Esmark to Slash Costs at Yorkville as Restart Nears

October 12, 2012, American Metal Market

NEW YORK — Esmark Steel Group LLC expects to shave $10 million per year off operating costs at its newly acquired Yorkville, Ohio, cold-rolling facility “starting day one,” keeping the mill competitive even in today’s challenging market environment, according to James P. Bouchard, chairman and chief executive officer of parent company Esmark Inc.

“You’re going to get all these naysayers out there because of the steel market, but we’ve restructured the company,” Bouchard said of Esmark’s plans for the operation. “It’s a different game today.”

Sewickley, Pa.-based Esmark, which on Thursday closed into escrow on its purchase of RG Steel LLC’s Yorkville mill and its 50-percent interest in Ohio Coatings Co.’s tinplate facility, intends to reduce expenses at the Yorkville mill through a number of cost-cutting initiatives, including lower power costs and a more-competitive labor agreement, Bouchard said. He noted that the cost savings will be realized even before the idled mill’s planned ramp-up in early 2013 (, Oct. 11).

Esmark is working to negotiate a 30-percent reduction in natural gas and electricity costs, which likely will be settled Monday or Tuesday once all the paperwork surrounding the sale has been finalized, Bouchard said.

The company also has been in discussions with United Steelworkers union District 1 director David McCall about a new collective bargaining agreement. “We’ve had great conversations with Dave McCall over the last few months, and (we) have all the major economic points agreed to. We’ll sit down with Dave and the local (soon) to finish it up,” Bouchard said, declining to comment on specifics of the proposed contract.

Esmark also has been in talks this fall with four potential domestic steel suppliers for the Yorkville mill, which will buy 60,000 tons of hot-rolled substrate in the fourth quarter ahead of its planned January restart, Bouchard said. “We feel very comfortable with the producers we have talked to. They’re all top-quality U.S. producers. We feel comfortable in the short- and long-term supply for the mill.”

Bouchard declined to identify which mills might supply hot-rolled steel to Yorkville, but a source familiar with the operation said U.S. Steel Corp.’s Edgar Thomson mill in Braddock, Pa., and ArcelorMittal USA Inc.’s Cleveland mill were among those being considered. A spokeswoman for U.S. Steel declined to comment, while ArcelorMittal did not respond to a request for comment.

After its initial 60,000-ton buy, the Yorkville mill expects to purchase about 25,000 tons of hot-rolled substrate per month, or about 300,000 tons per year, Bouchard said, noting that Esmark intends to increase that volume in the mid-term.

“Our plan is over the next two years to get that up to 40,000 tons a month, or 500,000 tons a year,” he said, and that volume could rise further still if market conditions warrant it. “When we owned Yorkville before, we were doing 53,000 tons a month before we sold.”

The nearby Ohio Coatings joint venture with South Korea-based TCC Steel Co., which Esmark said will be renamed Ohio Cold Rolling Co., will be allotted about 25,000 tons per month of Yorkville’s output for tinplating. The remainder of Yorkville’s cold-rolled production will be sold to the trade, he said.

“We will focus on 0.015(-gauge material) and less. That market is now dominated by foreign producers, so we’ll be going after the light-gauge markets the domestic guys don’t really service. That will be our niche,” Bouchard said, citing end-use consumers in the container, construction, distribution and original equipment manufacturing (OEM) sectors.

Meanwhile, the tinplate mill’s output will be sold on annual contracts. Esmark has already kick-started negotiations with customers, Bouchard said, noting that interest has been high, especially since the closure of RG Steel’s Sparrows Point, Md., tinning line, leaving just Pittsburgh-based U.S. Steel and Chicago-based ArcelorMittal USA as the country’s only major suppliers. And with both of those producers in labor discussions with the USW until the beginning of September, some tinplate buyers were hesitant to lock in 2013 deals early, giving Esmark a welcome foot in the door, Bouchard said.

“We lucked out because of the negotiations (at U.S. Steel and ArcelorMittal), and we lucked out because the third-largest producer (RG Steel) disappeared,” he said. “Steel prices are still going down, the steel market is horrible, no one else is big on these things, but our timing in the tinplate market and with this mill because of these two aspects are very good.”

James Ledgard, former chief operating officer of Wheeling-Pittsburgh Steel Corp., will come out of retirement to serve as chief executive officer of the new Ohio Cold Rolling Co., while James Tennant, current chief executive officer of the coating facility, will continue to serve in that capacity, Esmark said.