Sunday, September 25, 2005

The Russian steel industry since 2000 - lessons for the Ukraine?

Readers who are interested in the steel sector in the former Soviet bloc may find two articles from Kommersant of especial interest. The first, which reviews the history of Russian metallurgy over the period 2000-2004, describes in some detail the changing structure of the Russian metals sector from the beginning of the Putin era in ~2000.

The review starts with the aluminium sector (describing the consolidation of the asset base, and the creation by Abramovich of the new big groups such as Rusal). It then describes the developments in steel (the initial survival-driven focus on investment; the later creation of the new big steel groups such as Evraz Holding, a phase itself then followed by steel sector acquisitions elsewhere in Eastern Europe e.g. Romania, Croatia ... [blogger: maybe Turkey soon?]). The article also reminds readers that consolidation in Russian carbon steel was mirrored by parallel developments in the Russian steel pipe sector (the creation of TMK from Seversky, Sinarsky, Volzhsky and Taganrog, as a battle to survive against competition from the other steel pipe giant OMK).

According to Kommersant, the 2000-2004 period - characterised by these industry megadeals - was a period of Putin's rule during which (whether deliberately or not) the State adopted an essentially hands-off stance towards the steel sector. Kommersant suggest that it was this hands-off policy which allowed (forced?) consolidation to naturally take its course and to foster the emergence of the thriving steel sector that we now see in Russia today.

In a second article, referring to progress in the privatisation of the Ukrainian steel sector over the period 2000-2004, Kommersant note the almost identical predicaments of the Russian and Ukrainian steel industries at the turn of the decade, but comment on the interventionist policies of the Ukrainian government towards their steel sector on trade, taxation etc in the years that followed. Kommersant observe that, however they may have come about, non-intervention and successful evolution of the Russian steelmaking sector clearly do contrast with the interventionist background and uncertain evolution seen in the Ukraine. Whilst Kommersant do not see Government policies in the Ukraine as especially encouraging across the near-term, they do take heart from the observation that at least it is the Russian steel sector that is now in a position to acquire the steelmaking assets in the Ukraine, and not the other way round.

I strongly recommend both original articles to anyone interested in Soviet steel as an exceptionally good read!

Thursday, September 22, 2005

Bluefield Coal Show Speech Highlights [BlackDiamond]

Coal Industry Racing to Meet Demand: ; Plant Construction Up, More Investment Seen, Veteran Workers Wanted

BLUEFIELD - There will be a demand during the next few years for every ton of coal central Appalachia can produce, predicts Michael Quillen, president and chief executive of Alpha Natural Resources Inc.

Quillen was one of the speakers at the Bluefield Coal Show, which concluded here on Friday. Here are some highlights from his speech and others.

Quillen said he believes the question isn't whether there's going to be a market for coal but, rather, where is it going to come from.

"You would expect that when the price goes up we would increase the supply and kill the market," he said. The industry is trying to increase supply but the shortage of labor - particularly experienced labor - "is a huge issue," he said.

It's also tough to get new equipment, Quillen said. Most orders are taking a year or longer to fill, he said.

Coal reserves are another supply constraint. "Every ton we mine is a harder ton," he said. "Believe me, no one left the easiest for last."

While a lot of new mines are being developed in central Appalachia, "a whole lot of existing production is going away" as old mines play out, he said.

Quillen said the coal industry's boom-and-bust history makes him hesitant to predict the future, although his company is confident the current boom will last two years. "To say the boom will last seven years is pretty aggressive," he said.

Alpha Natural Resources raised $524.1 million when it went public in February. Foundation Coal Holdings Inc. raised $519 million when it went public in December. Quillen pointed out that 67.5 percent of coal production in the United States now comes from public companies, up from just 34 percent in 1983.

Most of the backing for these public companies has come from private equity firms and hedge funds - "people who were not in the business 24 months ago," Quillen said. Such firms usually invest with a plan to turn a profit and get out. Quillen wondered aloud who will eventually take the place now occupied by the private equity firms and hedge funds. Del Eustace Frederick, D-Mercer, wondered if the oil companies might become involved again, like they were in the 1970s.

