------------------
Attachment 7--The Strange Case of Weirton Steel, MakingSteel.com (April
25, 2006)
The attachment is available at the following Web site, http://www.makingsteel.com/weirton.html
Fewer Blast Furnaces, But Higher Productivity
The number of U.S. blast furnaces has dropped from 83 to 43 in the past
decade, but PCI and natural gas have helped raise output from the
survivors by 25 percent
By William T. Hogan, S.J., and Frank T. Koelble
Father William Hogan and Frank Koelble of Fordham University's
Industrial Economics Research Institute recently conducted an extensive
study of the current capacity, condition, and outlook of coke ovens and
blast furnaces in the U.S. In this two-part study, New Steel looks this
month at blast furnaces and next month at coke ovens and at how
steelmakers are boosting productivities and responding to new
environmental regulations.
A quiet recasting of how the U.S. iron and steel industry makes its
iron has been yielding major gains in productivity and major benefits
to the environment. Driving this progress has been not some new,
``direct'' technology but the tried-and-true blast furnace, the
dominant ironmaker for more than a century. Today's surviving blast
furnaces still support some 60 percent of all U.S. steelmaking activity
by producing much more iron and consuming much less coke than they did
even a few years ago. And yet, because of impending environmental
standards on cokemaking, the future of the blast furnaces is anything
but assured.
On Jan. 1, 1998, 90 percent of all U.S. cokemaking capacity will
have to meet much stricter standards under the Clean Air Act. Five
years later, on Jan. 1, 2003, an initial group of coke batteries will
have to meet a new public-health standard, which has not yet been
promulgated.
As the two deadlines force more coke plants to close, the current
deficit in domestic coke supply is likely to widen appreciably. This
could constrain blast-furnace output and offset the recent improvements
in productivity, which have allowed for fewer furnaces to sustain and
even increase the supply of steelmaking iron.
The U.S. blast-furnace population has declined as the U.S. steel
industry has undergone one of the most drastic restructurings in the
history of industrial enterprise. At one point, nearly one-third of the
industry's raw-steel capacity was downsized out of existence.
The blast-furnace-based integrated steelmakers were hit the
hardest. Since 1975, the number of integrated mills with blast furnaces
has fallen from 48 to 21. The number of blast furnaces in the U.S. has
plummeted from 197 to 43. The most recent shutdown was a year ago, when
Bethlehem Steel shut down its blast furnace, basic oxygen furnaces
(BOFs), and electric furnace in Bethlehem, Pa., in Nov. 1995 (Steel
Forum, Jan. 1995).
Electric furnaces accounted for 40 percent of U.S. steel production
last year, up from 28 percent in 1980 and 34 percent in 1985. The
growth of scrap-using EAFs has meant that ferrous scrap now accounts
for more of U.S. steelmakers' metallics supply than blast-furnace iron.
BOFs accounted for 60 percent of steel production last year--
virtually the same as in 1980. BOFs use on average 77-percent blast-
furnace iron and 23-percent scrap. Much of the growth of the electric
furnaces occurred at the expense of the open hearth, the now extinct
process once used by integrated plants and phased out completely in
1991.
The Future Metallics Supply
The growth in blast-furnace productivity and in the output of
scrap-based EAFs has helped U.S. steelmakers to have a viable metallics
supply in recent years. But several trends do not bode well for the
future supply of metallics feedstocks for American mills:
(1) Secular trends in U.S. steel demand and production have shifted
from decline to renewed growth. Increasing quantities of both iron and
scrap will be needed to support steelmaking over the long term.
(2) Recent levels of U.S. coke and iron demand already have been
taxing the limits of coke-oven and blast-furnace capacity.
(3) U.S. coke ovens are of advancing age. Although steelmakers have
invested considerably in extending their useful lives, the stricter
environmental regulations will make the coke ovens' future operation
increasingly difficult and higher in cost.
(4) U.S. steelmakers are depending more on imports of coke and
semifinished steel. This ultimately raises the costs of finished-steel
output and undermines the U.S. iron and steel industry's long-term
competitiveness. In the past, U.S. mills have imported coke and slabs
mainly to alleviate temporary shortfalls in domestic coke, iron, and
steel production.
(5) Despite advances in scrap-based steelmaking and in the
substitution of scrap for iron, electric-furnace melting alone is
incapable of meeting U.S. steel demand. Minimills are limited by the
availability and cost of high-quality, low-residual scrap and purchased
electricity as well as by restrictions on the types and qualities of
steel it can produce without access to virgin iron units at an
economical cost.
For these reasons steelmakers are investigating new, direct methods
of producing iron, both in solid form as a high-quality complement to
scrap and in molten form as an alternative to iron
[[Page 17659]]
from the blast furnace. However, at least for the next ten years, U.S.
mills will implement such ironmaking alternatives on a relatively small
scale in comparison to U.S. blast-furnace capacity.
Saving 350 Pounds of Coke per Ton of Iron
U.S. steelmakers currently are operating 40 blast furnaces with a
combined annual ironmaking capacity of 61.2 million tons. In addition,
three furnaces are designated as ``standby'' but are unlikely to
operate again; these have a combined capacity rating of 2.7 million
tons. This brings the total blast-furnace population to 43 units. (All
tons in this article are net.)
U.S. steelmakers have eliminated 27 blast furnaces since mid-1990.
In June 1990, there were 70 U.S. blast furnaces with a combined
capacity of 75.3 million tons.
Most of the blast furnaces shut down in recent years were idled
before shutdown. The number of idle furnaces has fallen from 35 in 1986
to three now. The active furnace population declined from 48 in 1986 to
40 in 1996; the total blast-furnace population declined from 83 to 43
during this period (see Table 2).
Despite the shutdown of 27 furnaces since June 1990, the ironmaking
capacity of U.S. blast furnaces dropped during that period by just 11.4
million tons--half the capacity represented by the 27 abandoned
furnaces. The difference was made up by major productivity gains at the
blast furnaces that continue to operate.
While closing the least efficient furnaces, steelmakers now are
concentrating ironmaking output at the fewer, more productive blast
furnaces. The overall productivity of today's active furnaces is more
than one-fourth higher than it was a decade ago. Daily output over the
past decade has risen, on average, from 5.5 to nearly 7.0 tons per 100
cubic feet of working volume.
From 1975 to 1995, ironmaking coke needs were cut by more than one-
fourth, saving some 350 pounds of coke per ton of iron. The quantity of
coke required to smelt one ton of iron fell during this period from
1,222 pounds (0.611 ton) to 874 pounds (0.437 ton) (Table 3). Although
the active blast-furnace population declined from 135 to 40 from 1975
to 1995, average yearly output per furnace increased from 590,000 to
1.4 million tons.
Much of the boost in productivity took place recently. It took some
150 pounds less coke to make a ton of iron in 1995 than it did in 1991.
One big reason for the higher productivity is that blast-furnace
operators are injecting more supplemental fuels, primarily natural gas
and pulverized coal. This not only has reduced coke consumption but
also has increased iron output by making additional space available in
the furnace to hold iron ore and other iron-bearing materials instead
of the coke displaced. Steelmakers also are boosting iron output by:
Charging scrap metal, direct-reduced iron (DRI), and self-
fluxing iron-ore pellets into the blast furnaces;
Optimizing such hot-blast conditions as temperature and
contained oxygen; and
Using new repair and maintenance techniques, including
refractory gunning and grouting, to reduce maintenance downtime and
significantly extend furnace campaigns between major relines, obviating
the need for standby capacity.
The combined result of these advances has been not only to sharply
reduce the coke rate since 1991 but also to boost the aggregate
capacity of today's 40 still-active furnaces by some 10 million annual
tons.
Leading Blast Furnaces
Acme, AK, National, and U.S. Steel are among the leaders in
boosting blast-furnace productivities. Acme's A blast furnace at South
Chicago has raised its ironmaking capacity by one-third to a current
level of 3,200 tons/day. Acme did this by injecting natural gas at a
rate of 250 pounds/ton of iron, by using self-fluxing pellets, and by
raising the hot-blast temperature some 100 degrees F to 1,910 degrees
F. Acme uses the stoves and hot-blast system of the B furnace to
enhance the hot blast on A; this is a primary reason Acme maintains B
as standby capacity.
Acme operators eventually plan to raise throughput on the A furnace
to more than 4,000 tons/day by injecting additional natural gas and
adding scrap to the furnace charge. The increased iron output realized
to date has been accompanied by a decline in the coke rate from just
above 0.500 to a low of 0.365 ton of coke input ton of iron output.
AK Steel's two remaining blast furnaces, Amanda at Ashland, Ky.,
and No. 3 at Middletown, Ohio, also have made major productivity gains
in the past few years. Employees at Amanda have increased the blast-
furnace capacity by 49 percent by using pulverized-coal injection (PCI)
at a rate of 200 pounds/ton of iron and by adding BOF slag and scrap to
the iron-ore pellets charged.
Operators at the No. 3 furnace in Middletown have boosted capacity
by 54 percent to a current level of 6,000 tons/day partly by injecting
natural gas at a rate of 215 pounds/ton and using an enhanced burden
that contains some 350 pounds/ton of hot-briquetted iron (HBI). The
coke input rates have declined from 0.425 ton per ton of iron output at
both blast furnaces a few years ago to 0.388 at Amanda in Ashland and
0.353 at No. 3 in Middletown.
A recent reline and upgrading of National's B furnace at Granite
City, Ill., boosted its ironmaking capacity by 50 percent from 2,800 to
4,200 tons/day. Improvements included a new furnace top, a newly
designed hearth, increased cooling and advanced process controls at the
furnace, and a revamp of the stoves to raise the wind rate and hot-
blast temperature.
U.S. Steel's four remaining blast furnaces at Gary, Ind., have
raised their ironmaking throughput by an average of 30 percent while
their combined input coke rate has fallen to 0.340 ton per ton of iron
output. The productivity gains largely are due to the use of PCI in all
four furnaces at injection rates that, averaged, currently lead the
industry.
PCI vs. Natural Gas
Although they have used supplemental fuel injection for decades,
U.S. ironmakers in recent years have aggressively increased their
injection rates of natural gas and, more recently, pulverized coal. All
40 active blast furnaces today inject either one or a combination of
fuels, including natural gas, pulverized coal, oil, tar, and coke-oven
gas. Twenty-five furnaces inject natural gas at rates of up to 250
pounds per ton of iron produced; 12 furnaces use PCI at rates of up to
375 pounds/ton.
The volume of natural gas consumed by U.S. blast furnaces has
increased nearly 90 percent since 1990, from 56.7 million to 106.5
million cubic feet annually. The acceptance of natural gas stems from
its ready availability, its relatively low price in recent years, and
its adaptability to injection without major capital or startup costs.
Assuming a starting coke input rate of 0.500 ton per ton of iron output
(or 1,000 pounds/ton), natural-gas injection has been proven by some
mills to be capable of displacing about 25 percent of coke
requirements--and maybe more, depending on the outcome of current tests
sponsored by the Gas Research Institute.
Although 250 pounds/ton is the highest natural-gas injection rate
currently employed, the average rate is a much lower 125 pounds/ton. At
most blast furnaces, injection is limited to
[[Page 17660]]
between 100 and 200 pounds, because higher volumes unfavorably lower
flame temperatures and furnace productivity.
Higher gas-injection rates require increased oxygen enrichment and
higher hot-blast temperatures; this is not attainable at some blast
furnaces because of limitations in oxygen processing and the
capabilities of their hot-blast systems. In such cases, injecting more
natural gas would require significant investments to upgrade stoves and
other hot-blast components and to make more oxygen available.
Compared to natural gas, PCI has a much less significant impact on
process temperatures and affords a greater opportunity for lowering the
coke rate. Steel mills have proven that PCI can replace 40 percent of a
1,000-pound coke requirement and can use lower-cost, lower-grade coals
in place of the high-grade metallurgical coal needed for cokemaking.
The disadvantage of PCI is that, unlike natural-gas injection, it
requires an initial investment of $40-50 million, approximately two-
thirds of which can be required for coal preparation. Some blast-
furnace operators already injecting 150 pounds or more of natural gas
consider this too high a price to pay for increasing injection rates an
additional 200 pounds or so by switching to PCI. However, most
operators recognize that a commitment to natural gas leaves them
vulnerable to a repeat of past run-ups in gas prices.
A number of steel companies with PCI projects have benefited from
creative arrangements to reduce or avoid the financial costs of coal
preparation. PCI at Inland, for example, is supported by a coal-
preparation facility jointly funded by Inland and Northern Indiana
Public Service Company. National will obtain pulverized coal for its
Ecorse, Mich., blast furnaces from Detroit Edison Company.
Likewise, U.S. Steel reduced its PCI investment at Fairfield, Ala.,
by obtaining injectable coal from a company-owned mine some five miles
away; the coal is transported in specially designed hopper cars to
ensure it remains dry. USS/Kobe's PCI unit uses coal pulverizers
provided by Ohio Edison.
PCI was developed in the early 1960s by AK Steel's forerunner,
Armco. The company first used the new technology commercially at the
Ashland plant's now abandoned Bellefonte blast furnace in 1963--the
same year Armco completed construction of the Amanda furnace there. Ten
years later, Armco installed PCI at Amanda and used it intermittently
at varying injection rates until establishing in recent years an
average rate of 200 pounds/ton.
Twelve blast funaces in the U.S. now are equipped for PCI (Table
4). Their injection rates range from 120 to 375 pounds/ton and average
254 pounds; blast furnaces can inject as much as 400 pounds/ton,
industry managers say. Raising PCI rates will help blast furnaces face
future constraints on cokemaking capacity.
Next year Gulf States and National Steel at Ecorse plan to install
PCI. LTV is considering using PCI at its Cleveland and Indiana Harbor,
Ind., plants, although it has not yet made a final decision.
Startups From 1909 to 1980
In the past few years, steelmakers have made some of their largest
productivity gains at some of the oldest blast furnaces. U.S. Steel's
Gary No. 8 furnace was built in 1909; rebuilt in 1943; disabled in
April 1995 by an explosion near the top of its stack; and returned to
service in Aug. 1995 after repairs and an unscheduled reline. No. 8 now
produces 40 percent more iron than it did a few years ago. Equipped to
use PCI at a rate of some 235 pounds/ton, the No. 8 blast furnace has
seen its coke rate decline to the 0.390 level, which makes it more
efficient at using coke than some of its counterparts built 60-70 years
later.
Roughly 75 percent of the active furnace population is under 30
years of age, and 25 percent over (see Table 1). Startup dates of
current U.S. blast furnaces range from the first decade of the century
to 1980.
Clearly, blast furnaces that have been rebuilt and retrofitted to
take advantage of technological improvements over the years have proven
capable of operating indefinitely, and doing so very effectively. As
the furnace population has been rationalized and the least efficient
units removed from service, age has become a less relevant indicator of
useful furnace life. Rather, the most significant influence on future
decisions to maintain or discontinue blast-furnace ironmaking will
derive from environmental regulations that result in additional cuts in
U.S. cokemaking capacity.
