The Faceoff: Steel prices are taking off and Stelco is on a tear — but rival Dofasco still dominates the auto market
Stelco takes control of its destiny
Is the Rust Belt finally getting a little bit of polish?
It certainly seems that way, at least for Stelco, and its biggest investor, U.S.-based private equity firm Bedrock Industries, whose official corporate headquarters is in the Netherlands.
With steel prices rising as economies around the world anticipate the COVID-19 pandemic winding down, Stelco has seen its share price rise this year. Bedrock has cashed in, but not in a way observers had feared when it first bought the company.
The company reclaimed its birth name in 2016 after being bought out of bankruptcy as U.S. Steel Canada in 2016. At the time, some observers feared Bedrock, which paid an estimated $500 million for the Hamilton-based steelmaker, was just in it for a quick buck, possibly by stripping assets. Yes, Bedrock has since done all right for itself, selling off chunks of its stake in Stelco in a series of sales totalling about $844 million. The most recent sale came this past week, with a secondary offering worth $183 million that will leave Bedrock holding roughly 38 per cent of Stelco shares once the deal closes later this month.
On Bedrock's watch, Stelco has invested significantly in new equipment, including North America's only smart" blast furnace, a more efficient piece of machinery that allowed the company to boost production and cut operating costs; it also added a pig-iron production facility this year.
Dofasco is a small but vital cog in a big wheel
In a couple of obvious ways, Dofasco has a leg up against its crosstown archrival, Stelco. With roughly 5,000 employees, it's got more than double the workforce. It also produces roughly five million tons of steel products annually, compared to Stelco's two million.
Those Dofasco workers are a relatively tiny part of a global steel behemoth, ArcelorMittal, which was formed in April 2006 when India's Mittal Steel took over Luxembourg-based Arcelor. (Arcelor had won a bidding war for Dofasco just three months earlier over Germany's Thyssen Krupp). The combined company today has 245,000 employees across 60 countries. Included in that total are 13 plants in the U.S., and another site in Contrecoeur, Que.
Still, says long-time steel industry observer Peter Warrian, the Dofasco operation is a crucial cog for ArcelorMittal. Warrian, an economist at U of T's Munk School of Public Affairs and former research director for the United Steelworkers, says Hamilton is one of the company's three most strategically-vital sites around the globe (the others being in Ghent, Belgium and Tabaro, Brazil).
Dofasco is also a key supplier to the North American automotive industry, which tends to use more high-end steel products, rather than lower-margin commodity steel, Warrian added.
Stelco has been doing a lot of value added stuff but they are still fighting their way back into automotive where most of the value added stuff goes. Dofasco is still dominant in automotive," said Warrian in an email.
Bottom Line
Stelco might be starting to close the technology gap, but Dofasco is still bigger, and dominates the North American market for high-end steel used by the automotive industry.
Josh Rubin is a Toronto-based business reporter.