Danny Smith, senior vice president of energy and properties at Norfolk Southern, said the railroad is straining to meet the increased demand to haul coal.

Norfolk Southern gets 23 percent of its revenues from coal hauling. "We hauled 10 million more tons last year and this year it will be more than that," Smith said.

Last year Norfolk Southern estimated it would hire 1,800 workers but ended up hiring 2,100. This year the company expects to hire 2,000 workers, he said.

One problem Norfolk Southern has is, about 28 percent of new hires leave within the first two years. Smith said this is especially painful because the company spends about $60,000 to train a new hire.

Another problem is increasing costs. Smith said the rising cost of diesel fuel has had a huge impact on Norfolk Southern and higher steel prices are increasing the costs of locomotives, coal cars and rail.

Mike Mudd, program manager for generation technologies at American Electric Power, explained how his company concluded that building coal-fired plants using a next-generation process known as integrated gasification combined cycle is the best way for it to increase generating capacity.

He said the gasification process offers superior environmental performance. The first few plants will cost more than conventional coal-fired plants but, when mature, the process should provide the lowest capital cost and highest efficiency among coal-based technologies, he said.

In addition to his job at American Electric Power, Mudd is acting chief executive officer of the FutureGen Industrial Alliance. The alliance is a coalition of some of the largest electric utilities and coal companies in the United States. The alliance was formed last week. It plans to partner with the U.S. Department of Energy to help design, construct and operate a next-generation coal-fired power plant called FutureGen.

The big difference between American Electric Power's planned plants and the FutureGen plant is that FutureGen's goal is zero emissions. FutureGen would achieve that goal by pumping carbon dioxide emissions into geologic formations underground.

Mudd said another difference is, American Electric Power wants to build plants that are not risky, since ratepayers will finance them. On the other hand, the idea behind FutureGen is to push the technology by taking risks. "That's why FutureGen is needed," he said.

David Finkenbinder, vice president of congressional affairs at the National Mining Association, said there are 112 coal-fired power plants in various stages of planning.

"There have been more coal-fired plants announced in the last 12 months than over the last 12 years," he said. "Although not all of these will be built, clearly, investment in new coal capacity will be impressive.

"If the opportunity is great, so is the public expectation for cleaner energy," he said.

The coal industry has done much to become cleaner and safer and the recently passed federal energy bill will help it do more, Finkenbinder said. Even so, there much still needs to be done, he said.

Keith Barnett, managing director of fundamental analysis and economic forecasting at American Electric Power, predicted that the price of natural gas will remain linked to the price of oil.

Anybody who thinks the countries that sell us oil are going to sell us natural gas cheap should probably think again, he said.

Barnett noted that many of American Electric Power's plans anticipate that the price of natural gas is going to remain high. If the price of natural gas, now over $10 a million cubic feet, goes back to $3, "our strategy is flawed," he said.

Peabody to open mine in New Mexico [BlackDiamond]

Largest U.S. coal producer starts project in New Mexico

The largest coal producing company in the U.S. soon will be starting up its first mining operation in New Mexico, as the first new coal mine to be awarded an operating permit in the state in six years.

The state Mining and Minerals Division, a regulatory agency of the New Mexico Energy, Minerals and Natural Resources Department, approved this week the permit for the El Segundo Surface Coal Mine, located 35 miles north of Milan along State Road 509 in McKinley County. The mine's owner is the Lee Ranch Coal Co., an operation of the Peabody Natural Resources Co., which is a subsidiary of Peabody Energy Corp. of St. Louis, Missouri. The statistical agency of the Department of Energy, the Energy Information Administration, whose latest data was for 2003, notes that Peabody was the largest producer of coal in the nation that year.

It is the first permit granted by the state for a coal operation since 1999. The area approved is on 15,000 acres of state and private land.

Beth Sutton, spokesperson with Peabody Energy, says the new mine will bring 100 new jobs to New Mexico and inject $10.5 million in wages and benefits into the economy each year.

The new New Mexico mining operation is projected to produce 102 million tons of coal over a 30 year period.