Father William Hogan of the Society of Jesus has been a leading
authority on the steel industry for the past 45 years. His numerous
books include Productivity in the Blast Furnace, The Development of
Heavy Industry in the Twentieth Century, Economic History of the Iron
and Steel Industry in the United States (a five-volume work), and, most
recently, Steel in the 21st Century: Competition Forges a New World
Order (1994). The International Iron and Steel Institute has named only
two honorary members since its founding in 1967: Fr. Hogan and Herbert
Gienow.
Frank Koelble has worked as a steel economist and consultant for
the past 30 years. His books include Purchased Ferrous Scrap, An
Analysis of the U.S. Metallurgical Coke Industry, and Direct Reduction
as an Ironmaking Alternative in the United States. Hogan is director
and Koelble associate director of the Industrial Economics Research
Institute of Fordham University (Bronx, N.Y.).
The 43 Blast Furnaces in the U.S. Today (Table 1)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Co. & capacity coke capacity (mil.
net tpy) \1\ Plant Furnace Dia. \2\ Rate \3\ Year \4\ (net tpd) \5\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Acme (1.17)......................... S. Chicago, Ill........ A....................... 25'0'' 0.365 1964R 3,200
....................... B....................... 19'8'' ........... 1970R (1,200)(S)
AK Steel (4.12)..................... Ashland, Ky............ Amanda.................. 33'5'' 0.388 1963B 5,300
Middletown, Ohio....... 3....................... 29'4'' 0.353 1984R 6,000
Bethlehem (8.53).................... Burns Harbor, Ind...... C....................... 38'3'' 0.359 1972B 7,030
....................... D....................... 35'9'' 0.397 1969B 6,590
Sparrows Pt., Md....... L....................... 44'3'' 0.430 1977B 9,750
Geneva (2.45)....................... Geneva, Utah........... 1....................... 26'6'' 0.448 1963R 2,275
....................... 2....................... 26'6'' 0.450 1963R 2,250
....................... 3....................... 26'6'' 0.455 1963R 2,180
Gulf States (1.08).................. Gadsden, Ala........... 2....................... 26'0'' 0.490 1966R 2,965
Inland (5.24)....................... E. Chicago, Ind........ 5....................... 26'6'' 0.393 1974R 2,500
....................... 6....................... 26'6'' 0.448 1976R 2,450
....................... 7....................... 45'0'' 0.330 1980B 9,400
[[Page 17661]]
LTV (7.68).......................... Cleveland, Ohio........ C1...................... 27'6'' 0.413 1972R 3,440
....................... C5...................... 29'6'' 0.407 1990R 4,150
....................... C6...................... 29'6'' 0.412 1989R 4,350
Ind. Harbor, Ind....... H3...................... 29'6'' 0.400 1988R 3,950
....................... H4...................... 32'9'' 0.421 1987R 5,150
McLouth \6\ (1.24).................. Trenton, Mich.......... 1....................... 28'6'' ........... 1956B (3,000)(S)
....................... 2....................... 28'6'' 0.475 1958B 3,400
National (6.46)..................... Ecorse, Mich........... A....................... 30'6'' 0.470 1954B 3,450
....................... B....................... 29'0'' 0.463 1951B 3,350
....................... D....................... 28'10'' 0.440 1952B 2,800
Granite City, Ill...... A....................... 27'3'' 0.378 1956B 3,900
....................... B....................... 27'3'' 0.380 1961B 4,200
Rouge (2.62)........................ Dearborn, Mich......... B....................... 20'0'' 0.375 1958R 2,275
....................... C....................... 29'0'' 0.385 1959R 4,900
U.S. Steel (12.00).................. Fairfield, Ala......... 8....................... 32'0'' 0.420 1978B 6,000
Gary, Ind.............. 4....................... 28'10'' 0.368 1950R 3,700
....................... 6....................... 28'0'' 0.388 1947R 3,750
....................... 8....................... 28'0'' 0.390 1943R 3,800
....................... 13...................... 36'6'' 0.290 1974B 9,425
Mon Valley, Pa......... 1....................... 28'10'' 0.448 1943R 3,230
....................... 3....................... 25'3'' 0.443 1930R 2,975
USS/Kobe (2.30)..................... Lorain, Ohio........... 3....................... 28'6'' 0.355 1959R 3,600
....................... 4....................... 29'0'' 0.453 1962R 2,700
WCI (1.50).......................... Warren, Ohio........... 1....................... 28'0'' 0.470 1980R 4,100
Weirton (2.54)...................... Weirton, WV............ 1....................... 27'0'' 0.403 1984R 3,770
....................... 3....................... 26'3'' 0.418 1983R 3,200
....................... 4....................... 27'0'' ........... 1977R (3,100)(S)
Wheel-Pitt (2.30)................... Steubenville, Ohio..... 1N...................... 25'0'' 0.405 1991R 2,900
....................... 5S...................... 23'10'' 0.430 1995R 3,400
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Capacity of active blast furnaces, representing potential maximum productive capability.
\2\ Hearth diameter of furnace.
\3\ Coke rate at full ironmaking capacity is expressed as the net tons of coke input per net ton of iron output.
\4\ Years are designated B for the year built and R for the year in which a major rebuild was last completed. Relinings are not considered rebuilds.
\5\ ( ) indicates idle capacity; (S) indicates standby furnaces.
\6\ Plant temporarily idled in March 1996; company has been sold to Hamlin Holdings Inc., with operations scheduled to restart in early 1997.
Reducing the Number of U.S. Blast Furnaces (Table 2)
----------------------------------------------------------------------------------------------------------------
Date \1\ Active Idle Total
----------------------------------------------------------------------------------------------------------------
2/86..................................................................... 48 35 83
5/87..................................................................... 45 32 77
9/88..................................................................... 47 25 72
10/89.................................................................... 45 25 70
6/90..................................................................... 46 24 70
8/91..................................................................... 38 19 57
8/92..................................................................... 40 11 51
8/93..................................................................... 40 10 50
8/94..................................................................... 40 9 49
9/95..................................................................... 41 4 45
7/96..................................................................... 40 3 43
----------------------------------------------------------------------------------------------------------------
\1\ Dates of surveys conducted by Industrial Economics Research Institute, Fordham University.
Lowering the Coke Rate (Table 3)
[Million of net tons]
------------------------------------------------------------------------
U.S. blast-
Year furnace Coke Coke rate
production consumed \1\
------------------------------------------------------------------------
1975............................. 79.9 48.8 0.611
1976............................. 86.9 51.6 0.594
1977............................. 81.3 48.5 0.597
1978............................. 87.7 51.3 0.585
1979............................. 87.0 50.0 0.574
1980............................. 68.7 39.1 0.569
1981............................. 73.6 40.5 0.55
1982............................. 43.3 23.3 0.538
1983............................. 48.7 26.3 0.540
[[Page 17662]]
1984............................. 51.9 27.4 0.528
1985............................. 50.4 26.6 0.508
1986............................. 44.0 22.3 0.507
1987............................. 48.4 25.5 0.527
1988............................. 55.7 29.4 0.528
1989............................. 55.9 29.2 0.522
1990............................. 54.8 27.5 0.502
1991............................. 48.6 24.8 0.510
1992............................. 52.2 25.0 0.479
1993............................. 53.1 23.7 0.446
1994............................. 54.4 24.2 0.445
1995............................. 56.1 24.5 0.437
------------------------------------------------------------------------
\1\ Data are from American Iron and Steel Institute; coke rate indicates
the tons of coke consumed per ton of blast-furnace iron produced.
Pulverized-Coal Injection (Table 4)
----------------------------------------------------------------------------------------------------------------
Year started Rate (lbs./ton)
Company Plant Furnace up \1\
----------------------------------------------------------------------------------------------------------------
AK Steel........................ Ashland............ Amanda.............. 1973 200
Bethlehem....................... Burns Harbor \2\... C................... 1994 180
................... D................... 1994 260
Gulf States Inland.............. Gadsden............ 2................... 1997 ...................
E. Chicago......... 5................... 1993 245
................... 6................... 1993 120
................... 7................... 1993 320
National........................ Ecorse............. A................... 1997 350P
................... B................... 1997 250P
................... D................... 1997 250P
U.S. Steel...................... Fairfield \2\...... 8................... 1995 270
Gary............... 4................... 1993 295
................... 6................... 1993 235
................... 8................... 1993 235
................... 13.................. 1993 375
USS/Kobe........................ Lorain............. 3................... 1994 315
----------------------------------------------------------------------------------------------------------------
\1\ Injection rate; P is projected; all others are average rates during 1995.
\2\ Plant based on granular-coal injection.
Attachment 9--See How a Blast Furnace Works, AISI
The attachment is available at the following Web site, http://www.steel.org/AM/Template.cfm?Section=Home&template=/CM/HTMLDisplay.cfm&ContentID=12305
Attachment 10--Ironmaking Process Alternative Screening Study--Volume
I, Summary Report, Lockwood Greene study for the Department of Energy
(Oct. 2000)
The attachment is available at the following Web site, http://www.ornl.gov/~webworks/cppr/y2001/rpt/122325.pdf
Attachment 11--ISG to Repair, Restart Second Blast Furnace at Weirton
Unit, American Metal Market (July 12, 2004)
The attachment is available at the following Web site, http://www.findarticles.com/p/articles/mi_m3MKT/is_28-1_112/ai_n6106694
.
Attachment 12--Mittal Steel USA Works to Restore Furnace at Sparrows
Point, PRNewswire (July 14, 2006)
The attachment is available at the following Web site, http://www.mittalsteel.com/NR/rdonlyres/20253936-859A-42A8-8DEC-DBC284FDFB6A/1161/LFurnacerecoveryNR071406.pdf
.
Attachment 13--Ispat Inland Accelerates Maintenance Outages, Ispat
Inland Press Release (March 7, 2005)
The attachment is available at the following Web site, http://metalsplace.com/metalsnews/?a=942
Attachment 14--Weirton Workers Buyout from Online NewsHour, September
23, 1983
The attachment is available at the following Web site, http://www.pbs.org/newshour/bb/business/july-dec83/steel_9-23-83.html
.
Attachment 15--High Production Costs Hamper AK Steel's Middletown
Works, Steel Business Briefing (Aug. 10, 2006)
High Production Costs Hamper AK Steel's Middletown Works
Thursday, 10 August 2006
AK Steel, trying to lower its labour costs, is pointing to a year-
old analyst's report that says slab-making costs at its flagship
Middletown, Ohio works are nearly the highest on the globe, Steel
Business Briefing has learned.
In a communiqu[eacute] sent out earlier this week, AK says a report
authored by World Steel Dynamics' Peter Marcus, rates Middletown 147th
out of 151 slab mills in terms of cost per ton of slab. The steelmaker
is attempting to illustrate that its labour costs have to come down in
order for the plant to be competitive, not only in North America but
throughout the globe.
An AK spokesman tells SBB, however, ``We're not saying all of that
[[Page 17663]]
is employment'' costs. He declined to discuss what the works' per-ton
slab production costs are.
Steel industry analyst Charles Bradford says AK likely has a cost
disadvantage on iron ore alone of about $30/short ton. He says the
steelmaker also probably has a cost penalty on coal, too. ``Even if
they could get competitive raw materials, they would have a freight
penalty,'' he adds. But Bradford notes that care has to be taken in
such an analysis because there is a cost difference to produce
commodity hot-rolled coil versus an interstitial-free HR coil.
In addition to AK, other North American steelmakers at the bottom
of the Marcus list include Mittal Steel USA's Weirton, West Virginia
works, which has since shut its hot end, as the world's most costly
slab producer. Severstal North America's River Rouge works was found to
be the next highest cost producer in the June 2005 report.
Attachment 16--Dofasco Seals $251m Purchase of Canadian Iron Ore Miner
QCM, American Metal Market (July 26, 2005)
The attachment is available at the following Web site, http://www.findarticles.com/p/articles/mi_m3MKT/is_29-2_113/ai_n14842699
.
Attachment 17--Force Majeure Clobbers Coke-Short Steelmakers: Weirton
Eyes Option, Blast Furnace Closure, American Metal Market (Jan. 9,
2004)
The attachment is available at the following Web site, http://www.findarticles.com/p/articles/mi_m3MKT/is_1-5_112/ai_112104367
.
Attachment 18--Heat Back on Steel Makers, The Plain Dealer (February
26, 2004)
The attachment is available at the following Web site, http://cleve.live.advance.net/indepth/steel/index.ssf?/indepth/steel/more/1077791716314950.html
.
Attachment 19--Furnace Will Stay Idle at Weirton Steel Mill, Associated
Press (Dec. 2, 2005)
Friday, December 2, 2005
Furnace Will Stay Idle at Weirton Steel Mill
Bad Site, High Costs and Age Are Cited
By Vicki Smith, Associated Press
Historically high production costs, an inconvenient location and
old, inefficient facilities have apparently doomed hopes of
revitalizing a West Virginia steel mill that once employed 13,000
people and now has just 1,300 union workers.
Mittal Steel, the world's largest steelmaker, idled the blast
furnace at its Weirton division this summer, laying off some 750
workers for what the Independent Steelworkers Union hoped would be a
temporary wait for business to pick up. But late Tuesday, Mittal told
the union that the furnace will remain cold, and as many as 800 jobs
will be permanently lost.
``This was a very difficult decision, since the Independent
Steelworkers Union and all employees have worked so hard to beat the
odds trying to maintain steelmaking at Weirton,'' said Louis Schorsch,
chief executive of Mittal Steel USA. ``However, the structural
disadvantages of Weirton for these processes entail costs that are too
high to support competitive downstream facilities.''
Analyst Michael Locker, president of Locker Associates in New York,
said the small blast furnace and the steelmaking Mittal has elsewhere
combined to seal Weirton's fate.
He said, ``The negative of the consolidation process is that you
have a comparison going on of plants * * * within the Mittal family. If
they come out on the short end of the stick, they can't justify
standing alone--even with all the hopes of cost reduction and efforts
by the union, which were mighty.
``You have good finishing facilities at Weirton that are going to
survive, but the source of the steel is going to be elsewhere.''
Analyst Charles Bradford of Bradford Research-Soleil Securities in
New York, sees Mittal's flexibility as a benefit of the industry's
global consolidation.
``When there is softness in the market, you close the high-cost
ones first. Mittal, just within North America, has more than a dozen
blast furnaces, so they have the ability to cut one or two and moderate
their business.''
Mittal, a Netherlands company, took control of Weirton in April
through a $4.5 billion purchase of former owner International Steel
Group of Richfield, Ohio. ISG had won a bidding war for Weirton, the
nation's No. 2 tin producer, in bankruptcy court in 2004.
Weirton's steel-production costs have been among the highest at
Mittal, which has other mills capable of producing enough steel to meet
demand through 2006.
Union spokesman David Gossett said raw materials are at the root of
Weirton's problem. Weirton does not have a coke plant and must buy it
at a high cost on the open market.
Weirton also must buy iron ore and have it shipped by rail.
