What's New at Berlin

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January 29, 2003

Dear customers and colleagues,

2002 was quite a year for the steel industry. The list is long.

• Anti-dumping decisions
• Section 201 tariffs
• Steel mill bankruptcies
• Rapid price increases on carbon flat rolled products for the first 7 months followed by prices drifting down since then
• Re-start of idle mills (Trico, LTV) adding capacity back to the market
• Talk (some action) of mill consolidation

It seems like every time I sat down to make some notes on a new "What's New" letter, there was always some soon to be resolved market situation. The biggest open issues of last year were if, or rather when, National would get purchased by US Steel and would someone buy Bethlehem Steel before or after a Chapter 7 filing. I kept delaying, waiting for the resolution, only to be delayed again by waiting for some new situation to be settled.

So, here we are at the end of January of 2003 and there's still more, new situations to wonder about. As many had predicted, US Steel and National finally reached agreement for US to buy National, but AK Steel gave a little spice to the situation by bidding a slightly higher amount. My personal prediction is that US Steel will prevail. US Steel's corporate strategy appears to be to continue a role as a dominant integrated mill here in the US. If AK wins National, US would become #3 behind ISG and AK. Further, the steel workers union (USW) has little love for AK due to a long and bitter dispute at AK's Mansfield operation. Any mill buying National will need the USW's full cooperation to forge a new and more flexible labor agreement.

ISG made an offer for Bethlehem earlier in January that looks like it will remain unchallenged. When this deal is finalized it will turn ISG into an integrated steel producer of 15 to 16 million tons of steel. That's not too shabby for a company that didn't exist a year ago.

With these consolidations underway, there are still 2 major integrated mills, Weirton and Wheeling-Pittsburgh, who will be needing and looking to strengthen their position in some significant way. Whether it's Wheeling installing a new electric arc furnace, or Weirton buying someone's Tin Mill operation, both of these mills need to take some definitive actions to remain a strong player in their selected markets.

On the pricing front, 2002 saw some dramatic increases in USA carbon sheet steel prices in the first 7 months of the year caused by short supply. The short supply was caused by a long list of reasons.

• Anti-dumping lawsuits discouraged imports
• Mill closures, foremost among them LTV and Trico
• Section 201 tariffs of 30% last Spring making it difficult for foreign mills to compete in the US
• Upturn in the value of the Euro against the dollar by about 17% for the year that made the US a less attractive market for European producers
• Demand in China was increasing all year, a situation that still exists today. Prices have risen in the Chinese market so much that it is currently the best paying market in the world for Hot Rolled and Cold Rolled steel. US producers have even joined the ranks of mills taking orders for large export tonnages to Chinese ports, diverting tons from the domestic market.

In the latter part of the year, prices on the spot market began a slow downward drift, retreating somewhat from their mid-summer high points. The reasons for this were various but included the re-start of LTV and Trico, a slackening in demand in the construction and capital goods markets, and an increase in imports over the low level seen in the April to June time frame.

Looking forward to later this year, if the Chinese market price collapses or if automotive steel consumption decreases sharply, it could put pressure on the current price level. On the other hand, mill consolidations here and abroad, could allow the largest of the producers to keep some pricing discipline with cuts in production or even closure of inefficient units.

For Tin Mill Products, though supply tightened up considerably in late Spring of 2002 as a result of the elimination of foreign supply and cold rolled demand drawing some tons away from the tin mill, the producers continued to honor the price commitments they had made at the beginning of the year. Going into 2003, the mills have announced a small price increase. It will probably be another month or two before the marketplace's acceptance or not of some, all or none of the increase becomes clear. The consolidation of the mills here and abroad is one factor that's adding some weight to the mills' collective ability to win some part of this increase. If National does become part of US Steel, there will then only be 4 producers of Tin Mill Products in the US, excluding California. The producer in California, UPI, is a joint venture between the Korean mill, POSCO and US Steel, and is not a factor in the market outside of the Western region. If ISG chooses not to retain management or ownership of Bethlehem's Tin Mill, and decides to sell it to another mill already in the business, that would take another competitor out for the remaining producers.

Here at Berlin, we're continuing our tradition of strengthening our company by working closely with our customers to provide increased value to their operations. Our stainless steel strip business continues to grow as our excellent reputation for service and quality allows us to add new customers on a consistent basis. Many of our existing customers appreciate the ability to source more of their precision slit, thin metal products from us as well. We've also increased the number of stocking locations around the country to 23 so that we can provide faster deliveries and more J.I.T. programs to our good customers outside the Midwest.

We look forward to this New Year, hoping as I'm sure you do too, that's it's one that is peaceful, healthy and prosperous.

Sincerely,

Roy Berlin
Rberlin@berlinmetals.com

Other Newsletters:
July, 2006    July, 2005    March, 2004
September, 2003    April, 2002
September, 2001  May, 2001  January, 2001
August, 2000  April, 2000

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