Prospering in the steel industry depends upon the ability to consistently earn money through the business cycle. Many segments of the steel industry have solid financial results when the economy is strong and steel prices are rising. When the economy weakens and steel prices are falling, these same companies give back large portions of their profitability.
Esmark is on the leading edge of risk management of steel price volatility. In tough times it expects considerably less volatility to its earnings stream as a result of the Esmark-Stop ("steel trading optimization program.") system. Pioneered by Craig Bouchard, an affiliate of Esmark has developed a trading system which allows long term hedging of hot rolled, cold rolled and coated steel products. The "E-stop" system melds the highest levels of Wall St. correlation analysis with the equity and credit markets to produce an application which is 90% efficient in hedging steel prices over a 5 year horizon. In 2004, this will not be obvious as steel prices are generally expected to be stronger. The E-Stop system is designed for use in "bear" markets.
In sum, the Esmark "advantage" is fueled by growth by acquisition and creating status as the low cost producer. It targets profitable companies that can be bought near book value, meaning considerably less financial risk of an overpriced or incorrectly assessed opportunity. Esmark employs a skilled labor force with top flight industry managers to improve efficiency of acquired companies. Esmark will enjoy the obvious benefits of up market trends, but will be a true industry financial leader in down markets.