Mittal's Cleveland mill can get it shipped in cheaper on Lake Erie.
Weirton is also struggling with high gas prices in a mill that
Gossett said doesn't use fuel as efficiently as it could.
Bradford predicts Weirton's blast furnace will only be restarted if
and when every other Mittal furnace is at capacity.
But ISU President Mark Glyptis said he believes Mittal is committed
to maintaining an operation in Weirton, and that the mill is a key part
of its strategy to sell tin.
Schorsch acknowledged in a statement that Mittal wants to
reconfigure the Weirton plant around tinplate.
Attachment 20--The shipping news & forecast: District ports face many
competitive challenges, but whether they sink or swim over the long
term will likely depend on infrastructure improvements, Minneapolis
Federal Reserve fedgazette (January 2003)
The attachment is available at the following Web site, http://www.minneapolisfed.org/pubs/fedgaz/03-01/shipping.cfm
.
Attachment 21--Weirton Files for Ch. 11; 1,000 Ohio Jobs Affected,
Associated Press (May 20, 2003)
Tuesday, May 20, 2003
Weirton Steel Files for Ch. 11
1,100 Ohio Jobs Affected
By Vicki Smith
The Associated Press
Weirton, W.Va.--Weirton Steel Corp., the nation's sixth-largest
integrated steel maker and No. 2 producer of tin, filed for Chaper 11
bankruptcy protection Monday.
The employee-owned company located across the Ohio River from
Steubenville, Ohio, held on while an import crisis took down dozens of
competitors, but racked up more than $700 million in losses over five
years.
Weirton Steel employs 1,100 Ohioans.
President and CEO John Walker said the company has obtained a $225
million financing package that will allow it to keep operating while it
reorganizes.
Walker had been in the middle of a plan to cut costs by $120
million when Weirton Steel's board of directors voted Monday to file
for bankruptcy.
``In the past year, we did everything we could do outside the
bankruptcy venue before taking this necessary
[[Page 17664]]
step,'' Walker said. ``Our previous initiatives strengthened the
company, but it became increasingly evident in the current industry
climate that Chapter 11 reorganization is the only remaining solution
to address our liability issues.''
In its bankruptcy filing, Weirton Steel said it had about $654.5
million in assets and about $1.41 billion in debts as of March 31. The
company expects to file a reorganization plan within about six months.
Walker said the recent U.S. Steel-National Steel and International
Steel Group-Bethlehem Steel mergers, along with a federal $250 million
loan package awarded to Wheeling-Pittsburgh Steel, left his company
with no options for expansion.
Weirton's survival strategy had centered on having the nation's
largest tin mill. Only U.S. Steel produces more tin-plated steel than
Weirton, where tin accounts for 38 percent of production and 50 percent
of revenues.
Monday's filing surprised a steel analyst who said Weirton Steel
had seemed to ``be bumping along.''
But the company was squeezed by rising energy and material costs
and declining prices for tin products, said Michael Locker, president
of Locker Associates Inc. and author of the Steel Industry Update
Newsletter.
The Independent Steelworkers Union had helped Walker trim $38
million, approving a one-year contract that cut pay 5 percent, canceled
a planned raise and froze accrued pension benefits. The company planned
to cut an additional $34 million by asking the 3,600 active employees
and 4,600 retirees and dependents for health-care givebacks.
Retirees, however, had been slow to embrace the request, which
asked that they help cover the cost of health insurance with a $200
monthly deduction from their pension checks. They also faced higher co-
payments for prescription drugs and doctor visits. Weirton Steel is
seeking court approval to create a committee of retirees to address the
pension issues.
ISU president Mark Glyptis, who sits on the board of directors,
opposed the bankruptcy filing.
``Today, our senior management effectively gave up and conceded
defeat,'' he said. ``But the working people of Weirton Steel will never
surrender. We will not give up.''
Attachment 22--Testimony of Bill Stephans, Division Manager for TMP at
Mittal Steel USA's Weirton Facility from Hearing Transcript, In the
Matter Of: Tin and Chromium Coated Steel Sheet from Japan, Inv. No.
731-TA-860 (Review) (April 27, 2006)
The attachment is available at the following Web site, http://www.usitc.gov/trade_remedy/731_ad_701_cvd/investigations/2005/tin_chromium_steel/PDF/Tin%20and%20chromium%20steel%2004-27-06.pdf
.
mium%20steel%2004-27-06.pdf
.
Attachment 23--ISU Irked by Mittal Steel's Plan To Shut Weirton
Galvanizing Line, American Metal Market (Feb. 3, 2006)
ISU Irked by Mittal Steel's Plan To Shut Weirton Galvanizing Line
By Sam Kusic
PITTSBURGH--Mittal SteeL USA Inc. plans to shut down the
galvanizing line at its Weirton, W.Va., plant, eliminating 25 to 40
jobs, and refocus the facility entirely on tinplate products.
The move comes two months after the company sent official notices
to workers that the plant's blast furnace, idle for much of last year,
would be closed permanently.
``The (galvanizing) line does not fit into the plans,'' a Mittal
Steel USA spokesman said, adding that the Wierton line costs more to
operate than other comparable facilities it owns.
But Mark Glyptis, president of the Independent Steelworkers Union
(ISU) at Weirton, said the union had been working toward lowering the
line's operating costs. `` Its a good line and one that ought to be
running in this organization,'' he said. ``We did a great deal of work
to keep that line in operation.''
The closure, set to take place in two to three months, follows the
layoff of about 450 people when the Chicago-based company decided to
indefinitely close its iron and steelmaking operations there in
November. The hot end previously had been temporarily idled since May,
when steel prices were falling due to bloated inventories nationwide.
The closure ends nearly 100 years of steelmaking at the plant,
which was a founding piece of Weirton Steel Corp. in 1909. In 1984, its
employees bought the plant, at the time making it the world's largest
wholly employee-owned company. In 2003, International Steel Group Inc.
(ISG) purchased the business, and Mittal bought ISG in a multibillion-
dollar deal in April 2005.
With the closures, only the plant's hot- and cold-rolled mills and
its tinplating operations remain intact. If there is good news, Glyptis
said, it's that the union was able to work with the company to keep the
hot-roll mill open, saving about 200 jobs.
Mittal had been reviewing whether to shutter the hot-roll mill, but
ultimately decided against it. ``It's one of the better hot mills in
operation,'' Glyptis said, adding that as the plant increases its
tinplating operations, jobs are being added. ``It's kind of a roller
coaster of good news and not-so-good news.''
Attachment 24--Excerpts of Testimony from Hearing Transcript, In the
Matter Of: Tin and Chromium Coated Steel Sheet from Japan, Inv. No.
731-TA-860 (F) (June 29, 2000)
[[Page 17665]]
[GRAPHIC] [TIFF OMITTED] TN09AP07.001
[[Page 17666]]
[GRAPHIC] [TIFF OMITTED] TN09AP07.002
[[Page 17667]]
[GRAPHIC] [TIFF OMITTED] TN09AP07.003
[[Page 17668]]
[GRAPHIC] [TIFF OMITTED] TN09AP07.004
[[Page 17669]]
[GRAPHIC] [TIFF OMITTED] TN09AP07.005
[[Page 17670]]
Attachment 25--Brazil Slab Hits $555/T In Tight Export Market, American
Metal Market (June 5, 2006)
Brazil Slab Hits $555/T in Tight Export Market
By Diana Kinch
Vitoria, Brazil--Export prices for steel slab have risen to $555 a
tonne f.o.b. Brazil and could continue to rise due to tight world
supplies, Cia. Sider [Atilde][ordm]rgica de Tubar[Atilde][pound]o (CST)
said late Thursday.
The slab producer, majority owned by Luxembourg-based steelmaker
Arcelor SA, said it had just closed a deal to sell slab to a U.S. buyer
at $555 a tonne, although the tonnage was not disclosed.
``Pressure continues on prices following the Chinese pulling out of
the slab export market due to China's charging of export taxes,'' a CST
source said.
(In fact, China apparently has delayed implementation of higher
export taxes on steel products until at least July 1. But Chinese
exporters reduced slab and billet offers in May in anticipation of the
anticipated 5- to 10-percent tax, and as yet there is no sign of any
rebound in slab exports, according to reports out of China.)
The other major factor influencing Brazilian export prices is the
loss of the No. 3 blast furnace at Cia. Sider [Atilde][ordm]rgica
Nacional (CSN) in January in what was described at the time as a minor
accident involving a dust collection system. The furnace, responsible
for 60 percent of CSN's raw steel output of 6 million tonnes per year,
was expected to return to service in June, but now sources said they
don't expect it to restart until next month at the earliest.
CSN reportedly has ordered 1 million tonnes of slab to replace the
lost production but so far has received only 300,000 tonnes because of
the market tightness, sources said.
CST did not confirm whether it sees the delay in bringing on-stream
its new No. 3 blast furnace as a market factor. The new 2.5-million-
tonne-per-year furnace, which is now more than 90 percent complete,
will probably be inaugurated in early 2007 because of the impact on a
recent construction workers' strike at the site, a source close to the
furnace project said (see story, page 6).
Attachment 26--Wheeling-Pittsburg Makes Loss, Despite Rising Market,
Steel Business Briefing (May 11, 2006)
Wheeling-Pittsburgh Makes Loss, Despite Rising Market
Thursday, 11 May 2006
Wheeling-Pittsburgh Corp, the holding company of Wheeling-
Pittsburgh Steel, is reporting a $2.1m net loss for the first quarter,
compared with $8m in earnings in the first quarter of 2005. The sheet
steel producer had a $49m cost increase, Steel Business Briefing
understands.
Wheeling-Pittsburgh, in talks with Brazil's CSN to form a slab
rolling alliance, shipped 681,000 short tons in Q1, up substantially
from 523,000 s.t shipped in Q1 2005 when the company suffered an
equipment failure. However, sales were made at an average of $739/s.t a
year ago, declining to $680/s.t in the most recently completed quarter.
CSN is interested in having its slabs rolled by Wheeling-
Pittsburgh, which has about 600,000 s.t/year of excess hot-rolling
capacity. CSN is also discussing taking a minority stake in the West
Virginia steelmaker.
``While our first quarter loss represented an improvement from the
fourth quarter of 2005, it was a disappointment given current demand
for our products,'' says company CEO James Bradley.
Attachment 27--Esmark To Shut Wheeling-Pitt BF If Bid Succeeds, Steel
Business Briefing (Aug. 23, 2006)
Esmark To Shut Wheeling-Pitt BF If Bid Succeeds
Wednesday, 23 August 2006
Esmark, the U.S. service centre consolidator in a proxy fight for
control of Wheeling-Pittsburgh Steel, plans to shutter the sheet
producer's Mingo Junction, Ohio blast furnace and rely solely on its
new electric furnace, in addition to purchased slabs, Steel Business
Briefing understands.
In a television interview with a Wheeling, West Virginia television
station, brothers James and Craig Bouchard of Esmark say they plan to
shut the BF because it is not cost-effective. SBB could not reach the
Bouchards for further comment. Esmark has not filed documents with
regulators detailing its plans.
The interview preceded Wheeling-Pittsburgh's response to a United
Steelworkers assertion that the steelmaker violated its labour contract
by not giving the union the same amount of time to make a competing bid
for the company that Brazilian suitor CSN was given.
In a 21 August letter to USW officials, Wheeling-Pittsburgh CEO
James Bradley notes the union has known about the potential hook-up
with CSN since early July and that the USW ``has no compelling basis''
to request more time given its support of the Esmark proposal. He also
again criticises the Esmark bid as inferior to CSN's proposal.
Attachment 28--Arcelor Brasil Sets Sights on New Slab Plant, American
Metal Market (March 22, 2006)
Arcelor Brasil Sets Sights on New Slab Plant
By Diana Kinch
Vitoria, Brazil--Arcelor Brasil SA is studying the possibility of
building a 3.5-million-tonne-a-year steel slab-for-export plant,
probably in conjunction with Cia. Vale do Rio Doce (CVRD), at Anchieta
in Espirito Santo state.
The plant would be about 60 kilometers (37 miles) from the existing
Cia. Sider[Atilde][ordm]rgica de Tubar[Atilde][pound]o (CST)-Arcelor
Brasil slabmaking and hot-rolled coil plant, company executives said
during a press conference.
CVRD announced a month ago that it was seeking partners for a new
slabmaking venture at Anchieta, in which it would like to hold a
minority participation. According to the CVRD announcement, the final
capacity of such a plant would be around 5 million tonnes a year.
``We would probably start off with 3 million to 3.5 million tonnes
per year,'' a spokesman said.
Usinas Sider[Atilde][ordm]rgicas de Minas Gerais SA (Usiminas),
based in Belo Horizonte, which also is considering building new
slabmaking capacity in Brazil, reportedly isn't involved in the
Anchieta project talks.
CST-Arcelor Brasil is expected to expand its own steelmaking
capacity to 9 million tonnes a year by 2012, after which its current
site at Tubar[Atilde][pound]o will be saturated, the spokesman said.
CST-Arcelor Brasil later this year will bring on-stream its third
blast furnace, boosting its annual steelmaking capacity from 5 million
tonnes currently to 7.5 million tonnes, of which some 5 million tonnes
will be used for merchant slab production.
The steelmaker currently produces some 2.5 million tonnes of hot-
rolled coil a year and is expected to double its hot-rolled coil mill
capacity by 2008 in what should be a relatively economic investment.
Attachment 29--CST to Hike Slab Sales to Dofasco, American Metal Market
(March 22, 2006)
The attachment is available at the following Web site, http://www.findarticles.com/p/articles/mi_m3MKT/is_11-3_114/ai_n16119523
.
[[Page 17671]]
Attachment 30--Gerdau Acominas Charging Into Slab Mart, American Metal
Market (June 30, 2006)
Gerdau A[ccedil]ominas Charging Into Slab Mart
By Diana Kinch
Ouro Branco, Brazil--Gerdau AASec. ominas SA will step up
production of merchant slab, particularly of special grades, by
installing its first continuous slab caster.
The 3-million-tonne-per-year slab caster will operate initially at
a rate of 1.5 million tonnes annually when it starts up in two years,
with output directed at the export market, Jorge Gerdau Johannpeter,
Gerdau SA chairman and president, announced Wednesday.
Currently, Gerdau AASec. ominas, located at Ouro Branco, Minas
Gerais state, produces less than 200,000 tonnes of merchant slab per
year. Most of its current 3 million tonnes of annual raw steel output
is sold as billet, bloom, wire rod and sections.
``The move into slab is in response to market demand,'' Gerdau
AASec. ominas sales director Alberto Huallem said, adding that talks
have already taken place with possible clients abroad.
The move into large-scale slab export will bring Gerdau
AASec. ominas into direct competition with both Cia. SiderA[ordm]rgica
de Tubarao and Cia. SiderA[ordm]rgica Nacional, Huallem said. ``But the
market is big enough for everyone,'' he added.