"Over the life of the mining operation, approximately 7,862 acres will be disturbed," says Bill Brancard, director of the Mining and Minerals Division. "Since mining and reclamation work will be performed at the same time, though, no more than about 2,000 acres will remain disturbed in any one year."

Lee Ranch has made an agreement with the state to restore the land disturbed by mining activities for rangeland grazing. Under the deal, the company would not get its bond back from the state until the rangeland has been restored for grazing use.

Peabody Energy says it "fuels more than 10 percent of the [U.S.'s] electricity and three percent of the world's electricity." The company's 2004 revenues totaled $3.6 billion.

Tuesday, September 20, 2005

Peabody to Invest In Chinese Mines [BlackDiamond]

Peabody eyes investment in Chinese coal mines

BEIJING, Sept 20 (Reuters) - U.S. coal miner Peabody Energy Corp. plans to invest in Chinese collieries and build an import-export business there, aiming to make the country a significant contributor to earnings within a decade, a top executive said on Tuesday.

The largest U.S. coal company hopes to capitalise on growth in Chinese coal demand, which it expects to be up to 80 percent over the next 15 to 20 years, outstripping expansion in its home market.

"Our initial goals are to improve our understanding of the coal and energy markets ... increasing our sales and marketing presence through an import-export strategy," said Chief Financial Officer Richard Navarre.

"Ultimately we do look longer term to invest in assets; possibly through joint ventures would be the most efficient route," he added at a news conference before the opening of the firm's Beijing office.

Peabody, which in July said its second-quarter profit had more than doubled on sky-high prices and demand, would be interested in taking 10 to 45 percent stakes in Chinese firms.

"Our hopes and expectations would be that in five to 10 years (China) would be a meaningful part of our business," Navarre said. He declined to comment further, but said the firm expected to be able to give more details within a year.

In May the firm made a U.S. regulatory filing for periodic sales of up to $3 billion in securities and said it might use some of the proceeds for acquisitions.


Navarre said Peabody was only in talks with a small group of firms, but was open to a range of investment possibilities and would be most interested in a greenfield project.

"In a smaller investment we'd take up to a 45 percent position. If it's a multi-risk, very large project we may end up with multiple partners ... and we would only have a 20 to 25 percent (holding)," he said.

"We probably wouldn't be interested in anything less than 10 percent," he added, saying that he understood that the government limited foreign investment in this sector to minority stakes.

Navarre said Peabody could offer larger Chinese partners its expertise in mining techniques and safety, particularly surface mining technology, which he said currently accounted for a relatively small portion of China's coal output.

At present it sells coal to China only indirectly through Australian subsidiaries.

Peabody will also be looking north to opportunities in Mongolia, although poor transport -- a global problem for the coal industry -- could hinder development there.

"The difficulty in Mongolia is that there is no infrastructure to move the coal into China, so it will take time to develop those resources," Navarre said.

India was another key growth area for coal industry, together with China and U.S. accounting for an expected 90 percent of coal demand growth in the next 15 to 20 years, Navarre said, although the firm was currently focused on China.

"We are not yet looking seriously at India ... There are enough opportunities in China to keep our plate fairly full," he said.

Sunday, September 18, 2005

Analysts disagree on 2006 iron ore prices

Increasingly divergent views seem to be emerging about the future direction of iron ore prices.

Spot prices for iron ore from India, Australia and Brazil have risen by as much as 86% this year. However, investment banks ABN Amro and Macquarie are forecasting another rise in prices in 2006. Conversely, analysts at the BMO Nesbitt Burns brokerage are saying that iron ore prices are not sustainable, and predict that the average iron ore price will fall by 12.4% in 2006.

Amro, which previously forecast "unchanged," now apparently thinks that the iron ore price will go up in 2006 by 10%.

For a fuller opinion on future iron ore prices, see:

Wednesday, September 14, 2005

Steel pricing Q1 2006 - northern europe

I am interested in opinions on how steel pricing in Q1 2006 is looking.

Hot rolled coil in particular

I would welcome comments from steel HRC buyers.

