Wednesday, July 16, 2008

Steel companies and coal mining.

I came across the following article from Tim Huber at associated press, at Anyone who has followed this blog for  a length of time will know my views on the speed at which the western economies abandoned coal mines in favour of cheap imports. It's ironic that the industry that abandoned domestic resources should be paying a high price for their haste.

It's been more than a century since J.P. Morgan, Andrew Carnegie and other U.S. steel barons built mining empires that dominated life across wide swaths of Central Appalachia's coalfields, securing essential fuel for their mills.

Bits of that history are starting to repeat themselves. Decades after tough economic times forced steel makers to abandon company towns and sell their coal mines, 21st century steelmakers are back in the hunt for coal.

This time, rather than the Carnegies and Morgans, it is the Mittals and the Mordashovs.

Absent from a global buying spree are the U.S. companies that wrote the book on owning everything from the commodities used to make steel to the finished product, such as Bethlehem Steel Co.'s massive shipbuilding operations.

The U.S. steel industry, badly damaged from plummeting steel prices and legacy costs, spun off coal operations years ago and have been more hesitant, or do not have the billions, to spend locking up coal again.

“I bet you they wished right now that they still had the coal mines,” said Charles Bradford, an industry analyst with Bradford Research/Soleil Securities.

That torch, however, has been passed overseas.

Luxembourg-based ArcelorMittal, the world's largest steel producer, recently upped its stake in Australia's Macarthur Coal, supplier of more than one-third of the world's pulverized coal. At the same time, ArcelorMittal was snapping up Mid Vol Coal Croup, a virtually unknown American company with 85 million tons of reserves and mines producing some 1.5 million tons of coal in West Virginia and Virginia. Terms have not been disclosed.

International mining conglomerate BHP Billiton Ltd. is attempting a $170 billion takeover of rival London-based Rio Tinto Inc., a deal that would combine the world's No. 2 and No. 3 iron ore miners. That buyout has come under European Union scrutiny because of a potential monopoly that could control the global prices of iron and coking coal.

Korean steel giant Posco has bought 10 percent of Macarthur Coal and Russian steelmaker OAO Severstal, under CEO Aleksey Aleksandrovich Mordashov, is openly shopping for coal mines.

The price of the U.S. coal used to make the coke that fuels the blast furnaces can go for as much as $250 a ton. Just last year, the cost was closer to $90.

Steelmakers already face pressure from customers – manufacturers that make everything from automobiles and aircraft to washing machines and refrigerators. Steel producers are doing everything they can to control soaring prices for iron ore, metallurgical coal and scrap steel.

“Obviously everybody wants to have their own low-cost materials,” Bradford said.

The U.S. steel industry was seriously wounded over the past two decades, as labor costs and inefficiencies dragging down profits and shuttering dozens of mills from Johnstown, Pa., to Cleveland.

Even U.S. Steel, which signed a historic deal with union workers several years ago and had done better than survive, has not announced any coal acquisitions.

The Pittsburgh company did hold onto substantial coking operations, an enormous boost in the current skyrocketing commodities climate.

“We continue to look at strategic opportunities related to our business, but we don't comment on them until it's appropriate to do so,” spokesman John Armstrong said.

Steelmakers overseas, however, are taking a page from the playbook of U.S. producers of yesteryear.

Full article here

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