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Stelco plans to be key supplier to auto industry

Stelco Inc. intends to become a key supplier to the auto industry again to reduce its dependence on the spot steel market, president Mike McQuade says.

That's one of the main goals of the steel maker as it prepares to emerge from protection under the Companies' Creditors Arrangement Act, Mr. McQuade said Friday after the Ontario Superior Court approved a restructuring plan that should enable the company to get out of creditor protection by June 30.

"With the successful emergence [from CCAA] we fully expect to be back in the automotive game," he said. "We've continued to carry on our conversations with the auto suppliers throughout this process, kept the lines of communication open and with a plan of emergence we'll be back in and become active participants in their quoting process."

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Stelco's current mix of customers is weighted heavily toward the spot steel market, which means it's subject to prices that fluctuate and demand that rises and falls, sometimes dramactically over short periods of time. Automotive customers buy steel on a contract basis, which reduces steel makers' reliance on the spot market.

The current price for benchmark steel on the spot market is about $585 (U.S.), a level at which Stelco is generating positive earnings before interest, depreciaton and amortization (EBITDA), Mr. McQuade said.

A report on Stelco's financial performance done by the court-appointed monitor overseeing the case shows that income from operations was $39.2-million (Canadian) in the three months ended March 31, compared with a loss of $54.7-million a year earlier.

The company had about $285-million cash on hand as of the end of April.

Stelco was put into CCAA protection in September, 2014, when it was called United States Steel Canada Inc. and was a unit of Pittsburgh-based United States Steel Corp.

Its new owner is Bedrock Industries Group LLC, a U.S.-based restructuring company.

Mr. McQuade said Bedrock sees "tremendous potential" in Stelco, but he is not prepared to discuss plans it has for operations in Hamilton, Ont., and Nanticoke, Ont., until Bedrock is in full control of the steel maker.

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The court approval of the plan came after members of the United Steelworkers union at operations in Hamilton, Ont., and Nanticoke, Ont., approved new contracts in votes earlier this week and last Friday, respectively.

The key to Stelco's survival will be making up for 10 lost years under its ownership by U.S. Steel, said Peter Warrian, a senior research fellow at the University of Toronto's Munk School, who is a steel industry specialist.

"You have to rebuild the product marketing staff and the engineering side," Prof. Warrian said. "A lot of that stuff was stripped out and transferred to Pittsburgh."

In the global consolidation that swept up the Canadian industry in the mid-2000s, Stelco was an outlier, he noted. The offshore companies that bought Algoma Steel Inc., Dofasco Inc. and Ipsco Inc. all purchased them as ways to establish a beachhead in the North American market.

Stelco, which was bought by U.S. Steel for $1.1-billion in 2007, became a branch plant, he said.

U.S. Steel said when it placed the Canadian unit in creditor protection in 2014 that U.S. Steel Canada posted a cumulative negative EBITDA of $1.5-billion between 2007 and 2014. It will receive about $126-million from a secured claim on the assets of U.S. Steel Canada.

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U.S. Steel's ownership of Stelco was controversial. That ownership included a court fight with the federal government – later settled in a secret agreement – when the steel company failed to live up to production and employment guarantees it made when Ottawa approved its purchase of Stelco in 2007.

The company also locked out workers in Hamilton and Nanticoke on several occasions during its ownership and ceased making steel in Hamilton in 2009.

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About the Author
Auto and Steel Industry Reporter

Greg Keenan has covered the automotive and steel industries for The Globe and Mail since 1995. He also writes about broader manufacturing trends. He is a graduate of the University of Toronto and of the University of Western Ontario School of Journalism. More

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