Monday, September 12, 2005

Job Seam Opens Up [BlackDiamond]

West Virginia Gazette
September 10, 2005

Suddenly, the coal industry can't find enough qualified miners

Gary Tincher used to tell prospective miners not to bother with underground training unless they knew someone who could get them a job at the mine.

But times have changed.

"If someone wants to get into the mining industry, now's the time to do it," said Tincher, who owns Tincher Safety, a company that offers mine safety classes in Chelyan.

The skyrocketing price of coal, coupled with the high number of miners nearing retirement has created an increased need for new workers, coal industry officials say. Consider these facts: The cost of a ton of coal has more than doubled during the past three years, and the average age of a coal miner is around 52.

"Across the board, the demand is so high for jobs from general laborer to electricians," said Phil Smith, director of communications for the United Mine Workers of America.

The industry will replace 5,000 to 7,000 retiring miners in the next 10 years, estimates Chris Hamilton, senior vice president of the West Virginia Coal Association. Plus, the immediate demand will create 1,800 to 3,000 more mining jobs.

Massey Energy Co.'s "greatest impediment to growth and improved productivity continues to be the challenge of finding and retaining experienced labor, especially for our underground operations," wrote Chairman and CEO Don Blankenship in a July statement announcing the company's second-quarter financial results.

The company increased its labor force by 225 people during the first half of the year, but still found that labor shortages "hindered productivity and limited Massey's shipping volumes."

That work-force demand is forcing the coal industry to come up with ways to attract more people to the field. Both the UMW and West Virginia Coal Association are creating training programs to certify people to become miners. Enrollment in Tincher's training classes has doubled this August, compared with the same month last year.

Federal money will pay for the $2 million UMW training program, which includes classes on heavy equipment operation and surface and underground mining, said Clemmy Allen, director of the UMW Career Center Inc. He figures about 440 people will be able to receive free training through this yearlong grant. The training will be held in Greene County, Pa., just north of Morgantown.

Meanwhile, the West Virginia Coal Association will start The Academy for Mine Training and Energy Technologies in Morgantown next week. Another class will start in Southern West Virginia in October. The association, West Virginia University Mining Extension Service and Southern West Virginia Community and Technical College in Logan are working together to offer the classes.

Students will learn about safety and the technical aspects of underground and surface mining during the four- to six-week program, Hamilton said.

The training is necessary because the industry has lost a generation of workers after hiring slowed down in the 1980s because of low coal prices, Smith said. Plus, increased mechanization allowed companies to produce more coal with fewer people.

"Now, the price of coal is very high and demand is very high. They want to produce as much as they can, but at the same time, they're losing workers because they're retiring," Smith said. "A lot of miners left the state because there were no jobs. Or, if they stayed, they're doing something else. So, there's a big hole there."

Training programs used to be in place 30 years ago when the industry was booming, but as the market soured, so did the recruiting and training infrastructure, Hamilton said.

The industry has also changed a great deal in the past decade. Fifteen years ago, every machine required an operator to run it, and the person was close to the coal seam, he said. Now, operations are more computerized and done remotely. The job requires more of a technical approach.

CONSOL Energy Inc. isn't recruiting coal miners; it's looking for mechanics, electrical engineers, people to work with hydraulics and computers and people with basic industrial skills, said Thomas Hoffman, the company's vice president of investor and public relations.

The Pittsburgh-based company has several mines in West Virginia. It was the state's second-largest coal producer in 2003, behind Massey, according to the state coal association.

CONSOL is looking for employees to operate, maintain and fix the mining machines, Hoffman said. Those skills are applicable across many industries, which means CONSOL finds itself competing for employees not only with other coal and energy companies, but with people in heavier industries across the nation.

"I think people have choices, and they want to see how well your choices fit with what they want to do with their lives," Hoffman said.

The company has upped its recruiting efforts and visits more job fairs aimed at high school students. In northern West Virginia, the company has hired hundreds of people this year to replace retirees. Two years ago, the company would have hired 10 people in the same area, Hoffman said.

