Eyeing Better Q1, Stelco Mulls Acquisitions and Decarb Project

Stelco is, in addition, in talks with the Canadian government about funding for a possible decarbonization project.

Green Shoots for Q1

Among the “seeds” that could sprout a good Q1 for steel is the potential for a tighter scrap market in 2023, company executive chair and CEO Alan Kestenbaum said.

“Scrap is not tight now. By any measure, scrap is continuing to decline,” Kestenbaum said. But low scrap prices typically slow collection as does winter weather. Combine that with fewer housing starts — which means less demolition activity — and you’ve got a recipe for less supply. Recent weakening in the US dollar, meanwhile, means that US exports could breathe life into the scrap export market.

Demand from Stelco’s customers is roughly flat. And the company realizes that the macroeconomic background is not encouraging. Higher interest rates could weaken construction and potentially automotive demand as well.

“For Q4, we’re doing really well from an order book perspective,” Kestenbaum said. “We know the upturn will come. My crystal ball is telling me to look towards sometime in Q1.”

“But we’re prepared, totally prepared, to be wrong about that prediction,” he added.

Transfomative Deal in the Works?

Stelco recorded solid third quarter results considering weaker market conditions. It has more than $1 billion in cash, an undrawn revolving credit line, and an appetite for acquisitions at the right price, Kestenbaum said.

“We’re getting into a period where we are going to see some ‘opportunities,’ let’s say. [That] would be the nicest way I can say it, in our sector,” he said. “We want to be able to be flexible enough to be able to transact on those opportunities.”

Kestenbaum declined to name any specific acquisition targets. He said some “could change the size and face” of Stelco. He also noted that the company would stay true to its steel “core” in any such transaction.

Decarbonization

Stelco is also looking to press ahead with a decarbonization project, with significant help from outside funding — notably from the Canadian government.

“It’s really one of the only governments I can think of that’s actually … taking this decarbonization initiative seriously,” Kestenbaum said. “They’re putting their money into it and saying, ‘We’re not just going to dump this on industrial players. We’re going to be in partnership with you.’”

Stelco is among ten companies that the Canadian government has selected as “promising early movers” in the decarbonization of their sectors. Another is ArcelorMittal Mining Canada G.P., a subsidiary of the global steelmaking giant.

The Canadian government disclosed its potential support for Stelco earlier this month. That’s when Ottawa said that it would provide Canadian $300 million in support ($225 million) for a $1.6 billion “clean hydrogen” project by industrial gas provider Air Products Canada Ltd. The province of Alberta is chipping in another $161.5 million.

By Michael Cowden, Michael@SteelMarketUpdate.com