The plant is working to boost its raw steel output to 4.5 million
tonnes per year beginning in the second half of 2007, when its No. 2
blast furnace using Chinese technology, currently under construction,
is due on-stream as part of a $1.5-billion investment.
The extra capacity will be used initially to produce more billet,
and later slab for export once the slab caster comes on-stream in 2008,
Gerdau AASec. ominas industrial director Manoel Vitor de MendonASec. a
said.
``The slab caster is a new development, recently approved by the
board, and will cost $275 million,'' Gerdau Johannpeter said. Proposals
from potential suppliers are still being considered and the supplier
should be confirmed by the end of this year.
Luiz AndrA[eacute] Rico Vicente, Gerdau AASec. ominas president,
said that the caster will make only high-value grades. ``Our company
trend is to steer away from commodity grades. We want to produce API
and interstitial-free grades because the market is hungry for these
products,'' he said.
Currently, Gerdau AASec. ominas sells 70 percent of its products
for export, billet being its principal product. But its relatively new
sections rolling mill is aimed principally at the domestic construction
industry.
Gerdau Johannpeter indicated that the installation of a 3-million-
tonne slab caster is to prepare for possible future expansions of the
Gerdau AASec. ominas works, which was envisioned as a 10-million-tonne-
per-year steelmaker when it was originally set up 20 years ago by the
Brazilian state.
``We are already studying the possibility of a further expansion to
6 million or 6.5 million tonnes of crude steel capacity,'' Rico Vicente
said. ``We are being advised by (Japan's JFE Steel Corp.) on these
studies, which should be completed by the end of this year.''
Attachment 31--CSA Steel Project Receives License, American Metal
Market (July 6, 2006)
CSA Steel Project Receives License
By Diana Kinch
Rio de Janeiro--Cia. Sider[Atilde][ordm]rgica do
Atl[Atilde][cent]ntico (CSA), the 4.4-million-tonne-per-year slab-for-
export joint venture to be built in Sepetiba, Rio de Janeiro state, by
Germany's ThyssenKrupp Stahl AG and Brazil's Cia. Vale do Rio Doce, has
been granted a preliminary environmental license despite protests by
local fishermen.
Notice that Rio de Janeiro state environmental authority
Funda[Atilde]Sec. [Atilde][pound]o Estadual de Engenharia do Meio
Ambiente granted the license to CSA was published in the state's
official gazette Monday.
The preliminary environmental license basically determines the site
of the new works and will enable the steelmaking project to proceed
with equipment purchases. The $2.4-billion CSA is slated for start-up
in 2008, with all output aimed for export.
Attachment 32--North America at Top of TK's Agenda, American Metal
Market (August 11, 2006)
North America at Top of TK's Agenda
By Scott Robertson
Pittsburgh--ThyssenKrupp AG, D[uuml]sseldorf, Germany, is
sharpening its focus on North America, with plans to take a significant
share of the U.S. carbon and stainless steel markets.
The company said Friday it had approved a project development
budget of $50 million, in effect a feasibility study into building a
$2.9-billion carbon and stainless steel mill in the southern United
States.
ThyssenKrupp executives termed the proposal to build a mill a
``backup plan'' in case the company's deal to acquire Dofasco Inc.,
Hamilton, Ontario, from Arcelor SA-Mittal Steel Co. NV falls through.
But it seems likely the project will move forward, given the protective
measures Arcelor took to secure Dofasco as it attempted to fight off a
Mittal takeover in early negotiations.
``Our first priority is the acquisition of Dofasco,'' Ekkehard D.
Schulz, executive board chairman of ThyssenKrupp, said. ``But in case
that is not possible, we have to look for opportunities to develop our
(North American) strategy.''
That would appear to make building a mill the likely option,
especially given that ThyssenKrupp's announcement comes less than a
week after Gonzalo Urquijo, senior executive vice president and chief
financial officer of Arcelor, said it appears ``impossible'' for
Dofasco to be sold given its control by a ``Dutch trust.''
ThyssenKrupp has been looking to increase its position in North
America for years and reportedly had eyed the purchase of AK Steel
Corp., Middletown, Ohio, or some form of tie-up with U.S. Steel Corp.,
Pittsburgh. The company also reportedly looked at acquiring the
Sparrows Point, Md., plant of Mittal Steel USA Inc. if the Dofasco deal
fell through.
Now it has turned its focus to a greenfield project that would
comprise carbon and stainless steel manufacturing. The plan
contemplates the construction of a hot strip mill by ThyssenKrupp Steel
AG that would be used to process slab from ThyssenKrupp's new Cia.
Siderurgica do Atlantico (CSA) steel mill in Brazil. The new U.S. plant
also would feature cold-rolling and hot-dip galvanizing capacity for
carbon flat products. The 1.8-billion-euros ($2.3-billion) carbon plant
would produce about 4.5 million tonnes of steel per year.
At the same time, ThyssenKrupp Stainless AG would spend around 500
million euros ($636 million) to build a melt shop with an annual
capacity of up to 1 million tonnes of slab, which would be processed on
the hot strip mill. A cold-rolling facility also would be included,
which in its initial phase would be designed to produce 325,000 tons of
cold strip and 100,000 tons of pickled hot strip. In addition,
ThyssenKrupp Mexinox would be supplied with hot strip from the United
States as starting material.
ThyssenKrupp said sites in Alabama, Arkansas and Louisiana are
under consideration for the project, but gave no timetable as to when
construction might begin. Locating in that region would place the
company in a geographic position to supply steel to
[[Page 17672]]
automotive transplant companies throughout the Southeast. It also would
place the proposed mill in direct competition with SeverCorr LLC, a
carbon steel mini-mill now under construction in Columbus, Miss., that
plans to supply the automotive transplants. SeverCorr is on track to
begin production in late 2007.
ThyssenKrupp executives stressed that negotiations aimed at
acquiring Dofasco would continue over the next few days and that the
mill project would be undertaken only if those negotiations fail.
``Dofasco is our top priority,'' said A. Stefan Kirsten, chief
financial officer and a member of the executive board of ThyssenKrupp.
``The greenfield strategy is a backup strategy. We need a Nafta
strategy. If there is any chance that we do not get Dofasco, we do not
want to be unprepared. We do not want to put our steel strategy into
the hands of a third party. What we have done is fund a feasibility
study. We have not agreed to build a steel plant in the U.S. This is a
prudent company.''
ThyssenKrupp has been prudent enough, Kirsten said, to review what
adding such capacity would mean to the U.S. market. He said the U.S.
steel industry does not produce all the steel the country needs and
relies on imports to provide anywhere from 8 million to 12 million tons
per year to make up the difference. ThyssenKrupp's plan, he said, is to
displace those imports.
The entire plan could be scrapped, Kirsten said, if ThyssenKrupp
gets Dofasco. ``If we get Dofasco, we will revisit our strategy,'' he
said. ``We already have achieved a strong position in stainless (in the
Nafta region) with our Mexican plant. This strategy (to build a new
mill) is something we would be sure to revisit when the moment comes.''
Attachment 33--Groundwork Laid For Brazil's Ceara Slab Project,
American Metal Market (September 1, 2006)
The attachment is available at the following Web site, http://www.findarticles.com/p/articles/mi_m3MKT/is_49-5_113/ai_n15981124
.
Attachment 34--CSN May Lift Slab Capacity Of Two Projects, American
Metal Market (September 1, 2006)
The attachment is available at the following Web site, http://www.findarticles.com/p/articles/mi_m3MKT/is_35-1_114/ai_n16726710
.
Attachment 35--Brasil's Usiminas Casts Sights Abroad For New Slab
Project Partner, American Metal Market (August 29, 2006)
The attachment is available at the following Web site, http://www.findarticles.com/p/articles/mi_m3MKT/is_34-3_114/ai_n16715616
.
Attachment 36--Russia's Severstal Wants to Ship More Steel to U.S.,
Reuters (February 2, 2004)
Russia's Severstal Wants To Ship More Steel to U.S.
Reuters, 02.02.04, 7:56 AM ET
Moscow, Feb 2 (Reuters)--Russian steel giant Severstal
, fresh from its first acquisition in the United States, said
on Monday it would ask the U.S. Commerce Department to allow it to ship
more steel to the United States.
Last Friday, Severstal completed the acquisition of bankrupt U.S.
firm Rouge Industries Inc, one of the largest suppliers of steel to car
giants such as Ford Motor (nyse: F--news--people) Co.
The purchase, likely to increase Severstal's presence in the global
car market, was the second move by a major Russian metals company into
the U.S. market after Norilsk Nickel took over
U.S.-based platinum firm Stillwater Mining (nyse: SWC--news--people)
Co.
``We would like to present Rouge Industries (nyse: ROU--news--
people) with a plan for its financial revitalisation by this spring,''
said Severstal spokeswoman Olga Yezhova.
``As part of this plan we intend to ask the U.S. Commerce
Department to allow us to supply more steel slab there.''
Severstal, one of Russia's biggest exporters of steel, had
previously said foreign firms with U.S. assets tended to obtain such
permission. The company shipped a mere 2,000 tonnes of steel and
products to the United States last year.
But Washington's recent decision to abolish three-year steel import
duties that the United States slapped on countries including Russia, is
likely to trigger major export growth from Russia.
Dmitry Goroshkov, Severstal's sales director, said in a recent
media interview that Severstal could sell ``hundreds of thousands of
tonnes of steel'' to the United States this year as a result.
Yezhova said Severstal had never supplied slab to Rouge before.
Severstal plans to invest up to $45 million a year in its U.S. partner.
A U.S. bankruptcy court has allowed the sale of Rouge to Severstal
for about $285.5 million. Through its U.S. vehicle, Severstal has also
bought Rouge's 50 percent stake in Double Eagle Steel Coating Company--
the world's largest electro-galvanising line that produces galvanised
sheet steel for cars. Severstal North America has also acquired Rouge's
48 percent stake in Spartan Steel Coating, a hot dip galvanizing firm.
Attachment 37--Tin and Chromium Coated Steel Sheet from Japan, Inv. No.
731-TA-860 (Review), USITC Pub. 3860 (June 2006) at V-8
The attachment is available at the following Web site, http://hotdocs.usitc.gov/docs/pubs/701_731/pub3860.pdf
.
Attachment 38--Tin and Chromium Coated Steel Sheet from Japan, Inv. No.
731-TA-860 (Review), USITC Pub. 3860 (June 2006) at Table III-8
The attachment is available at the following Web site, http://hotdocs.usitc.gov/docs/pubs/701_731/pub3860.pdf
.
Attachment 39--Mittal Shows Little Interest in Weirton Furnace Sale,
American Metal Market (May 5, 2006)
Mittal Shows Little Interest in Weirton Furnace Sale
By Scott Robertson
Pittsburgh--Mitchell A. Hecht, former chief financial officer at
International Steel Group Inc., wants to buy and restart two idle blast
furnaces in Weirton, W.Va. Standing in his way, he says, is the
inattention of the furnaces' current owner, Mittal Steel Co NV., the
world's largest steelmaker.
``I know right now they have bigger fish to fry,'' Hecht said about
Mittal Steel's efforts to acquire Arcelor SA, the world's second-
largest steel producer. ``But I think once they can focus on this,
they'll find it's a win-win-win situation'' for Mittal, for Hecht's
recently formed Hamsphire Steel Investments and for as many as 200
unemployed steelworkers in West Virginia.
Hecht confirmed Thursday that he has made an offer to buy the
former Weirton Steel Corp. blast furnaces from Mittal Steel USA Inc.
Those furnaces were idled a year ago when Mittal decided to reduce
steel production to better align it with demand at the time. The
company never brought back the furnaces--among the highest cost in
Mittal's arsenal--in-stead redirecting efforts on the Weirton plant's
tinplate business.
Hecht envisions starting a new company around the furnaces with an
initial investment of about $10 million,
[[Page 17673]]
including the purchase price. Additional working capital would be
needed as well.
Employees of the new company would receive an unspecified ownership
interest. Hecht said employee involvement would not be on the order of
an employee stock ownership plan (ESOP), the likes of which once
operated at Weirton Steel. ``It's not going to be an ESOP. But I want
the employees to be involved,'' he said.
``The furnaces are in good shape,'' Hecht said. ``They would
require some prep work to bring them back. We're not talking about
major dollars initially. Long-term, I think we are looking at
investment on the level of several tens of millions of dollars.''
His plan is to sell pig iron produced on-site and invest further in
alternative methods of ironmaking.
``We think it is a win for all parties,'' he said. ``It's a win for
the (Independent Steelworkers Union) in that it would bring people back
to work. It's a win for Mittal because it would allow them to enhance
their good standing with the union, in the community and in the region.
And it would be a win for us because we think we can make money selling
pig and trying to invest in alternate methods of ironmaking. I have
become intrigued over the past year with advances in alternative
ironmaking that are being made in other countries. I think there are
some positive things that can be done in that area.''
The ISU, which represents hourly workers at what is now known as
Mittal Steel-Weirton, expects 80 jobs would be created by restarting
one furnace and as many as 200 jobs if both furnaces are operating,
according to Mark Glyptis, president of the ISU. About 1,000 union jobs
have been eliminated at Mittal Steel-Weirton since the furnaces were
idled.
Glyptis indicated that Mittal Steel appeared unwilling to part with
the assets.
Hecht expressed a more positive view. ``I have made an offer to
them and they have responded to that offer with some questions,'' he
said. ``I have responded to their questions and we are moving the
process forward. Frankly, they are thinly staffed at this point and
their attention is diverted to what they are doing with Arcelor. I
think once they get through (dealing with Arcelor) and have a chance to
focus on this offer, they'll see it as something positive.''
Hecht said he has not heard anything negative from Mittal with
regard to his offer. ``We are going through the process. Mittal Steel
USA is a relatively small part, about 10 percent, of the global
company. Right now (the parent company) has their attention elsewhere.
I am confident that once they turn their attention and get focused on
this offer, we'll be able to get something done.''
Hecht's Hampshire Steel Investments is a private hedge fund that
aims to invest in steel equities. Before becoming involved with
International Steel Group, which was acquired by steel mogul Lakshmi N.
Mittal last year and merged with his other U.S. holdings to form Mittal
Steel USA, Hecht spent time with Bankers Investment, PaineWebber Inc.
and as an independent consultant.
Attachment 40--Mittal Plans to Sell Dofasco, Hecht Waits for Weirton,
Steel Business Briefing (August 16, 2006)
Mittal Still Plans To Sell Dofasco, Hecht Waits for Weirton
Wednesday, 16 August 2006
Whilst the Arcelor side of the Arcelor Mittal merger maintains that
Dofasco cannot be sold to ThyssenKrupp, there still appears to be a
differing opinion coming from the Mittal camp. In fact, that opinion
seems strong enough that Mittal Steel USA declines to say if one of its
other tinplate plants will be sold to satisfy regulators' concerns.
A Mittal Steel USA spokesman tells Steel Business Briefing that no
decision is forthcoming shortly on whether the Sparrows Point, Maryland
works or the Weirton, West Virginia works will be sold to comply with
U.S. Justice Department concerns over a controlling interest in the
U.S. tin mill products market place.