Recruiters stress the industry's stability and show prospective miners that they can make mining a career, if they want. Then, there's the money. Coal miners earn an average of $60,908 a year, which is double the average annual state wage, according to the most recent statistics from the West Virginia Bureau of Employment Programs.

Those factors are many of the reasons a group of students in Tincher's underground mine training program decided to get into the industry. Mining interested some of the 17 students because of the money, or because they had realized college wasn't for them. Some want to use the money they make in the mines to pay for college. Others see it as a way to get a job that's in demand.

Tincher remembers when he got into mining, back in the early 1970s. During the boom times, miners could go from mine to mine and pick their job.

"Now, you can do that, if you're a qualified miner," he said.

Mittal Steel Group - Top Assets

According to a report in today's Business Day (see Credit Suisse First Boston has ranked steelmaking operations in South Africa amongst the best assets in the Mittal Steel Group. The original article follows...

Mittal SA seen as ‘real jewel’ in group’s crown

INVESTMENT banking group Credit Suisse First Boston (CSFB) says the South African arm of the Mittal Steel group is among the best assets in the world number one steel maker’s portfolio.

The South African plants are among three “ultra-low-cost”, high-quality assets, according to the investment banking group’s initiation report on Mittal Steel last month.

The Newcastle plant in SA rates as the lowest-cost producer in the group at about $255 a ton of slab. The Vanderbijl- park plant is the third-cheapest producer at about $267 a ton. The global average slab cash cost is about $314 a ton.

“Within the Mittal Steel portfolio, we see some real jewels in the crown,” says the report, naming South African and operations in Kazakhstan, Mexico, Algeria and Romania, among others.

In addition to its low-cost structures, Mittal Steel SA rates among the top assets in the group also because it has a share of about 72% of the domestic market.

The global Mittal group has dominant domestic market shares in four other countries. These include Romania, Czech Republic, Poland and Kazakhstan.

CSFB says the South African operations also have significant room for expansion. The global Mittal group has about 13-million latest capacity of which 1,6-million tons resides in SA.

Mittal Steel SA has more than 7-million tons a year of steel-making capacity, and is expanding to about 9-million tons by 2007.

The South African operations are also considered good assets as they have a large amount of backward integration.

Mittal Steel SA produces much of its raw materials and enjoys a favourable iron-ore supply arrangement with Kumba Resources.

The South African operations, formerly Iscor, improved significantly after Mittal Steel gained majority control of the company last year.

CSFB says Mittal Steel has achieved a 26% productivity gain across its core facilities since the respective dates of acquisition, with the most notable increases coming from some of the emerging market acquisitions — Mexico, Kazakhstan, Romania and SA.

South Africa is also among the higher-risk operations in the group, however. This is due to currency volatility and political risk in the country, the report says.

The CSFB report is bullish about Mittal Steel and the global steel market. The brokerage initiated coverage with an “outperform” rating and a price target of $40 per American Depositary Receipt (ADR). The ADRs are currently trading at $29,25. It says Mittal Steel has some of the highest returns in the industry.

CSFB expects US steel prices to rise from the last quarter of the year, with prices in Europe increasing in the first quarter of next year. Prices in Asia would rise from the second quarter of next year, onwards, it says.

“With the upside risk of a full-blown steel market recovery into next year, we believe momentum within the sector should be strong through at least early next year,” CSFB says.

Friday, September 09, 2005

Steel prices after Hurricane Katrina

The Pittsburgh Post Gazette website carries the following story today, about the impact of Hurricane Katrina on US commodity prices, and on steel prices in particular. For original article, see

Wide range of commodities affected by post-hurricane disruption
Friday, September 09, 2005

The wrath of Hurricane Katrina's fury has been showing up at gas pumps for days, but in coming weeks, expect to pay considerably more to heat your home, build that new addition and stock up your refrigerator.

The Energy Information Administration, for example, predicted this week that home owners in the Midwest could expect to pay 71 percent more for natural gas to heat their homes this winter. In the Northeast, heating oil prices will be 31 percent higher.

Steel prices are rising, as are prices for wood, concrete, glass and other building materials, reflecting supply disruptions and shortages spawned both by damage and outages along Gulf ports and by an anticipated increase in demand for rebuilding.

