Summary
Stamping plant closures have major implications for mini mills including: Loss of steel orders, More competitive steel market, Higher raw material costs
Analysis
The closing of four GM stamping plants gets attention from everyone. The loss of jobs is the immediate concern for the workers not only at that facility and surrounding community, but for the suppliers to that facility as well. The loss of steel consumption will dramatically affect several steel companies and will have a ripple effect through the entire industry. Those directly effected with the loss of orders will go to the market to find new homes for their product. This means a more competitive steel market unless there is new demand created. I guess I just don't see anyone building a new stamping plant today...
Intergrated steel producers such as USS and Mittal make steel from iron ore. They may use some scrap in their processes, but usually not more than 25% of their total raw material inputs. EAF steel producers such as Nucor and SDI use scrap as their primary raw material along with some use of pig iron or HBI. The reason these stamping plant are so valuable, is that they stamp parts out of new coil, most coming from an intergrated producer. The scrap generated from these operations is the cleanest scrap in the market as it is low in copper and other residuals. This is exactly the type of scrap that the mini mills need to produce clean new steel. The use of this prime scrap reduces the need for pig iron or HBI which is generally more expensive than this prime scrap.
With GM, and others closing stamping and manufacturing facilities the availability of clean scrap for the mills will be reduced. This supply contraction will naturally result in higher prices for available prime scrap or its alternatives such as pig iron. This will drive the total cost of steel up for the mini mills and will help the intergrated mills compete in the marketplace on a cost basis.
With regards to scrap for steel deals, the closing of a stamping facility is particularly cruel. Not only do you lose the steel order, you lose the scrap needed to make new steel. Again this increases the cost of the steel and increases competition in the marketplace driving down revenue.
