Rise in global steel demand may impact coke shortage - 2004-01-26 - Pittsburgh Business Times Page 1 of 3

Pittsburgh Business Times - January 26, 2004

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EXCLUSIVE REPORTS

From the January 23, 2004 print edition

Rise in global steel demand may impact coke shortage

Analysts: China's demand compounds U.S. shortage

Christopher Davis

Growing global steel demand, especially from China, could compound a coke shortage closer to home that has already forced

one steel company to lay off 800 employees and another to curtail operations at its coke works in Clairton.

And industry analysts contend the problem could get worse before it gets any better.

Coke serves as a fuel for blast furnaces that produce the molten iron that's converted into steel.

Leo Larkin, a New York-based equity analyst with Standard & Poor's, said the timing of the coke shortage is unfortunate. He

said the steel industry and its customers likely were "breathing a sigh of relief' that the industry was doing well, even after

President George W. Bush's steel tariffs were rescinded early.

"Then all the sudden this comes along," Mr. Larkin said.

He said China's rapidly growing appetite for steel could make the coke shortage in the United States even more difficult to

navigate.

According to data released this week by the Brussels-based International Iron and Steel Institute, China's steel production in

2003 was 220.1 million metric tons -- an increase of 21.1 percent over the previous year and the first time that a single country

has made more than 220 million metric tons of crude steel in a year.

"That's going to compound the (coke) problem," Mr. Larkin said of China's increased production. "It's a problem globally."

Domino effect

Earlier this month, Downtown-based U.S. Steel Corp. announced that a supply problem had forced it to temporarily curtail

production at its Clairton Coke Works. The company, the nation's largest integrated steelmaker, said it was unable to buy a

sufficient amount of the coal that it converts into coke because a major supplier of the material had been forced to declare a

force majeure, a provision that allows a company to not fulfill terms of a contract due to certain extenuating circumstances,

under its supply contract with U.S. Steel.

The supplier, the Pinnacle Mine in Pineview, W.Va., suspended mining activities following a fire there earlier in 2003. That set

off a domino-like reaction in the industry because U.S. Steel is a primary supplier of coke to bankrupt Weirton, W.Va.-based

Weirton Steel Corp. and others.

When U.S. Steel couldn't get a sufficient amount of coking coal, it had to reduce shipments to coke customers, including

Weirton.

Because of the shortage, Weirton Steel had to temporarily idle one of its two blast furnaces. The company, which filed for

Chapter 11 bankruptcy protection in May 2003, said last week it would furlough 800 employees in a series of staggered layoffs

for both union and management personnel, through at least February.

So far, Weirton and U.S. Steel are the only two integrated steelmakers to disclose that they've been significantly affected by the

coke shortage.

However, Charles Bradford, an independent New York-based metals industry analyst and president of Bradford Research,

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 EE-RM/STD-00-550 COMMENT 86

Rise in global steel demand may impact coke shortage - 2004-01-26 - Pittsburgh Business Times 

Pittsburgh Business Times - January 26, 2004 

http://pittsburgh.bizjournals.com/pittsburgh/stories/2004/01!26/story2.html 

EXCLUSIVE REPORTS 

From tile January 23. 2004 print edition 

Rise in global steel demand may impact coke shortage 

Analysts: China's demand compounds U.S. shortage 

Christopher Davis 

Page 1 of3 

Growing global steel demand, especially from China, could compound a coke shortage closer to home that has already forced 

one steel company to layoff 800 employees and another to curtail operations at its coke works in Clairton. 

And industry analysts contend the problem could get worse before it gets any better. 

Coke serves as a fuel for blast furnaces that produce the molten iron that's converted into steel. 

Leo Larkin, a New York-based equity analyst with Standard & Poor's, said the timing of the coke shortage is unfortunate. He 

said the steel industry and its customers likely were "breathing a sigh of relief' that the industry was doing well, even after 

President George W. Bush's steel tariffs were rescinded early. 

"Then all the sudden this comes along," Mr. Larkin said. 

He said China's rapidly growing appetite for steel could make the coke shortage in the United States even more difficult to 

navigate. 

According to data released this week by the Brussels-based International Iron and Steel Institute, China's steel production in 

2003 was 220.1 million metric tons -- an increase of 21.1 percent over the previous year and the first time that a single country 

has made more than 220 million metric tons of crude steel in a year. 

"That's going to compound the (coke) problem," Mr. Larkin said of China's increased production. "It's a problem globally." 

Domino effect 

Earlier this month, Downtown-based U.S. Steel Corp. announced that a supply problem had forced it to temporarily curtail 

production at its Clairton Coke Works. The company, the nation's largest integrated steelmaker, said it was unable to buy a 

sufficient amount of the coal that it converts into coke because a major supplier of the material had been forced to declare a 

force majeure, a provision that allows a company to not fulfill terms of a contract due to certain extenuating circumstances, 

under its supply contract with U.S. Steel. 

The supplier, the Pinnacle Mine in Pineview, W.Va., suspended mining activities following a fire there earlier in 2003. That set 

off a domino-like reaction in the industry because U.S. Steel is a primary supplier of coke to bankrupt Weirton, W.Va.-based 

Weirton Steel Corp. and others. 

When U.S. Steel couldn't get a sufficient amount of coking coal, it had to reduce shipments to coke customers, including 

Weirton. 