Food crops were damaged in some areas, but the bigger issue is the cost of getting them from there to here now that fuel prices for all modes of transport are at record levels.

All this adds to the economic milieu that the Federal Reserve must consider as it weighs nudging up short-term interest rates to keep inflationary forces in check while acting to protect an economy reeling from Katrina's impact.

On one hand, the central bank must consider whether havoc wreaked by the storm could stall the economy. Already, the nonpartisan Congressional Budget Office has estimated that fallout from the hurricane will cost the economy some 400,000 jobs and shave about a percentage point off growth this year.

At the same time, economists expect all those sharply higher costs for energy, labor and materials -- all of which were climbing even before Katrina -- will begin working their way into consumer prices, making inflation a worsening concern. "I am looking for more of a pass-through" of all of those costs to the consumer, said Stuart Hoffman, chief economist for PNC Financial Services Group.

Still, while costs of many key commodities have been rising, their impact on key inflation measures is far less profound than that of increased labor costs, which rose at a 4.3 percent annual rate through the end of June, said Richard DeKaser, chief economist for Cleveland-based National City Corp. He initially thought the Fed would "wait out September" without raising rates to give the economy a breather from Katrina.

Since then, however, DeKaser said, remarks by some Fed district presidents, including Philadelphia's Anthony M. Santomero, have been "quite hawkish in their tones," suggesting inflation remains the central bank's main concern and that interest rate increases may continue unabated. PNC's Hoffman believes the Fed probably will raise rates once more, or possibly twice, this year.

Metals prices
For metals producers, Katrina has presented a mixed bag. On the down side, higher energy prices will boost production costs, production at plants in the path of the storm will be crimped, and disruptions at the port of New Orleans, a key entry point for iron ore and other raw materials, could also affect metals producers outside the region.

The higher energy prices are expected to curb demand for automobiles and appliances, two key markets for metals producers, acting as a sort of break on the ability of producers to pass through further price increases. U.S. Steel and other producers already have pushed through price increases of roughly 10 percent in recent weeks.

On the plus side, New Orleans is also a major port for steel imports and any delays in moving steel could give domestic steel prices unexpected strength.

A second big plus is that rebuilding will create demand for steel, aluminum, copper and other metals.

BB&T Capital Markets metals analyst Lloyd T. O'Carroll said that while it's too early to quantify rebuilding demand or say when orders will start rolling in, "it does appear to have large potential."

Energy will have the most immediate impact. Natural gas prices are now in the neighborhood of $12 per million BTUs compared with just under $10 before the storm, according to Global Insight senior economist John Mothersole. Two years ago, the commodity cost less than $6 per million BTUs.

It takes U.S. Steel about 4.4 million BTUs of gas to make a ton of raw steel, spokesman John Armstrong said.

O'Carroll said most metals producers hedge their natural gas costs to protect against volatile price swings. He said many steelmakers are protected for at least a year, so it comes down to whether those hedges will expire before natural gas prices subside.

John Anton, who keeps tabs on the steel industry for Global Insight, said he believes steelmakers who cater to the construction market will gain the most from Katrina. The storm gives their recent prices increases of about $60 per ton, or 10 percent, a better chance of sticking, he said. But he expects the higher prices will be short-lived.

Home building will boom in New Orleans, but it will not necessarily do any better anywhere else," he said.

Less fortunate are sheet steel suppliers serving the automotive and appliance markets, items consumers pinched by higher gasoline prices are less likely to purchase, Anton said.

Energy supplies
The devastation wrought by Katrina on the nation's natural gas infrastructure should boost the fortunes of another form of energy, old King Coal.

With natural gas production severely crimped by the storm, electric power generators -- coal's largest customer -- will make more use of coal whenever possible, according to David Khani, managing director of the energy research group at the investment bank Friedman Billings Ramsey.

Oil, which also lost production capabilities to Katrina, could pick up a little bit of the power business but other alternatives, nuclear and hydroelectric, are already running pretty full out. "So coal is really going to be a big winner here,'' Khani, a certified financial analyst, said yesterday. "You will see coal pick up market share in the fall and winter and probably even in the spring."

