Steel Mills

Stelco CEO on Pricing: "The Trend is Your Friend"

May 6, 2021

Canadian steel producer Stelco is seeing the impact of its upgraded smart blast furnace, reporting production records and higher profit in the first quarter due to higher steel prices and increased value-added shipments of cold rolled and coated products. Compared to the previous quarter, revenue increased 57%, shipments jumped 38% and operating income soared a whopping 328%, the company said.

Stelco expects to generate a significant amount of free cash flow this year—to the tune of CAD $2 billion. CEO Alan Kestenbaum touted the company’s opportunity to generate enormous amounts of cash without incurring debt given the favorable business conditions. The goal is to have a clean balance sheet with no debt that should get Stelco’s relatively low share price up to a competitive level. “We want to get the valuation of the company to where it belongs,” he said.

Steel prices keep rising every day with no top in sight, said Kestenbaum. It’s not the time to hedge. “With the market moving like this, let the trend ride out,” he said. “The trend is your friend.”

Stelco executives were reluctant to comment on their plans for the two billion in cash, other than at some point doing something “big and meaningful.”

“Acquisitions are overpriced right now and tricky…. When you are the best, you don’t want to dilute that,” said Kestenbaum. Consolidation in the industry has benefited Stelco. “We don’t need acquisitions because our competitors have done that for us. We will look at things that will make us better.”

When asked if the company may enter the fabrication market, Kestenbaum said, “If you look at peers with movement downstream into fabrication, it doesn’t work.” U.S Steel’s Big River Steel is an example of a mill doing better than competitors because “they don’t have this downstream stuff. Look at other acquisitions that people made that didn’t work out and look at BRS as a stand-alone business. Staying close to your knitting is really where the business is at,” said Kestenbaum.

Stelco remains satisfied by its Minntac mining contract with U.S. Steel and still has seven years before executing its option. Work is progressing on its coke battery upgrade and cogeneration facility. The pig iron caster was commissioned during the first quarter and will add up to one million tons of pig iron to the North American EAF market, the company said.

End markets are firing on all cylinders right now and will accelerate as the world recovers from the pandemic, said Kestenbaum. Stelco sees new opportunities from the emerging electric vehicle market.

“Tactical flexibility” is Stelco’s strategy, said Kestenbaum. “We are not committed to anything but making steel, serving customers and making money.”

By Sandy Williams, Sandy@SteelMarketUpdate.com