He says that's because European management--at least those from the
Mittal side of the equation--still believe Dofasco can be sold to TK
under an agreement the two sides forged in January.
Meanwhile, Mitch Hecht, the former ISG executive who has expressed
an interest in Weirton's now-shuttered hot end, tells SBB he's still
interested in the slab making operation and that he is also willing to
partner with the works' independent union to purchase the rolling
operations as well if Mittal is keen to sell them.
Saying the Weirton hot strip mill ``is a very attractive asset,''
Hecht says he will bring in financial partners to again combine the
rolling and finishing operations with the hot end to make the works
profitable.
He adds, however, ``We're sitting here waiting to see which way
Mittal will go'' with the sale of one of the properties.
Attachment 41--``HHI Impact of Alternative Divestiture Scenarios''
Arcelor-Mittal Merger--Competitive Impact for U.S. Tin Consumers
HHI Impact of Alternative Divestiture Scenarios
We calculate the HHI for the U.S. tin market using market shares
reported in the DOJ Competitive Impact Statement. Market shares for the
two foreign suppliers (Rasselstein and Corus) was estimated using U.S.
import statistics.
Prior to the Mittal-Arcelor merger we estimate the market shares as
follows:
------------------------------------------------------------------------
Market
share
(percent)
------------------------------------------------------------------------
USS.......................................................... 44
Mittal....................................................... 31
Ohio Coatings................................................ 8
Dofasco-Arcelor-EU........................................... 6
Rasselstein.................................................. 5
Corus........................................................ 6
------------------------------------------------------------------------
Mittal's market share (31%) can be divided into Weirton (18.6%) and
Sparrows Point (12.4%). Arcelor's market share can be divided into
Dofasco (4.0%) and Arcelor-EU (2.0%).
In the following pages we present a separate HHI calculation for
each potential divestiture. Given that certain options involve the high
likelihood that a U.S. firm will fail, we are forced to make an
assumption about how the surviving firms' market share will be
reallocated. For simplicity we assume that the surviving firms' market
share will grow in proportion to their current share.
For instance, if Weirton is divested by Mittal-Arcelor but
subsequently fails, 18.6% of the tin market will disappear and 81.4%
survives. We assume that the surviving firms' market share will remain
in proportion to their current shares. That is, USS's current market
share is 44%; our assumption implies that USS's market share following
the failure of Weirton would be 44%/(81.4%) = 54.05%
We stress that our assumption is very optimistic (i.e., pro-
competitive) as it implies the foreign suppliers' market share also
increases. Given the U.S. tin industry's protectionist history, such
market share increases could easily result in an antidumping petition
against foreign suppliers. As exemplified by the 2000 tin case against
Japan antidumping actions often result in the foreign country exiting
the U.S. market. This prospect makes it even more imperative that the
DOJ pursue a divestiture that maximizes that chance that all U.S.
production will remain viable.
[[Page 17674]]
HHI Tin Market--Summary Tabulation
[Eastern U.S. Regional Market]
------------------------------------------------------------------------
Loss of Mkt
HHI size (%)
------------------------------------------------------------------------
Market Condition (Pre-merger)................. 3,058 ...........
Market Condition (Post-merger)--No Divestiture 3,446 ...........
-------------
Change in HHI............................. 388 ...........
Market Condition (Post-merger)--Weirton
Divested (independent):
Weirton Survives (highly unlikely)........ 2,761 ...........
Weirton Fails (very likely)............... 3,645 18.6
Market Condition (Post-merger)--Sparrows Point
Divested (independent):
Weirton Survives (unlikely beyond the very 2,836 ...........
short term)..............................
Weirton Fails (likely within a few years). 3,421 18.6
Market Condition (Post-merger)--Sparrows Point
Divested (independent):
S-Point TMP Operations Survive............ 2,836 ...........
S-Point TMP Operations Shuttered.......... 3,495 12.4
Market Condition (Post-merger)--Sparrows Point
Divested (to USS):
S-Point TMP Operations Survive............ 3,927 ...........
S-Point TMP Operations Shuttered.......... 3,495 12.4
Market Condition (Post-merger)--Dofasco 3,182 ...........
Divested (independent)
Market Condition (Post-merger)--Dofasco 3,222 ...........
Divested to TK
------------------------------------------------------------------------
Prepared by WFG
Competitive Impact Analysis: Alternative Remedies
HHI Tin Market
Eastern U.S. Regional Market
Market Condition (Pre-Merger)
------------------------------------------------------------------------
Mkt share MShr-Sqr
------------------------------------------------------------------------
USS..................................... 44% 0.19360
Mittal.................................. 31% 0.09610
Ohio Coatings........................... 8% 0.00640
Dofasco-Arcelor-EU...................... 6% 0.00360
Rasselstein............................. 5% 0.00245
Corus................................... 6% 0.00366
HHI..................................... 3,058 ..............
------------------------------------------------------------------------
Market Condition (Post-Merger)--No Divestiture
------------------------------------------------------------------------
Mkt share MShr-Sqr
------------------------------------------------------------------------
USS..................................... 44% 0.19360
Mittal-Arcelor.......................... 37% 0.13690
Ohio Coatings........................... 8% 0.00640
Rasselstein............................. 5% 0.00245
Corus................................... 6% 0.00366
100% ..............
HHI..................................... 3,430 ..............
------------------------------------------------------------------------
Key Market Shares
------------------------------------------------------------------------
------------------------------------------------------------------------
Weirton................................................. 18.6%
Sparrows Point.......................................... 12.4%
Dofasco................................................. 4.0%
Arcelor-EU.............................................. 2.0%
------------------------------------------------------------------------
Market Condition (Post-Merger)--Weirton Divested (Independent)
----------------------------------------------------------------------------------------------------------------
Weirton survives Weirton fails
---------------------------------------------------------------
Mkt share MShr-Sqr Mkt share MShr-Sqr
----------------------------------------------------------------------------------------------------------------
USS............................................. 44.0% 0.19360 54% 0.29218
Mittal-Arcelor.................................. 18.4% 0.03386 23% 0.05110
Ohio Coatings................................... 8.0% 0.00640 10% 0.00966
Weirton......................................... 18.6% 0.03460 .............. ..............
Rasselstein..................................... 5% 0.00245 6% 0.00370
[[Page 17675]]
Corus........................................... 6% 0.00366 7% 0.00552
HHI............................................. 2,746 .............. 3,622 ..............
----------------------------------------------------------------------------------------------------------------
Eastern U.S. Regional Market
Market Condition (Post-Merger)--Sparrows Point Divested (Independent)
----------------------------------------------------------------------------------------------------------------
Weirton Survives Weirton fails
---------------------------------------------------------------
Mkt share MShr-Sqr Mkt share MShr-Sqr
----------------------------------------------------------------------------------------------------------------
USS............................................. 44.0% 0.19360 54% 0.29218
Mittal-Arcelor.................................. 24.6% 0.06052 7.4% 0.00543
Ohio Coatings................................... 8.0% 0.00640 10% 0.00966
Sparrows Point.................................. 12.4% 0.01538 15% 0.02321
Rasselstein..................................... 5% 0.00245 6% 0.00370
Corus........................................... 6% 0.00366 7% 0.00552
HHI............................................. 2,820 .............. 3,397 ..............
----------------------------------------------------------------------------------------------------------------
Market Condition (Post-Merger)--Sparrows Point Divested (Independent)
----------------------------------------------------------------------------------------------------------------
S-Point TMP operations remain S-Point TMP operations
in operation shuttered
---------------------------------------------------------------
Mkt share MShr-Sqr Mkt share MShr-Sqr
----------------------------------------------------------------------------------------------------------------
USS............................................. 44.0% 0.19360 50% 0.25229
Mittal-Arcelor.................................. 24.6% 0.06052 28% 0.07886
Ohio Coatings................................... 8.0% 0.00640 9% 0.00834
Sparrows Point.................................. 12.4% 0.01538 .............. 0.00000
Rasselstein..................................... 5% 0.00245 6% 0.00319
Corus........................................... 6% 0.00366 7% 0.00477
HHI............................................. 2,820 .............. 3,475 ..............
----------------------------------------------------------------------------------------------------------------
Market Condition (Post-Merger)--Sparrows Point Divested (to USS)
----------------------------------------------------------------------------------------------------------------
S-Point TMP operations remain S-Point TMP operations
in operation shuttered
---------------------------------------------------------------
Mkt share MShr-Sqr Mkt share MShr-Sqr
----------------------------------------------------------------------------------------------------------------
USS............................................. 56.4% 0.31810 50% 0.25229
Mittal-Arcelor.................................. 24.6% 0.06052 28% 0.07886
Ohio Coatings................................... 8.0% 0.00640 9% 0.00834
.............. .............. 0% 0.00000
Rasselstein..................................... 5% 0.00245 6% 0.00319
Corus........................................... 6% 0.00366 7% 0.00477
HHI............................................. 3,911 .............. 3,475 ..............
----------------------------------------------------------------------------------------------------------------
Market Condition (Post-Merger)--Dofasco Divested (Independent)
------------------------------------------------------------------------
Mkt share MSr-Sqr
------------------------------------------------------------------------
USS..................................... 44%0 0.19360
Mittal-Arcelor.......................... 33% 0.10890
Ohio Coatings........................... 8% 0.00640
Rasselstein............................. 5% 0.00245
Corus................................... 6% 0.00366
Dofasco................................. 4% 0.00160
HHI..................................... 3,166 ..............
------------------------------------------------------------------------
Market Condition (Post-Merger)--Dofasco Divested to ThyssenKrupp
------------------------------------------------------------------------
Mkt share MSr-Sqr
------------------------------------------------------------------------
USS..................................... 44% 0.19360
[[Page 17676]]
Mittal-Arcelor.......................... 33% 0.10890
Ohio Coatings........................... 8% 0.00640
Rasselstein-Dofasco (TK)................ 9% 0.00801
Corus................................... 6% 0.00366
HHI..................................... 3,206 ..............
------------------------------------------------------------------------
Prepared by WFG
Competitve Impact Analysis: Alternative Remedies
HHI Tin Market
Eastern U.S. Regional Market
Market Condition (Pre-Merger)
------------------------------------------------------------------------
Mkt share CHED
H='1'>MShr-Sqr
---------------------------------------------------------
USS..................................... 44% 0.19360
Mittal.................................. 31% 0.09610
Ohio Coatings........................... 8% 0.00640
Dofasco-Arcelor-EU...................... 6% 0.00360
Rasselstein............................. 5% 0.00245
Corus................................... 6% 0.00366
HHI..................................... 3,058 ..............
------------------------------------------------------------------------
Market Condition (Post-Merger)--No Divestiture
------------------------------------------------------------------------
Mkt share MShr-Sqr
------------------------------------------------------------------------
USS..................................... 44% 0.19360
Mittal-Arcelor.......................... 37% 0.13690
Ohio Coatings........................... 8% 0.00640
Rasselstein............................. 5% 0.00245
Corus................................... 6% 0.00366
100% ..............
HHI..................................... 3,430 ..............
------------------------------------------------------------------------
Key Market Shares
------------------------------------------------------------------------
------------------------------------------------------------------------
Weirton................................................. 18.6%
Sparrows Point.......................................... 12.4%
Dofasco................................................. 4.0%
Arcelor-EU.............................................. 2.0%
------------------------------------------------------------------------
Market Condition (Post-Merger)--Weirton Divested (Independent)
----------------------------------------------------------------------------------------------------------------
Weirton survives Weirton fails
---------------------------------------------------------------
Mkt share MShr-Sqr Mkt share MShr-Sqr
----------------------------------------------------------------------------------------------------------------
USS............................................. 44.0% 0.19360 54% 0.29218
Mittal-Arcelor.................................. 18.4% 0.03386 23% 0.05110
Ohio Coatings................................... 8.0% 0.00640 10% 0.00966
Weirton......................................... 18.6% 0.03460 .............. ..............
Rasselstein..................................... 5% 0.00245 6% 0.00370
Corus........................................... 6% 0.00366 7% 0.00552
HHI............................................. 2,746 .............. 3,622 ..............
----------------------------------------------------------------------------------------------------------------
Market Condition (Post-Merger)--Sparrows Point Divested (Independent)
----------------------------------------------------------------------------------------------------------------
Weirton survives Weirton fails
---------------------------------------------------------------
Mkt share MShr-Sqr Mkt share MShr-Sqr
----------------------------------------------------------------------------------------------------------------
USS............................................. 44.0% 0.19360 54% 0.29218
Mittal-Arcelor.................................. 24.0% 0.06052 7.4% 0.00543
Ohio Coatings................................... 8.0% 0.00640 10% 0.00966
[[Page 17677]]
Sparrows Point.................................. 12.4% 0.01538 15% 0.02321
Rasselstein..................................... 5% 0.00245 6% 0.00370
Corus........................................... 6% 0.00366 7% 0.00552
HHI............................................. 2,820 .............. 3,397 ..............
----------------------------------------------------------------------------------------------------------------
Market Condition (Post-Merger)--Sparrows Point Divested (Independent)
----------------------------------------------------------------------------------------------------------------
S-Point TMP operations remain S-Point TMP operations
in operation shuttered
---------------------------------------------------------------
Mkt share MShr-Sqr Mkt share MShr-Sqr
----------------------------------------------------------------------------------------------------------------
USS............................................. 44.0% 0.19360 50% 0.25229
Mittal-Arcelor.................................. 26.6% 0.06052 28% 0.07886
Ohio Coatings................................... 8.0% 0.00640 9% 0.00834
Sparrows Point.................................. 12.4% 0.01538 .............. 0.00000
Rasselstein..................................... 5% 0.00245 6% 0.00319
Corus........................................... 60% 0.00366 7 0.00477
HHI............................................. 2,820 .............. 3,475 ..............
----------------------------------------------------------------------------------------------------------------
Market Condition (Post-Merger)--Sparrows Point Divested (to USS)
----------------------------------------------------------------------------------------------------------------
S-Point TMP operations remain S-Point TMP operations
in operation shuttered
---------------------------------------------------------------
Mkt share MShr-Sqr Mkt share MShr-Sqr
----------------------------------------------------------------------------------------------------------------
USS............................................. 56.4% 0.31810 50% 0.25229
Mittal-Arcelor.................................. 24.6% 0.06052 28% 0.07886
Ohio Coatings................................... 8.0% 0.00640 9% 0.00834
.............. .............. 0% 0.00000
Rasselstein..................................... 5% 0.00245 6% 0.00319
Corus........................................... 6% 0.00366 7% 0.00477
HHI............................................. 3,911 .............. 3,475 ..............
----------------------------------------------------------------------------------------------------------------
Market Condition (Post-Merger)--Dofasco Divested (Independent)
------------------------------------------------------------------------
Mkt share MShr-Sqr
------------------------------------------------------------------------
USS..................................... 44% 0.19360
Mittal-Arcelor.......................... 33% 0.10890
Ohio Coatings........................... 8% 0.00640
Rasselstein............................. 5% 0.00245
Corus................................... 6% 0.00366
Dofasco................................. 4% 0.00160
HHI..................................... 3,166 ..............