Because of the shortage, Weirton Steel had to temporarily idle one of its two blast furnaces. The company, which filed for 

Chapter 11 bankruptcy protection in May 2003, said last week it would furlough 800 employees in a series of staggered layoffs 

for both union and management personnel, through at least February. 

So far, Weirton and U.S. Steel are the only two integrated steelmakers to disclose that they've been significantly affected by the 

coke shortage. 

However, Charles Bradford, an independent New York-based metals industry analyst and president of Bradford Research, 

http://www.bizjournals.comipittsburghistories/2004/01/26/story2.html?t=printable 8/8/2005 
Rise in global steel demand may impact coke shortage - 2004-01-26 - Pittsburgh Business Times Page 2 of 3

pointed out that only about a quarter of the Pinnacle mine's coking coal goes to U.S. Steel. The rest likely is usually shipped

under contract to other integrated steelmakers -- the steel companies that produce steel from scratch, rather than from mostly

melted down scrap metal.

"(The shortage) must have hurt other people, but nobody else is owning up to it yet," Mr. Bradford said.

A spokesman for Cleveland-based International Steel Group Inc. was not immediately available for comment regarding whether

the company has been affected by the coke shortage. Middletown, Ohio-based AK Steel spokesman Alan McCoy said AK has

not been affected.

"We're largely self-sufficient," Mr. McCoy said. "We do acquire some outside coke, but we have commitments in place for the

year."

'A little wiggle room'

Mr. Bradford said increasing natural gas prices and other industry-related costs could put a squeeze on U.S. Steel and others as

they navigate the current coking coal and coke shortage. However, steel price increases and increasing demand could offset

additional costs related to the shortage.

Mr. Larkin said U.S. Steel wants to continue its improved relationship with the United Steelworkers of America, so it likely will

look to avoid laying off employees as a result of the coke shortage. U. S. Steel already has undertaken an initiative to reach

annual cost savings of more than $400 million by the end of this year and has trimmed about 4,200 employees since its purchase

of National Steel Corp. last year.

"They may have a little wiggle room in there," Mr. Larkin said. "I would imagine this is going to be a pretty good year for U.S.

Steel. Maybe they'll be doing well enough that they could absorb some costs from idle factories."

Mike Dixon, a U.S. Steel spokesman, said the company has not announced any layoff plans and is "making every effort not to

reduce steel production" because of the shortage. He said more than half of the coke made by the Clairton Works is sold to third

parties. Much of the rest goes to the company's steel production operations.

"We're definitely running tighter with our coke supply than we have," Mr. Dixon said. "It is affecting operations to a degree, but

we're still producing."

He said the timeframe for resuming coke production at Clairton is somewhat dependent on the Pinnacle mine coming back

online. When that will occur is unclear.

MR. DAVIS may be contacted at cdavis @bizjournals.com.

© 2004 American City Business Journals Inc.

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 EE-RM/STD-00-550 COMMENT 86

Rise in global steel demand may impact coke shortage - 2004-01-26 - Pittsburgh Business Times Page 2 of3 

pointed out that only about a quarter of the Pinnacle mine's coking coal goes to U.S. Steel. The rest likely is usually shipped 

under contract to other integrated steelmakers -- the steel companies that produce steel from scratch, rather than from mostly 

melted down scrap metal. 

"(The shortage) must have hurt other people, but nobody else is owning up to it yet," Mr. Bradford said. 

A spokesman for Cleveland-based International Steel Group Inc. was not immediately available for comment regarding whether 

the company has been affected by the coke shortage. Middletown, Ohio-based AK Steel spokesman Alan McCoy said AK has 

not been affected. 

"We're largely self-sufficient," Mr. McCoy said. "We do acquire some outside coke, but we have commitments in place for the 

year." 

'A little wiggle room' 

Mr. Bradford said increasing natural gas prices and other industry-related costs could put a squeeze on U.S. Steel and others as 

they navigate the current coking coal and coke shortage. However, steel price increases and increasing demand could offset 

additional costs related to the shortage. 

Mr. Larkin said U.S. Steel wants to continue its improved relationship with the United Steelworkers of America, so it likely will 

look to avoid laying off employees as a result of the coke shortage. u.S. Steel already has undertaken an initiative to reach 

annual cost savings of more than $400 million by the end of this year and has trimmed about 4,200 employees since its purchase 

of National Steel Corp. last year. 

"They may have a little wiggle room in there," Mr. Larkin said. "I would imagine this is going to be a pretty good year for U.S. 

Steel. Maybe they'll be doing well enough that they could absorb some costs from idle factories." 

Mike Dixon, a U.S. Steel spokesman, said the company has not announced any layoff plans and is "making every effort not to 

reduce steel production" because ofthe shortage. He said more than half of the coke made by the Clairton Works is sold to third 

parties. Much of the rest goes to the company's steel production operations. 

"We're definitely running tighter with our coke supply than we have," Mr. Dixon said. "It is affecting operations to a degree, but 

we're still producing." 

He said the timeframe for resuming coke production at Clairton is somewhat dependent on the Pinnacle mine coming back 

online. When that will occur is unclear. 

MR. DAVIS may be contacted at cdavis@bizjoumals.com. 

© 2004 American City Business Journals Inc. 

Now Hiring - Genworth Financial 

Take your career as far as your 

ambition will let you. It's what 

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Division of Genworth Financial. 

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