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

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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"breathing a sigh of relief' that the industry was doing well, even after President George W. Bush's steel tariffs were rescinded early.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, 

### http://www.bizjournals.comlpittsburghlstoriesl2004/01/26/story2.html?t=printable 8/8/2005 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 mayimpact 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 thathas already forced one steel company to layoff800 employees and anotherto curtail operations at its coke works in Clairton. Andindustry analysts contend the problem could get worse before it gets any better. Coke serves as a fuel for blast furnaces thatproduce the molten iron that's converted into steel. Leo Larkin, a New York-based equity analyst with Standard & Poor's, said the timing ofthe coke shortage is unfortunate. He saidthe steel industry and its customers likely were "breathing a sigh ofrelief' 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 couldmake the coke shortage in the United States even more difficult to navigate. According to data released this weekbythe Brussels-based International Iron and Steel Institute, China's steel production in 2003 was 220.1 million metric tons
-- an increase of21.1 percent overthe previous year and the first time that a single country has made more than 220 million metric tons ofcrude steel in a year. "That's going to compoundthe (coke) problem," Mr. Larkin said ofChina's increasedproduction. "It's a problem globally." Domino effect Earlier this month, Downtown-based U.S. Steel Corp. announced that a supply problemhad 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 ofthe coal that it converts into cokebecause a major supplier ofthe material hadbeen forced to declare a force majeure, a provision that allows a company to not fulfill terms ofa 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 offa domino-like reaction in the industry because U.S. Steel is a primary supplier ofcoke to bankrupt Weirton, W.Va.-based Weirton Steel Corp. and others. When U.S. Steel couldn't get a sufficient amount ofcoking coal, ithadto reduce shipments to coke customers, including Weirton. Because ofthe shortage, Weirton Steel hadto temporarily idle one ofits 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 ofstaggered layoffs for bothunion andmanagementpersonnel, 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 independentNew York-based metals industry analyst and president ofBradfordResearch, http://www.bizjournals.comipittsburghistories/2004/01/26/story2.html?t=printable 8/8/2005Rise 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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http://www.bizjournals.com/pittsburgh/stories/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 of3 pointed out that only about a quarter ofthe 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 otherpeople, butnobody else is owningup to it yet," Mr. Bradford said. A spokesman for Cleveland-based International Steel Group Inc. was not immediately available for commentregarding whether the company has been affected by the coke shortage. Middletown, Ohio-based AK Steel spokesman Alan McCoy said AKhas 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 otherindustry-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 withthe United Steelworkers ofAmerica, so it likely will look to avoid laying offemployees as a result ofthe coke shortage. u.S. Steel already has undertaken an initiative to reach annual cost savings ofmore than $400 million bythe end ofthis year andhas trimmed about 4,200 employees since its purchase ofNational 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 goodyearfor U.S. Steel. Maybe they'll be doing well enough thatthey could absorb some costs from idle factories." Mike Dixon, a U.S. Steel spokesman, said the company has not announced any layoffplans and is "making every effort not to reduce steel production" because ofthe shortage. He said more than halfofthe coke made by the ClairtonWorks is sold to third parties. Much ofthe rest goes to the company's steel production operations. "We're definitely running tighter with ourcoke 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 comingback online. When that will occur is unclear. 

### MR. DAVISmay be contactedatcdavis@bizjoumals.com.

© 2004 American City Business Journals Inc.

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