------------------------------------------------------------------------
Market Condition (Post-Merger)--Dofasco Divested to ThyssenKrupp
------------------------------------------------------------------------
Mkt share MShr-Sqr
------------------------------------------------------------------------
USS..................................... 44% 0.19360
Mittal-Arcelor.......................... 33% 0.10890
Ohio Coatings........................... 8% 0.00640
Rasselstein-Dofasco (TK)................ 9% 0.00801
Corus................................... 6% 0.00366
HHI..................................... 3,206 ..............
------------------------------------------------------------------------
Attachment 42--``Probability That Divestiture Will Improve
Competition''
[[Page 17678]]
[GRAPHIC] [TIFF OMITTED] TN09AP07.006
[[Page 17679]]
[GRAPHIC] [TIFF OMITTED] TN09AP07.007
[[Page 17680]]
Attachment 43--ITC Prehearing Staff Report, Certain Carbon Steel
Products From Australia, Belgium, Brazil, Canada, Finland, France,
Germany, Japan, Korea, Mexico, Poland, Romania, Spain, Sweden, Taiwan,
and the United Kingdom, Inv. Nos. AA1921-197 (Second Review); 701-TA-
319, 320, 325-328, 348, and 350 (Second Review); 701-TA-319, 320, 325-
328, 348, and 350 (Second Review); and 731-TA-573, 574, 576, 578, 582-
587, 612, and 614-618 (Second Review) (September 25, 2006) at Tables
CORE-III-8 and CTL III-9
Public Version
UNITED STATES INTERNATIONAL TRADE COMMISSION
Washington, DC
Certain Carbon Steel Products From Australia, Belgium, Brazil, Canada,
Finland, France, Germany, Japan, Korea, Mexico, Poland, Romania, Spain,
Sweden, Taiwan, and the United Kingdom
Prehearing Report to the Commission on Investigation Nos. AA1921-
197 (Second Review); 701-TA-319, 320, 325-328, 348, and 350 (Second
Review); and 731-TA-573, 574, 576, 578, 582-587, 612, and 614-618
(Second Review).
Staff assigned:
Elizabeth Haines, Investigator (205-3200),
Michael Szustakowski, Investigator (205-3188),
Gerald Houck, Industry Analyst (205-3392),
Heather Sykes, Industry Analyst (205-3436),
Kelly Clark, Economist (205-3166),
Mary Klir, Accountant (205-3247),
June Brown, Attorney (205-3042),
David Fishberg, Attorney (708-2614),
Douglas Corkran, Supervisory Investigator (205-3057).
Staff gratefully acknowledge the contributions of the following
individuals:
Mara Alexander; Gabriel Ellenberger; Lita David-Harris; Carolyn
Holmes; Steven Hudgens; Susan Louie; Mark Rees; Fred Ruggles; Lemuel
Shields; and Darlene Smith in January-June 2006 than in January-June
2005. Ten of the 18 producers operating continuously from 2000 to 2003
reported better operating profits while the other eight producers
reported a decline in operating profits. As discussed in table CORE-
III-9, data for 2003 are impacted by limitations in information
available to * * * regarding the operations of * * *.
Table CORE-III-8--Corrosion-Resistant Steel: Results of Operations of U.S. Producers, 2000-05, January-June 2005, and January-June 2006
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fiscal year January-June
Item ---------------------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 2005 2006
--------------------------------------------------------------------------------------------------------------------------------------------------------
Quantity (short tons)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total net sales......................... 20,077,026 19,561,875 20,890,841 19,290,267 21,916,288 20,389,803 10,108,023 11,349,571
--------------------------------------------------------------------------------------------------------------------------------------------------------
Value ($1,000)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total net sales......................... 11,060,117 9,766,640 10,955,956 10,324,538 14,847,617 14,495,023 7,428,201 8,258,842
COGS.................................... 10,487,543 9,843,595 10,699,028 9,711,362 12,768,311 13,267,367 6,587,267 7,606,927
Gross profit (loss)..................... 572,574 (76,955) 256,928 613,176 2,079,306 1,277,656 840,934 651,915
SG&A expenses........................... 424,888 412,539 435,110 459,562 456,432 448,921 215,626 224,073
Operating income (loss)................. 147,686 (489,494) (178,182) 153,614 1,622,874 778,735 625,308 427,842
Interest expense........................ 270,797 281,813 219,501 184,218 190,862 147,755 71,222 79,063
CDSOA income............................ 0 8,240 5,125 14,416 17,235 6,593 0 0
Other income (expense).................. 50,357 6,953 29,850 (58,033) (95,415) (101,884) (54,609) (45,711)
Net income (loss)....................... (72,754) (756,114) (362,708) (74,221) 1,353,832 535,689 499,477 303,068
Depreciation............................ 629,065 632,189 556,215 433,982 413,178 396,836 204,831 213,797
Cash flow............................... 556,311 (123,925) 193,507 359,761 1,767,010 932,525 704,308 516,865
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ratio to net sales (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
COGS:
Raw materials....................... 42.1 45.3 44.3 49.4 51.9 55.8 55.0 58.3
Direct labor........................ 11.3 11.5 9.3 9.8 8.0 7.9 7.8 7.7
Other factory costs..................... 41.5 44.0 44.0 34.9 26.0 27.9 25.9 26.1
---------------------------------------------------------------------------------------------------------------
Total COGS...................... 94.8 100.8 97.7 94.1 86.0 91.5 88.7 92.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Gross profit (loss)..................... 5.2 (0.8) 2.3 5.9 14.0 8.5 11.3 7.9
SG&Aexpenses............................ 3.8 4.2 4.0 4.5 3.1 3.1 2.9 2.7
Operating income (loss)................. 1.3 (5.0) (1.6) 1.5 10.9 5.4 8.4 5.2
Net income (loss)....................... (0.7) (7.7) (3.3) (0.7) 9.1 3.7 6.7 3.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
Unit value (per short ton)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total net sales......................... $551 $499 $524 $535 $677 $711 $735 $728
COGS:
Raw materials....................... 232 226 233 264 352 396 404 424
Direct labor........................ 62 58 49 52 54 56 57 56
Other factory costs..................... 228 220 231 187 176 198 191 190
---------------------------------------------------------------------------------------------------------------
Total COGS...................... 522 503 512 503 583 651 652 670
--------------------------------------------------------------------------------------------------------------------------------------------------------
Gross profit (loss)..................... 29 (4) 12 32 95 60 83 57
[[Page 17681]]
SG&Aexpenses............................ 21 21 21 24 21 22 21 20
Operating income (loss)................. 7 (25) (9) 8 74 38 62 38
Net income (loss)....................... (4) (39) (17) (4) 62 26 49 27
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of firms reporting
--------------------------------------------------------------------------------------------------------------------------------------------------------
Operating losses........................ 5 10 7 6 1 4 2 6
Data.................................... 18 19 19 19 19 19 19 19
--------------------------------------------------------------------------------------------------------------------------------------------------------
Souce: Compiled from data submitted in response to Commission questionnaires.
The industry-wide financial results improved sharply from 2003 to
2004. Per-unit operating income substantially improved as the increase
in per-unit net sales values ($142 per short ton) was greater than the
combined effects of an increase in unit cost of goods sold (``COGS'')
($79 per short ton) and a decline in selling, general, and
administrative (``SG&A'') expenses ($3 per short ton). The 2003 to 2004
improvements in operating income was reflected in 18 of 19 reporting
firms' financial data.
The domestic industry's total and per-unit operating income again
declined from 2004 to 2005 and was lower in January--June 2006 than in
January--June 2005; however, 2005 operating income was still higher
than in 2000-03. In 2005, the increase in per-unit net sales values
($33 per short ton) was smaller than the increase in COGS ($68 per
short ton) and SG&A expenses ($1 per short ton). The overall decline
from 2004 to 2005 was experienced by the majority (17 of 19 producers)
of the industry.
Per-unit net sales values were lower ($7 per short ton) while per-
unit costs and expenses were higher ($17 per short ton) in January--
June 2006 as compared to January--June 2005. The overall decline.
Table CTL-III-9--CTL Plate: Results of Operations of U.S. Mills and Processors, 2000-05, January-June 2005, and January-June 2006
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fiscal year January-June
Item ---------------------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 2005 2006
--------------------------------------------------------------------------------------------------------------------------------------------------------
Quantity (short tons)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total net sales......................... 4,747,122 4,308,921 4,769,611 5,263,108 5,691,810 5,762,736 2,859,260 3,389,491
--------------------------------------------------------------------------------------------------------------------------------------------------------
Value ($1,000)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total net sales......................... 1,731.020 1,467,318 1,627,675 1,906,404 3,609,040 4,213,623 2,202,648 2,486,482
--------------------------------------------------------------------------------------------------------------------------------------------------------
COGS.................................... 1,782,446 1,562,873 1,644,041 1,903,185 2,711,059 3,018,911 1,548,290 1,782,419
Gross profit (loss)..................... (51,426) (95,555) (16,366) 3,219 897,981 1,194,712 654,358 704,423
SG&A expenses........................... 111,043 104,762 97,260 136,865 104,440 122,899 58,079 70,415
Operating income (loss)................. (162,469) (200,317) (113,626) (133,646) 793,541 1,071,813 596,279 634,009
Interest expense........................ 40,553 50,098 43,096 44,338 43,747 45,283 18,184 15,062
CDSOA income............................ 0 827 146 1,508 2,677 413 0 0
Other income/(expense).................. 5,466 (1,824) 19,237 18,185 17,809 23,559 (382) 10,989
Net income/(loss)....................... (197,556) (251,412) (137,339) (158,291) 770,281 1,050,502 577,713 629,935
Depreciation............................ 109,461 114,677 127,946 121,969 116,779 116,072 58,565 60,141
Cash flow............................... (88,095) (136,735) (9,393) (36,322) 887,060 1,166,574 636,278 690,077
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ratio to net sales (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
COGS:
Raw materials....................... 44.0 43.7 43.9 48.8 46.6 45.8 44.8 43.7
Direct labor........................ 14.7 14.4 12.2 11.8 5.5 5.0 4.4 5.2
Other factory costs................. 44.2 48.4 44.9 39.3 23.0 20.8 21.1 22.8
---------------------------------------------------------------------------------------------------------------
Total COGS...................... 103.0 106.5 101.0 99.8 75.1 71.6 70.3 71.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
Gross profit (loss)..................... (3.0) (6.5) (1.0) 0.2 24.9 28.4 29.7 28.3
SG&A expenses........................... 6.4 7.1 6.0 7.2 2.9 2.9 2.6 2.8
Operating income (loss)................. (9.4) (13.7) (7.0) (7.0) 22.0 25.4 27.1 25.5
Net income (loss)....................... (11.4) (17.1) (8.4) (8.3) 21.3 24.9 26.2 25.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Unit value (per short ton)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total net sales......................... $365 $341 $341 $362 $634 $731 $770 $734
---------------------------------------------------------------------------------------------------------------
COGS:
Raw materials....................... 161 149 150 177 295 335 345 320
Direct labor........................ 54 49 41 43 35 37 34 38
Other factory costs................. 161 165 153 142 146 152 162 167
---------------------------------------------------------------------------------------------------------------
[[Page 17682]]
Total COGS...................... 375 363 345 362 476 524 542 526
--------------------------------------------------------------------------------------------------------------------------------------------------------
Gross profit (loss)..................... (11) (22) (3) 1 158 207 229 208
SG&A expenses........................... 23 24 20 26 18 21 20 21
Operating income (loss)................. (34) (46) (24) (25) 139 186 209 187
Net income (loss)....................... (42) (58) (29) (30) 135 182 202 186
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of firms reporting
--------------------------------------------------------------------------------------------------------------------------------------------------------
Operating losses........................ 8 8 9 10 1 0 1 0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Data.................................... 14 13 14 15 16 15 15 15
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Compiled from data submitted in response to Commission questionnaires.
The industry-wide financial decline reversed from 2003 to 2005.
Per-unit operating income substantially improved as the increase in
per-unit net sales values ($369 per short ton) was much greater than
the combined effects of an increase in unit cost of goods sold
(``COGS'') ($162 per short ton) and a decline in selling, general, and
administrative (``SG&A'') expenses ($5 per short ton). While * * *
enjoyed some of the largest increases in operating profitability from
2003 to 2005, the 2003 to 2005 increase cut across the industry, as all
mills (individually) and processors (collectively) operating
continuously during this time frame reported increased operating
profits or smaller losses.
The domestic industry's operating income was also higher in
January-June 2006 than in January-June 2005 due to the increase in net
sales quantity; however, on a per-unit basis, lower net sales values
($37 per short ton) were greater in magnitude than the net reduction in
COGS (lower by $16 per short ton) and SG&A expenses (higher by $0.50
per short ton). The higher operating income level in January-June 2006
was generally reflected across the industry, as a majority (10 of 15)
of firms reported greater operating income than in January-June 2005.
Attachment 44--Certain Hot-Rolled Flat-Rolled Carbon-Quality Steel
Products From Brazil, Japan, and Russia, Inv. Nos. 701-TA-384 and 731-
TA-806-808 (Review), USITC Pub. 3767 (April 2005) at Table III-11
The attachment is available at the following Web site, http://hotdocs.usitc.gov/docs/pubs/701_731/pub3767.pdf
.
Exhibit 2
Weil, Gotshal & Manges LLP
November 15, 2006
Maribeth Petrizzi, Esq.,
Chief, Litigation II Section, U.S. Department of Justice, Antitrust
Division, 1401 H St., NW., Suite 3000, Washington, DC 20530.
Re: Comments of ThyssenKrupp A.G. Regarding The Proposed Final Judgment
In United States v. Mittal Steel Company N.V. (Civil Case No. 1:06-
CV01360-ESH)
Dear Ms. Petrizzi: Pursuant to the Section 2(b) of the Antitrust
Procedures and Penalties Act, 15 U.S.C. Sec. 16, ThyssenKrupp A.G.
hereby submits comments on the Proposed Final Judgment in the above-
referenced matter.
Sincerely,
James F. Lerner.
Encl.
Comments of Thyssenkrupp A.G. Regarding the Proposed Final Judgment in
United States v. Mittal Steel Company N.V. (Civil Case No. 1:06-
CV01360-ESH)
Pursuant to Section 2(b) of the Antitrust Procedures and Penalties
Act; 15 U.S.C. 16, ThyssenKrupp A.G. (``ThyssenKrupp'') hereby files
these comments demonstrating that the remedies proposed as alternatives
to the divestiture of Dofasco Inc. (``Dofasco'') to ThyssenKrupp, set
forth in the Proposed Final Judgment intended to resolve the Complaint
filed by the United States to prevent the acquisition by Mittal Steel
Company N.V. (``Mittal'') of Arcelor, S.A. (``Arcelor''), do not
adequately replace the competition lost in the Tin Mill Products market
from the elimination of Dofasco as a significant competitor to
Mittal.\1\ Because the remedies proposed as alternatives to the
divestiture of Dofasco do not address adequately the harm alleged by
the Department of Justice (``DOJ'') in the Complaint, entry of the
Proposed Final Judgment is not in the public interest.
