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Report focuses on challenges, market opportunities in U.S. steel sector
- April 20, 2016
- News Release
- Metals/Materials
Global law firm White & Case and global management consulting firm Boston Consulting Group (BCG), in collaboration with Debtwire, a fixed income intelligence service, have released “Losing strength: US steel industry analysis,” a publication that captures the latest developments and market opportunities in the U.S. steel sector.
Highlights from the report include:
- A distressed watchlist for the U.S. steel sector, containing analysis of credit metrics among stressed and distressed steelmakers from Debtwire.
- An analysis of various restructuring and recovery options for U.S. steel producers, including the viability of asset sales.
- The likelihood and implications of seeking Chapter 11 protection for U.S. steelmakers.
- Growth through innovation as a sustainable way forward for the U.S. steel industry.
- An interview with industry experts from White & Case and BCG, presenting insights on the efficacy of recently implemented protectionist measures, the most pressing challenges and risks for the sector, and an industry outlook for 2017.
The U.S. steel industry faces severe headwinds as steel prices continue to fall. Even as recently imposed protectionist measures on certain imported steel products take effect, tariffs alone may be insufficient in helping steel producers recover their lost momentum. While these measures provide some support by maintaining price levels in the short term, they fail to resolve the broader challenge in the global market: removing excess capacity.
“To compete in the current environment, U.S. steel producers must place continued focus on cost reduction through operational levers, raw materials supply renegotiation, and asset footprint optimization,” explained Heinz Pley, global head of mining with BCG. “Equally, support from the U.S. government to help the ailing steel industry deal with its legacy costs would take a load off certain producers’ shoulders.”
The looming threat of rising debt reaching crisis levels is one of the most urgent pains that U.S. steelmakers must address in today’s environment of weakened demand and increasing global competition.
“Absent an unanticipated rebound in commodity prices, steelmakers may have to request restructured loan terms to reduce debt service, modify financial covenants, and extend maturities,” said Scott Greissman, partner, White & Case. “In the absence of the willingness of equity to share risk, resorting to a court process like Chapter 11 may be required.”
In charting a way forward for industry players in turbulent times, it is imperative for decision-makers to recognize and work through the key risks and challenges facing U.S. steelmakers. Those looking to take the M&A route by divesting or selling underutilized assets need to first identify and thoroughly assess their target market before taking the leap.
According to John Tivey, global head of mining and metals, White & Case, “Given the significant number of companies under distress and the almost consensus view that the oversupply of steel will continue for some time, it is going to be very difficult to achieve balance sheet restructuring through asset sales. In most instances, the list of logical buyers is quite small or even nonexistent.”
To see the full newsletter, visit mergermarketgroup.com/publication/dw_us_steel_newsletter/.
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The Fabricator is North America's leading magazine for the metal forming and fabricating industry. The magazine delivers the news, technical articles, and case histories that enable fabricators to do their jobs more efficiently. The Fabricator has served the industry since 1970.
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