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Could this be a good year for Essar Steel Algoma?

Tuesday, April 01, 2014   by: Bob Mihell

A prominent Canadian steel analyst forecasts “some interesting and mostly positive signs” for the steel industry in 2014, and Essar Steel Algoma in particular.

Peter Warrian, a professor at the University of Toronto’s Munk Institute for International Studies, said this week that there were a couple of “wildcards” that could prove “an important piece of good news” for the Sault steelmaker.

Forecasted growth in non-residential construction, and a huge demand for new rail infrastructure could prove beneficial for Essar because of its plate-making capacity.

“I think the plate side will out-perform the general steel market,” Warrian said. “The same companies who produce plate for the non-residential market also do plate for rail cars, and that could lift things substantially.”

He noted that because of delays in the proposed Keystone pipeline, oil was being transported by rail.

“The number of rail cars shipping oil has gone from 4,000 to 400,000 in 18 months.”

New government safety standards are also driving the demand for new rail cars, he said.

Another promising trend for North American steel manufacturers is that in 2014 the demand for steel in China would lag behind the rest of the world for the first time in a decade.

“Steel growth in China this year will be three percent. The rest of the world will be 3.5 percent.”

China is reducing significantly its steelmaking capacity, as the government shifts its focus from infrastructure construction to more “consumer oriented” policies, Warrian said.

He cautioned, however, that when it comes to steel pricing in the marketplace the steel industry would continue to face “a real challenge” in 2014.

“I don’t have individual company books, but I do know the capacity utilization is bouncing between 76 and 77 percent as an industry average,” Warrian pointed out. “The importance of that is unless they increase the capacity utilization to between 81 and 83 percent they can’t get sustainable price increases.”

Capacity utilization is an economic indicator that refers to the relationship between actual production output and the potential output if capacity is fully used.

When market demand increases, both production and prices will rise, according to economists.

In its 2013 year-end financial summary, ESAI reported its five-year average capacity utilization (2008-2013) at 83 per cent, surpassing the steel industry average for that time period by 14 percent.

Warrian said, however, unless steelmaking capacity increases industry wide steel pricing would remain unstable this year.

“You see this pattern continuing where there are [steel] price increases and a few months later it slips back. I think that pattern is going to repeat itself. The volumes are reasonable, but there isn’t going to be much relief on the price side,” he said.

Individual companies may vary, Warrian said, but steelmakers generally “are still going to be struggling with cash”.

“The volumes are going to creep up, but prices are going to remain a problem because they are still below the levels where companies can, on a sustained basis, be making money,” he said.

Warrian also said the lower Canadian dollar vis-a-vis its U.S. counterpart - hovering now about 90 cents - would likely be a “saw off” for Essar, although he admitted he did not have the company’s spreadsheets.

“The lower Canadian dollar makes Canadian export manufacturers more competitive, but on the other side, if you are importing raw materials from the U.S. and paying in their dollars, that is an added expense.”

Warrian noted that steelmakers like Essar have to import a lot of iron ore, coke and scrap from the U.S. and pay in U.S. currency, and that would be a pressure point.

The crisis in the Ukraine and Crimea also could have a ripple effect on North American steelmakers, if it ends up in economic sanctions and pushes European countries back into recession, he said.

“Nobody has a crystal ball, but if the situation gets too out of hand in the Ukraine, you could have a script for a recession in Europe that will affect everybody,” he said.

SooToday.com has sent questions to Essar Steel Algoma related to Warrian’s analysis, but has not yet received a response.

Comments
17
Note: Comments that appear on the site are not the opinion of SooToday.com. If you see an abusive post, please click the link beside the post to report it.
Menard6969 4/1/2014 4:20:00 PM Report

I predict no profit only losses. At least that's what the books will show and media releases will say. Essar is so charitable they give steel away.
rockbanger 4/1/2014 4:42:13 PM Report

Essar Management has lost so much money over their first 5 years it is a joke.

They are corporate bum's and have held many businesses in this town hostage.

They do not pay bills and are not good for anyone but themselves..

