Steel Mills

Expansion Plans at NSBS Face Challenges

May 28, 2019

A $700 million expansion at North Star BlueScope may be in jeopardy, according to some financial analysts who point to new challenges for the mill now that the Section 232 tariffs have been removed from Canada and Mexico.

Softening hot rolled coil prices and higher cost inputs are expected to pressure U.S. steel spreads. The reduction of tariffs on imported scrap from Turkey is raising scrap prices in the U.S., an important input for North Star. In addition, the resurgence of Canadian and Mexican steel to the U.S. market and new capacity coming online by 2022 will add to competitive pressures for the Ohio firm.

BlueScope Steel expected U.S. steel spreads to improve instead of tightening and is now likely to miss its guidance mark for FY 2019 financial results. J.P. Morgan suggests the steel producer would benefit more from a share buyback than an investment in its U.S. facility.

Credit Suisse downgraded BlueScope to neutral following lifting of U.S. tariffs on Canada and Mexico. Credit Suisse analysts say a collapse in HRC pricing in the U.S. is inevitable and will force high-cost facilities to close. Analysts at UBS agree that a pullback in HRC prices will cause some capacity re-starts to be delayed or canceled.

North Star BlueScope has reportedly filed for an air permit with the Ohio EPA for the proposed expansion, tentatively moving the project forward. Plans include a third electric arc furnace and second slab caster at the Delta, Ohio, facility. The proposed project would be completed in two to three years and would increase annual production capacity by 900,000 to 1.0 million tons. A final decision on the project is expected by BlueScope in the second half of this year.