---------------------------------------------------------------------------
\1\ Although Mittal and Arcelor are now known as Arcelor Mittal,
we refer to each by their pre-merger names in these comments to
avoid confusion, unless otherwise indicated.
---------------------------------------------------------------------------
Divestiture of Mittal's Sparrows Point Business or Mittal's Weirton
Business Will Not Preserve Competition in the Market for Tin Mill
Products in the Eastern United States
As set forth in the DOJ's August 1, 2006 Complaint, ``Mittal
Steel's proposed acquisition of Arcelor would eliminate Arcelor,
including its subsidiary Dofasco, as an independent competitor in the
sale of Tin Mill Products in the Eastern United States, further
consolidating an already highly concentrated market. * * *'' The
acquisition would remove current constraints on coordination and
increase the incentives of the two largest firms to coordinate their
behavior. The acquisition would thus substantially increase the
likelihood of coordination and would likely lead to higher prices,
lower quality, less innovation, and less favorable delivery terms in
the Tin Mill Products market in the Eastern United States.'' \2\
Complaint, at ]] 4, 5.
---------------------------------------------------------------------------
\2\ As defined in the Proposed Final Judgment, ``Tin Mill
Products'' means collectively black plate, i.e., light-gauge cold-
rolled bare steel sheet; electrolytic tin plate, i.e., black-plate
electrolytically coated with tin; and tin free steel, i.e., black
plate electrolytically coated with chromium. Proposed Final
Judgment, II.M.
---------------------------------------------------------------------------
The Proposed Final Judgment and Competitive Impact Statement both
make clear that the divestiture of Dofasco to ThyssenKrupp is the
preferred remedy for the competitive harm alleged to arise from
Mittal's
[[Page 17683]]
acquisition of Arcelor. Mittal is ordered to use its best efforts to
divest the Dofasco Business as expeditiously as possible, Proposed
Final Judgment, IV.A, and only in the event that Mittal is unable to
accomplish the divestiture of Dofasco is Mittal then required to divest
either the Sparrows Point or the Weirton Business (the ``Selected
Business''), with the decision as to which of these two alternative
businesses is to be divested resting with the United States.
The Competitive Impact Statement states that the divestiture of
either Dofasco or the Selected Business ``is designed to enable whoever
acquires such divested business to be ''viable and active competitor in
the Eastern United States Tin Mill Products market,'' Competitive
Impact Statement, at 2, and goes on to assert that whether the Dofasco
Business or a Selected Business is divested, ``the preserved competitor
would have modern and efficient facilities located close enough to
customers in the Eastern United States to compete effectively.''
Competitive Impact Statement, at 11. Despite this assertion, it is
ThysdenKrupp's assessment that neither Sparrows Point nor Weirton has
the ``modern and efficient'' facilities necessary to compete in the Tin
Mill Products market in a manner that adequately would replace the
competition lost by Mittal's acquisition of Arcelor, including Dofasco.
ThyssenKrupp received several comments from their key US tinplate
customers expressing their concerns with the alternative divestiture,
stressing that divestiture of either of the US Mittal tinplate
facilities would not have the same effect in addressing their
competitive concerns. These customers indicated that the divestiture of
Dofasco to ThyssenKrupp is highly preferred to the divestiture of
either of the Mittal facilities (i.e., Sparrows Point or Weirton) and
is the most-competitive solution.
In line with its customers, it is ThyssenKrupp's firm conviction
that only direct access to an integrated network ensuring strong R&D
support, and close coordination across a full-fledged and reliable
steel production chain (including state-of-the art metallurgy--blast
furnaces, melt shops, continuous casting--hot and cold rolling,
annealing and coating) will enable a tinplate producer to compete
effectively and to meet the increasing demands of its customers in
regard to Tin Mill Products with thinner gauges and higher surface
quality.
In terms of virtually all of the process steps and critical success
factors for the successful production of tin plate, both Sparrow Point
and Weirton fall far short of the capabilities of Dofasco. An acquirer
of either Sparrows or Weirton would not, without a substantial
investment that would take time (and still might not yield the desired
results), be able to replace immediately the Tin Mill Product
competition lost by allowing Mittal to retain Arcelor and Dofasco.
Therefore, ThyssenKrupp will certainly not acquire Sparrows Point nor
Weirton.
In contrast to this, ThyssenKrupp's acquisition of Dofasco will
preserve a strong local tinplate competitor which will be able to
continue to provide quality Tin Mill products and preserve meaningful
competition for tinplate customers in the Eastern US.
Accordingly, entry of a Proposed Final Judgement that permits
Mittal to divest either Sparrows Point or Weirton rather than requiring
the divestiture of Dofasco will not adequately address the competitive
concerns alleged in the DOJ's Complaint.
Dated: November 15, 2006.
A. Paul Victor,
Dewey Ballantine LLP, 1301 Avenue of the Americas, New York, NY
10019, and
Steven P. Bernstein,
James F. Lerner,
Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, NY 10153.
Attorneys for Thyssen Krupp, A.G.
Exhibit 3
Hogan & Hartson
Hogan & Hartson LLP, Columbia Square, 555 Thirteenth Street, NW,
Washington, DC 20004, +1.202.637.5600 Tel, +1.202.637.5910 Fax,
http://www.hhlaw.com.
November 15, 2006
Maribeth Petrizzi, Esquire,
Chief, Litigation II Section, Antitrust Division, U.S. Department of
Justice, 1401 H Street, NW., Suite 3000, Washington, DC 20530.
Re: DaimlerChrysler Tunney Act Comments
Dear Maribeth: DaimlerChrysler submits that the United States
Department of Justice antitrust Division (the ``Division'' or
``Antitrust Division'') should renegotiate its proposed consent
decree with Arcelor Mittal to ensure that Dofasco is either divested
as planned or operated separately until it can be sold. The
alternative divestitures in the proposed consent decree do not
adequately address the competitive problems created by Arcelor-
Mittal merger.
Introduction
The Tunney Act requires that a proposed consent decree
negotiated between the Antitrust Division and the parties be
published in the Federal Register, with a 60 day period for public
comment. 15 U.S.C. 16. The Act also requires a federal court to
determine if the entry of final judgment on the terms agrees to in
the proposed consent decree, is in the public interest. Id.
DaimlerChrysler is aware of the Division's position that Tunney
Act review requires only an examination of whether the relief
proposed satisfactorily remedies the competition issues pleaded in
the Complaint. In this case, the Complaint identified competitive
issues in the market for Eastern United States Tin Mill Products.
However, this settlement is worthy of reconsideration by the
Division for several reasons.
First, although both the Division and Mittal apparently
believe that Dofasco could be divested, that turns out not to be
true. The directors of Strategic Steel Stichting, the Dutch
foundation holding Dofasco's shares (``Dutch trust''), have refused
to dissolve the Dutch trust and relinquish the shares.
Second, recent events demonstrate that the automotive
issues resulting from the merger are far more important for the
automobile industry than they first appeared.
Third, the alternative divestitures are not likely to
preserve competition in either the market alleged in the Complaint,
Eastern United States tin Mill Products, or the North American Hot
dipped Galvanized Steel market.
DaimlerChrysler submits these comments in support of the
Division's preferred remedy--the divestiture of Dofasco--and to
explain the infirmities in the alternative divestiture candidates.
The Arcelor-Mittal Merger
A. Merger Chronology
In January 2006, Mittal Steel Company N.V. (``Mittal'')
announced its intention to launch a hostile tender offer to acquire
Arcelor S.A. (``Arcelor''). In an attempt to preempt potential
antitrust objections to the proposed combination in the United
States, Mittal simultaneously announced that if it acquired Arcelor,
it intended to sell Arcelor's subsidiary, Dofasco Inc.
(``Dofasco''), which Arcelor was in the process of acquiring at that
time, to ThyssenKrupp, a German-based steel corporation. Arcelor
initially resisted Mittal's takeover attempt vigorously and, as part
of that resistance, transferred its interest in Dofasco to the Dutch
trust as a defense measure against Mittal's tender offer. After the
Dofasco transfer, Arcelor's Board agreed to recommend Mittal's
improved 433 billion offer to its shareholders on June 25, 2006, and
the combination of Arcelor and Mittal is now under way. See Paul
Glader, Mittal's Founder Asserts Control as Steelmaker, Wall St. J.,
(Nov. 7, 2006). On November 13, 2006, Arcelor announced that the
directors of the Dutch trust had decided not to dissolve the Dutch
trust and this action has blocked Arcelor Mittal's divestiture of
Dofasco--the Division's preferred remedy. See Press Release, Arcelor
Mittal Press Release on Dofasco (Nov. 13, 2006) available at: http://www.arcelormittal.com/index.php?lang=en&page=49&tbPress=here&tb0=10
.
B. Complaint and Proposed Consent Decree
In May 2006, the Division negotiated a ``pocket consent decree''
with Mittal in which Mittal agreed to divest Dofasco. At that time,
it appears that neither the Division nor Mittal fully appreciated
the obstacles to
[[Page 17684]]
the Dofasco divestiture created by the Dutch trust. On August 1,
2006, the Antitrust Division filed a Complaint, proposed consent
decree, and Competitive Impact Statement with the United States
District Court for the District of Columbia, conditionally approving
Mittal's proposed acquisition of Arcelor.
1. Alleged Anticompetitive Effects on Tin Mill Products
In the Complaint and Competitive Impact Statement, the Division
alleged that Mittal's acquisition of Arcelor would substantially
lessen competition in the market for Tin Mill Products in the
Eastern United States in violation of Section 7 of the Clayton Act.
The Division alleged that the relevant geographic market for Tin
Mill Products is the Eastern United States because of a number of
factors, including shipping costs and anti-dumping duties on Tin
Mill Products from Japan that effectively close the United States
market to competition from Japan. Applying this geographic market
definition to Tin Mill Products, the Division determined that the
market for Tin Mill Products in the Eastern United States is highly
concentrated and is dominated by Mittal and ``another integrated
steelmaker'' (United States Steel). According to the Complaint,
Mittal accounted for 31 percent of the Tin Mill product tonnage sold
in this geographic market in 2005, and United States Steel accounted
for more than 44 percent. The Complaint alleges that Mittal's
acquisition of a combined Arcelor/Dofasco would significantly
increase concentration in the already concentrated market for
Eastern United States Tin Mill Products. The Complaint also alleges
that the remaining competitors lack the ability and incentive to
defeat anticompetitive price increases and that de novo or foreign
entry is neither feasible nor likely.
2. The Proposed Remedies
The proposed Final Judgment (``the proposed consent decree'')
aims to preserve competition in the Eastern United States Tin Mill
Products market by requiring Arcelor Mittal to use its best efforts
to sell its Dofasco mill in Canada to ThyssenKrupp or another
approved buyer. In the event that Mittal is unable to dissolve the
Dutch trust--which now appears to be the case--Mittal may sell
either Mittal's Sparrows Point or Weirton facilities (collectively
``alternative divestitures''). While the proposed consent decree
clearly reveals the Division's preference that Mittal divest
Dofasco, it states that divestiture of either Weirton or Sparrows
Point is sufficient to preserve competition. DaimlerChrysler agrees
that the divestiture of Dofasco solves the competitive problems
created by the Arcelor-Mittal merger, but disagrees with the
Division's view that either of the alternative divestitures would be
sufficient to preserve competition.
C. DaimlerChrysler's Interest--Hot Dipped Galvanized Steel
DaimlerChrysler is an automobile manufacturer that sources its
steel from a number of North American steel producers including
Mittal and Dofasco. DaimlerChrysler does not, however, utilize Tin
Mill Products in its production of automobiles, nor do the other
North American automobile manufacturers. If Tin Mill Products were
the only problematic product market, DaimlerChrysler and the rest of
the automobile industry would have little interest in Mittal's and
the Division's choice of remedies. However, DaimlerChrysler and
other automobile manufacturers are keenly interested in which
facility is divested because the market for Hot Dipped Galvanized
Steel would be even more adversely affected by Mittal's acquisition
of Arcelor. DaimlerChrysler utilizes up to a ton of Hot Dipped
Galvanized Steel per vehicle produced.
DaimlerChrysler fully supports the Division's preferred
divestiture of Dofasco, but submits that the alternative
divestitures would not preserve necessary competition. The
divestiture of Dofasco would ensure that Dofasco remains an
independent competitive restraint on the increasingly consolidated
Hot Dipped Galvanized Steel market. Further, this divestiture would
allow for continued regional competition in Canada.
D. Alternative Divestiture Remedies Should Be Rejected
Divestiture of either Sparrows Point or Weirton likely will not
preserve competition for Eastern United States Tin Mill Products and
certainly will not prevent the merger's anticompetitive effects in
the Hot Dipped Galvanized Steel market. Neither Sparrows Point nor
Weirton is attractive to potential buyers, nor do they have the
ability to compete in either market as an independent company.
Instead, each is a candidate for closure, especially during economic
downturns. Weirton's steel making capability has already been shut
down, making Weirton only a rolling mill and coating facility that
is dependent upon a source of hot bands, which presently are in
short supply. Sparrows Point still has the ability to make steel,
but it has never demonstrated that it is viable as a stand-alone
facility; it has always been part of a larger, multi-facility
corporation. Dofasco, unlike either of the alternative divestiture
candidates, was a profitable stand-alone company as late as January
2006.
North American Hot Dipped Galvanized Steel
DaimlerChrysler recognizes that the Division's Complaint and
proposed consent decree focus on the anticompetitive impact of the
merger on the Eastern United States Tin Mill Products market and not
the North American Hot Dipped Galvanized Steel market. However, this
view should be reconsidered.
A. Product Market
The automotive industry requires various steel alloys for frame,
shell, and various parts that make up a complete automobile. Because
of their exposure to the elements, automobiles require steel that
resists corrosion. But, automobile manufacturers cannot utilize all
grades of corrosion resistant steel. Automobile-grade exposed
corrosion resistant steel must also be of high strength and high
enough quality to apply paint. While corrosion resistant steel of
lower grades can be used in construction or products like home
appliances, only sufficiently high quality, automotive-grade
corrosion resistant steel can be used by the automobile industry.
The most cost-efficient material to provide this protection is steel
that is coated with a rust-inhibiting layer, usually composed
primarily of zinc, which is referred to as Galvanized Steel.
DaimlerChrysler utilizes up to a ton of Galvanized Steel per
vehicle.
Two methods of galvanization are used to provide protection from
corrosion--Electroplate Galvanizing and Hot Dipped Galvanizing. In
Electroplate Galvanizing, steel is passed through a zinc-rich bath
at ambient air temperature. An electric current is passed through
the steel, which attracts particles of zinc to the steel's surface
thereby plating it. In Hot Dipped Galvanizing, heated steel sheet is
passed through a bath of molten zinc resulting in a thin coating of
an essentially pure zinc layer on the steel. The post-coating
application of heat to the zinc coated steel promotes a reaction
between the iron in the steel and the zinc in the coating, creating
the zinc-iron compound known as ``Galvanneal.'' In contrast, the
iron and zinc do not react in electroplate galvanization and thus do
not produce the desirable properties characteristic of Galvanneal.