If Essar makes money this year it will be a miracle..!

BUM'S
fullstringer 4/1/2014 4:59:31 PM Report

I have to agree with Rockbanger. A few years ago I used to look after a cottage for a millionaire Austrian. One summer they had a guest come over for a holiday and asked if I would take this guy fishing for a day. To make a long story short, this fella was a financial consultant for a huge firm in Germany. Traveled and did business all over the world with some very large corporations. I had mentioned Essar and he said he had done business in the past with the Indian family that owns the mill, on other deals overseas. I can say that he had nothing good to say about their business practises and don't be surprized if things don't go as well as the community would like to see. Very shrewd and dirty type of business people apparently?
moosie 4/1/2014 5:02:27 PM Report

say what u want but we get paid every 2 weeks and no layoffs, cant get much better then that
tosimple 4/1/2014 5:26:22 PM Report

I have worked at essar 26 years now. I have never seen it this bad.. The moral in the place is rotten. I am sure more stuff will get painted and grass planted. lip stick on a pig!!!! They will donate money to the city to keep up there big show... There are no supplies in there. Guys can not get parts to fix stuff. Lol. There were no winter gloves available for weeks. They are certainly masters of propaganda with the news they release to Sootoday and other places...
rockbanger 4/1/2014 5:56:23 PM Report

Latest out of Essar head office...

All Essar employees must bring your own toilet paper and hand towels... We will maintain heat to all the toilets.

Any complaints call someone who cares.

Do you not realize this is the slum dog steel mill.. You are lucky we are here.
itsme29 4/1/2014 6:02:50 PM Report

ducky your not allowed to call them that even know its the truth...they del my post that mentioned that...
Me Myself an I 4/1/2014 7:06:50 PM Report

Things will be good until its a contract year and then they will cry poor and demand concessions from the workers and retirees (again)
ducky58 4/1/2014 7:54:20 PM Report

Thanks itsme29
ducky58 4/1/2014 7:58:00 PM Report

To bad you can't speak the true on here but the people that lie can. Talk about discrimination. Don't know if the spelling is right.
ducky58 4/1/2014 8:02:43 PM Report

And on top of it all there wasn't a word in that my grandmother would not agree with. just telling the truth Soo Today.
Koolaid 4/1/2014 8:20:19 PM Report

Maybe if the workers weren't stealing everything, there might be toilet paper, gloves to keep your little fingers warm and parts to fix things. Keep sucking everything out of the company, workers, and you won't have a pot to pee pee in.
itsme29 4/1/2014 9:41:25 PM Report

oh don't be jealous kool aid I'm sure u steal hamburger buns from your job
Koolaid 4/1/2014 11:53:02 PM Report

itsme29
Jealous of what? And I wouldn't dream of stealing where I work. Unless that's what you think the norm is?
ICANDANZTOO 4/2/2014 7:50:11 AM Report

Wow! Unreal!
Lets hope its a good year... Would be nice for a change...
welcome2 4/2/2014 9:51:07 AM Report

I have been involved at the management level in business long enough to know that there can be a huge gap between what is reported and what is reality where corporate profits are concerned.I therefore do not put a lot of stock in many things I read. I do know that my employer is one of those local companies that has experienced over and over Essar's inability or unwillingness to pay their bills on time. On more than one occassion when they have issued us a purchase order we have had to say "we will fill this when you send us a check for "$X" against your outstanding balance. That is not what I call good business practices and a company cannot continue going down that road over the long haul without vendors saying "enough is enough"
boilertyme 4/2/2014 12:59:45 PM Report

I do believe when the time comes for increased production Essar will be caught with their pants (or whatever they wear) down. The fact is #7 BF, especially the bussel pipe which feeds the blast furnace with super heated combustion air is in terrible condition, on last down days they patched an area with a thickness of one eighth inch.Simpley ,a potential bomb. That's all I have to say bout that.
Comments
17
Note: Comments that appear on the site are not the opinion of SooToday.com. If you see an abusive post, please click the link beside the post to report it.
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