Speaking during his organization's North American Steel 2015 conference in Chicago, Ill., USA, Doyle said the American integrated mills now sit toward the top of the cost curve, based on CRU models. The U.S. EAF-based mills, meanwhile, fall in the middle, he said. Doyle also said other factors, including falling scrap prices, devalued currencies, fixed costs associated with the integrated mills and lower capacity utilization rates, also have contributed to changes in the curve. He said the integrated mills need to be running at between 90 to 100 percent of capacity to have pricing power. But CRU projects that they will run well below that over the next several years.
High capacity utilization, and the resulting ability to command prices, is critical to having a healthy industry, Doyle commented. And if producers can't increase the rate by making more steel, then they may have to consider reducing capacity. One way to accomplish that, he continued, would be to convert integrated mills into EAF-based operations, such as what United States Steel Corporation is doing at its Fairfield Works. Whether other integrated producers follow suit remains to be seen, he noted. "There are huge economic impediments to that," Doyle said, adding that such a move would also require significant changes in operations and mindsets.
Of course, another option for increasing capacity utilization is to mothball capacity. And producers may not have a choice. Earlier in the day, Jorge Beristain, managing director of metals and mining research at Deutsche Bank Securities Inc., said that absent some significant political action on the flood of imported steel, he fears a day of financial reckoning is coming for the industry.