1. Hot Dipped vs. Electrogalvanizing
Automotive-grade Hot Dipped Galvanized Steel constitutes a
separate product market from galvanized steel generally because
Electroplate Galvanized Steel has more limited uses and
applications, especially in the automotive industry. Hot Dipped
Galvanizing is less costly than Electrogalvanizing and requires
substantially less energy to produce. Hot Dipped Galvanizing also
impacts desirable high strength to the steel without the addition of
costly alloying elements. Even if Electrogalvanizing proved to be
adequate for automotive needs, the differences in stamping
properties for automotive uses would require major investments in
stamping, painting and other processes by automobile manufacturers
that sought to switch from one process to another. As a result, Hot
Dipped Galvanized Steel and Electroplate Galvanized Steel cannot
easily be substituted by automobile manufacturers.
Automotive uses also require much higher grade of steels, which
Hot Dipped Galvanization can best supply. For example, automotive
uses require a smooth finish and very precise alloy chemistries. Hot
Dipped Galvanneal has better cosmetic corrosion performance than
Electrogalvanized Steel which typically has more surface defects.
Automotive use also requires very tight width and thickness
tolerances that Hot Dipped Galvanization can better provide. As a
result, production yields for automotive-grade Galvanized Steel are
much lower than for other end uses.
2. Substitutes for Galvanized Steel
As explained above, steel can be galvanized two ways--by the hot
dipped or electroplating processes. Automotive companies have
explored other materials, but none is likely to replace galvanized/
galvannealed steel in the foreseeable future. Like electrogalvanized
steel, available alternatives are not adequate for automotive
[[Page 17685]]
uses. Non-coated steel is much less corrosion-resistant and fails to
meet minimum automotive standards for quality. Painted steels
similarly fail to meet such standards. Stainless steel, while able
to meet quality standards, is far too costly to serve as a viable
alternative to Hot Dipped Galvanized Steel. As a result, Hot Dipped
Galvanized Steel is a separate relevant product market.
B. The Relevant Geographic Market
For DaimlerChrysler and other North American automobile
manufacturers, the only practical Hot Dipped Galvanized Steel
suppliers are in North America.
1. Logistical Limitations
Reliance on overseas imported steel is not economically feasible
because of the logistical obstacles presented by the product itself.
As Susan DeSandre, Director of Body and Chassis Purchasing, North
America for Ford Motor Company characterized it in proceedings
before the United States International Trade Commission, ``it's
heavy, it's bulky, and it rusts on water.''\1\ Automobile producers
require continuous supply to keep the production lines running and
it is not economically feasible to transport steel by air to
accommodate unforeseen variations in demand.
---------------------------------------------------------------------------
\1\ Certain Carbon Steel Products from Australia, Belgium,
Brazil, Canada, Finland, France, Germany, Japan, Korea, Mexico,
Poland, Romania, Spain, Sweden, Taiwan and the United Kingdom, USITC
Inv. Nos. 701-TA-319, 320, 325-328, 348 and 350 (Second Review) and
731-TA-573, 574, 576, 578, 582-587, 612, and 614-618 (Second Review)
Hearing Transcript at 426 (testimony of Ms. DeSandre) (Oct. 17,
2006).
---------------------------------------------------------------------------
2. Tariffs on Imported Steel
Currently, Australia, Canada, France, Germany, Japan, and Korea
are subject to antidumping and/or countervailing duties on corrosion
resistant flat steel products, including Hot Dipped Galvanized
Steel. On October 17, 2006, the International Trade Commission heard
testimony on whether it should renew tariffs on the foreign supply
of Corrosion Resistant Steel, which are currently being reviewed.
The six largest automobile producers in North America have advocated
removal of the duties on Corrosion Resistant Steel because the
domestic steel industry is healthy and would not be materially
injured by their removal. In addition, automobile producers have
argued that non-U.S. sources of corrosion-resistant steel are not
readily available anyway because these products are in heavy demand
in foreign markets.
Although Dofasco is not a U.S. producer, an independent Dofasco
would indirectly constrain anticompetitive price increases in the
United States. It would be an alternate supply to DaimlerChrysler's
Canadian operations and thus reduce the company's dependence on the
few remaining United States suppliers of Hot Dipped Galvanized
Steel. If antidumping duties are lifted on Canadian Corrosion
Resistant Steel, as DaimlerChrysler believes is appropriate, a
divested Dofasco has the capacity to compete directly with the three
remaining North American Hot Dipped Galvanized Steel producers, US
Steel, Arcelor Mittal, and AK Steel.\2\ If Dofasco were controlled
by Mittal, there would be no incentive for it to do so.
---------------------------------------------------------------------------
\2\ A fourth supplier, Nucor Corp., is not a practical
alternative supplier to the auto industry for exposed automotive-
grade corrosive resistant steel because its production method, which
utilizes recycled scrap metal, produces steel that does not meet the
tolerances required by automobile makers for substrate.
---------------------------------------------------------------------------
C. Market Concentration
Today, the market for North American Hot Dipped Galvanized Steel
is highly concentrated with the top two firms representing
approximately 73% of capacity and the top three firms representing
nearly 90%. Arcelor Mittal alone represents nearly half of North
American capacity for Hot Dipped Galvanized Steel with its
acquisition of Arcelor (including Dofasco's Canadian facilities).
Unless Dofasco is divested, the post-merger Herfindahl-Hirschman
Index for the North American Hot Dipped Galvanized Steel market will
rise from a premerger total of 2171 to more than 3200--well above
the Guidelines' threshold of 1800 for a highly concentrated market.
The change in concentration resulting from the merger would be over
1000 points--again well above the Guidelines' threshold for concern.
1. Concentration Through Consolidation
Only five years ago, DaimlerChrysler had a choice of nine
suppliers to choose from to meet its demand for Hot Dipped
Galvanized Steel. In 2001, Mittal represented a mere 8% of North
American Hot Dipped Galvanized Steel capacity. LTV's bankruptcy in
2001 and subsequent combination with Bethlehem Steel into
International Steel Group in 2002 ushered in a wave of consolidation
that continues today. In 2003, US Steel acquired National Steel,
leaving only seven suppliers of North American Hot Dipped Galvanized
Steel. Mittal increased its share from 8% to 30% with its
acquisition of ISG in 2005. Mittal achieved market leadership with
its acquisition of Arcelor and its Dofasco facilities in Canada, and
DaimlerChrysler estimates that Arcelor Mittal now has 47% of North
American Hot Dipped Galvanized Steel capacity.
Unprintable graph appears here, it purports to show 2006 North
America hot dip auto capacity by company. A copy of the graph is
available for inspection at the Department of Justice Antitrust
Division, 325 Seventh Street, NW., Room 200, Washington, DC 20530.
2. Effect of Consolidation on Prices
Although it is too early to detect the effect that Mittal's
acquisition of Arcelor and Dofasco will have on prices, rising
prices over the last five years, coupled with comments to industry
analysts and the press by Mittal, indicate that higher prices are to
come. Indeed, Mr. Lakshmi Mittal has noted that ``[c]onsolidation of
the industry has accelerated * * * [l]eading to a new market
oriented behavior * * * [a]nd a new fundamental price dynamic.'' See
``New Steel Paradigm and Future Challenges,'' Presentation by
Lakshmi Mittal to Merrill Lynch Conference (May 11, 2006).
Over the past six years, the average price for Galvanized Steel
has risen from about $500 per ton in 2000 to nearly $900 per ton
earlier this year. DaimlerChrysler expects significant price
increases for contracts starting in 2007. Over this same period, the
number of industry participants dwindled. Thus, industrial
production has decreased while prices increased to a new, higher
band.
Comments to industry analysts and press by Mittal leave little
doubt that the goal and likely result of consolidation is the
continued rise in prices to consumers. The Automotive News observed
in October of this year that ``Mittal has taken steps to stave off
price cuts caused by a recent run-up in steel inventories.'' It
added, ``Mittal is prepared. The company has told analysts that it
will prop up prices by reducing production at one plant during that
period.'' A Ton of Trouble, Automotive News (Oct. 2, 2006). ``Mr.
Mittal also hopes that a new, larger group may be able to set a lead
for the rest of the industry--sending signals about when to moderate
production, and so smooth the peaks and troughs in demand that have
bedeviled the steel business.'' Steel: Age of Giants, The Economist
(Feb. 2, 2006) (emphasis added).
As a result, there is reason for concern about the effect of the
merger on output and prices for North American Hot Dipped Galvanized
Steel. These effects would be reduced by divestiture of Dofasco--and
the Division should insist on its original preferred remedy.
Neither Alternative Divestiture is Viable
Although the unique circumstances existing here warrant
reconsideration of this transaction's effects on the North American
Hot Dipped Galvanized Steel market, the alternative divestiture
remedies also fail to remedy the Division's legitimate concerns
regarding the transaction's effect on the Eastern United States Tin
Mill Products market.
A. Alternative Divestitures Will Fail To Preserve Competition in
Either Tin Mill or Hot-Dipped Galvanized Steel Markets
Weirton has struggled since the 1970s and has nearly closed
several times. In 1982, National Steel announced that it would not
make the capital improvements needed for Weirton to remain
competitive. In efforts to save the company, Weirton was purchased
by its employees in 1984. Public offerings in 1989 and 1994 raised
funds needed to modernize the plant. However, the steel import
crisis that began in 1998 ``significantly reduced the company's
production output, harmed its ability to control pricing and
severely hampered its financial performance.'' See Weirton Steel
Corporation: History, available at: http://www.weirton.com/company/about/hist.html.
Weirton lost nearly $800 million from 1998 until it
declared Chapter 11 bankruptcy in 2003. ISG purchased Weirton in
2004, and ISG was acquired by Mittal in 2005. In November 2005,
Mittal shut down Weirton's steelmaking operations altogether and
laid off 800 employees.
Today Weirton produces no steel and instead relies on other
Mittal facilities to supply the substrate it uses in its production
of tin plate. It is unlikely that Weirton will produce steel going
forward. See Vicki
[[Page 17686]]
Smith, Furnace Will Stay Idle at Weirton Steel Mill, Courier-Journal
(Louisville, Ky.) (Dec. 2, 2005). In any event, Weirton will almost
certainly never play a role in disciplining price increases in North
American Hot Dipped Galvanized Steel because it cannot produce that
product. Its inability efficiently to produce the steel substrate it
needs for tin mill production, coupled with relatively high
transportation and raw materials costs, do not bode well for its tin
mill production prospects either. In fact, Weirton is likely to be a
victim of the increased concentration in the North American Steel
market rather than a disciplining force. Since Weirton does not
produce Hot Dipped Galvanized Steel at all, it is totally unable to
discipline any output restrictions in that market.
Sparrows Point has also struggled. In October 2001, Bethlehem,
which employed about 3,400 workers at Sparrows Point, filed for
Chapter 11 bankruptcy. By May 2006, the plant employed only 2,500
employees and had changed hands three times in the past six years.
Despite cutting costs and the introduction of new ``efficiencies and
innovations, Sparrows Point is one of Mittal's most expensive plants
to run because of high energy costs and more environmental
regulations owing to its location on the Chesapeake Bay.'' Allison
Connolly, Feeling Pressure for Profits, Balt. Sun, 1C (May 14,
2006). ``[W]orkers worry that Mittal will take away their incentives
or force them to make other concessions to keep the plant open.''
Id. ``They also worry about layoffs if certain parts of the plant
are idled, for example, if Mittal sends the tin work back to
Weirton.'' Id. Today, Sparrows Point is used primarily to supply
other Mittal plants with substrate. It is unlikely to produce Hot
Dipped Galvanized Steel for use by the automobile industry and is
unlikely ever to be able to operate as a stand-alone entity.
B. Divestiture of Dofasco Is the Only Viable Option To Preserve
Competition
Unlike either Sparrows Point or Weirton, Dofasco has recently
been a successful stand alone steel company and continues to thrive
independently today (pursuant to the Hold Separate Order). If not
for the Dutch trust issue, Dofasco could clearly be sold to
ThyssenKrupp or a number of other potential suitors. Indeed,
analysts agree that Dofasco is by far the most attractive of the
three mills and that Mittal has little incentive to divest it.
``Right now time is on their side, and they are generating a lot of
cash flow. * * * At the end of the day, if they can keep [Dofasco],
really the winners will be Arcelor Mittal, and the losers will be
ThyssenKrupp,'' says Alain William, an analyst for Societe Generale.
Heather Thomas, Poison Pill Is Among the Reasons Mittal Steel Deal
Remains a Multi-Company Tangle, N.Y. Times (Nov. 3, 2006).
Sparrows Point and Weirton, on the other hand, will be difficult
to divest, and incapable of operating as stand-alone businesses.
``The problem is, who would want to buy either of the two? Mittal
will have to decide which one to sell, but you can't manufacture a
customer,'' said Charles Bradford, an independent steel analyst for
Soleil Securities in New York. See Merger Proviso Gives Hope to
Weirton Steel, Pittsburgh Tribune Rev. (Aug. 3, 2006). ``Weirton and
Sparrow's Point are not good plants. Dofasco is * * *. Dofasco's
good company and I'm not so sure that Mittal wouldn't rather have it
than Weirton or Sparrow's Point.'' Romino Maurino, Mittal Steel Sets
Deadline for Sale of Dofasco, Inc., Winnipeg Free Press, (Sept. 28,
2006).
The Division, with its investigative resources, has better
access than DaimlerChrysler does to the underlying facts that
support these comments. It has prudently reserved the right to
determine whether a divestiture of either Sparrows Point or Weirton
would be feasible. The Division should revisit its view that
divestiture of either Weirton or Sparrows Point would be sufficient.
Conclusion
An independent Dofasco can discipline anticompetitive price
increases for Tin Mill Products. But even more important from
DaimlerChrysler's point of view, it can also act as a competitive
constraint on anticompetitive output restrictions on the supply of
North American Hot Dipped Galvanized Steel. Thus, DaimlerChrysler
urges the Division to reconsider its acceptance of one of the
alternative divestiture candidates and instead to insist on the
divestiture of Dofasco. If the Dutch trust proves to be an immovable
obstacle to the sale of Dofasco, it could simply be spun off as a
freestanding entity, to operate independently, as it did as recently
as January 2006. If an adequate remedy requires renegotiation of the
consent decree, we urge the Division to take the steps that are
necessary to maintain competition in the steel industry.
Sincerely,
Thomas B. Leary.
Janet L. McDavid.
cc: Allan M. Huss, Senior Counsel, Antitrust/Regulatory Affairs,
DaimlerChrysler Corporation.
[FR Doc. 07-1321 Filed 4-6-07; 8:45 am]
BILLING CODE 4410-11-M