More than 4 billion cubic feet per day of natural gas production, roughly 40 percent of the daily Gulf output, was shut in by the storm, according to the Minerals Management Service. Oil production was reduced by 861,000 barrels per day, or 57 percent of the usual 1.5 million barrels.

Coal prices were rising even before Katrina struck, thanks to increased domestic and international demand and the impact of higher costs for other forms energy.

Higher spot prices for coal eventually lead to higher prices under longer-term contracts as those contracts expire and are renewed, said Doug Biden, president of the Electric Power Generation Association, a trade group for electricity companies based in Harrisburg.

There was a lull in coal buying during August. Thomas Hoffman, vice president of external affairs for Upper St. Clair-based Consol Energy, said power generators were on the sidelines hoping for pricing to improve.

"But they're back in the market now because they know gas supplies are going to be tight and they're doing what they can to find coal," Hoffman said.

Higher coal prices are allowing Consol and other producers to expand. Consol, for example, has proposed spending about $500 million to enlarge its Enlow Fork mine near Washington, Pa.

The expansion, Consol's largest capital expenditure ever, would add 7 million tons of coal production capacity and support about 400 new mining jobs. The company's current annual production capacity is between 70 and 72 million tons.

Rebuilding the hurricane-pummeled region will take months or years, but the construction industry is already bracing for a surge in the cost of basic supplies such as plywood and cement.

Within two days of Katrina's hitting the Gulf Coast last week, it became harder to get quotes on orders, said Ron Mistik, purchasing director of Allegheny Millwork & Lumber on the South Side. "A lot of the plywood mills and OSB [oriented strand board] mills went off the market," he said.

Since then, most have come back on, said Jon Anderson, publisher of Oregon-based Random Lengths Publications, which tracks the wood products industry. While communications are still iffy, he said, his staff has documented only one plywood plant that was heavily damaged and is likely to be down for a number of weeks.

Yet the uncertainty may have driven contractors around the country with projects under way and deadlines to meet to replenish their inventories, which in turn put pressure on the supply and helped push prices up.

Just how significant Katrina's long-term impact on the market will be remains unknown.

The National Association of Home Builders noted the number of structures affected by Katrina is likely to dwarf those of past storms. Hurricane Andrew in 1992 destroyed more than 28,000 housing units, more than the combined total of four major hurricanes last year. Katrina and the subsequent floods may have damaged a large portion of the more than 200,000 homes in New Orleans alone beyond repair.

Based on the experience in past storms, the association is not predicting a massive, immediate surge in home building. Even the impact on supplies could be mixed, with disruption of mills possibly balanced by an influx of wood from toppled trees that might have to be harvested quickly.

The association did note than an estimated 12 percent of national cement imports came through New Orleans and Mobile. Cement supplies had already been strained this year.

At Washington County construction supply chain 84 Lumber Co., spokesman Jeff Nobers said some mills still aren't quoting prices for very far into the future because they are waiting to see what happens and those prices they are offering in the short term have risen.

"Is it a long-term increase? The suspicion is that it's not," said Nobers.

At Allegheny Millwork, Mistik is not so confident.

The company has plenty of supplies now to serve its customers but he believes inventories could be a bit slim in six to eight weeks. He is expecting the rebuilding process to have a bigger impact on prices and supplies than Hurricane Andrew did.

Truth is, the sheer size and reach of the destruction across the South means much of this is uncharted territory, he added. "My crystal ball's in the shop but I'll give you any information I have."

Tuesday, September 06, 2005

State Aid - steel sector rules explained

The rules for when State Aid is allowable in the steel sector, as applied to the new EU member States (Poland, Czech Republic, Slovakia, etc) are explained in an Competition Policy Newsletter published by the European Commission earlier this year.

The newsletter article discusses steel company viability, and the importance of permanent capacity reductions as essential aspects of restructuring if State Aid is to be allowed

You can find the article on our main website together with our other steel industry reports, or you can download a copy directly from our archive.