Asset Rationalization Possible for ArcelorMIttal

A closure would improve utilization rates and help to lower costs for ArcelorMittal. CEO Andrew Harshaw at USA ArcelorMittal has commented in his June 23 blog posting that operating multiple hot strip mills at the current low utilization rate (70 percent) is not sustainable.

Indiana Harbor West has been operating at 25 percent of its melt capacity using furnaces No. 3 and No. 4, although No. 3 has been down since mid-March of this year due to repairs and market conditions.

Indiana Harbor East’s No. 5 and No. 6 furnaces have been idled for the past several quarters. The facility is currently operating the No. 7 blast furnace which has substantial crude steel capacity of around 4.6 million tons.

Key Banc suggests that the IH West has been “winding down its cold-rolled and galvanized downstream operations” and will shift HRC and aluminized production to the Calvert operations. Key Banc estimates a closure at the facility would cull 4-5 percent of the U.S. domestic sheet melt capacity and would be a positive move for both ArcelorMittal and the industry.

The depressed energy market makes US Steel the next likely candidate to cut production capacity, said Key Banc.

Charles Bradford, President, Bradford Research, Inc., commented on the rumored closing, “I think the rumors of IH West closing is logical, but could also be a bargaining chip when dealing with the USW. They do need slabs for Calvert and might only close the HSM [hot strip mill].”

ArcelorMittal has committed to providing slabs for Calvert, said Bradford, some of which will come from Brazil and Mexico as well as the U.S.

“It appears that IHE has been used to make wider products and has walking beam reheat furnaces, while IHW runs an average narrower product mix and has old fashioned pusher furnaces,” said Bradford.

Walking beam equipment is important especially for automotive quality exposed applications. Pusher equipment has a tendency to damage the surface of the steel which is then transferred to the final product. Walking beam gently lifts the slab and then places it in the proper position as opposed to being “pushed” through the furnace and onto the conveyor into the hot strip mill.

ArcelorMittal has just begun negotiations with the USW on a new three year contract and cost savings have been at the forefront of company issues. Second quarter earnings will be released July 31 and are likely to contain more information on potential production changes.