The steel industry had a horrible run in 2015 as steel prices fell below their 2009 lows. The prolonged slowdown in the steel industry forced some steel companies to rethink their business plans, and it became a matter of survival for many steel companies. For instance, U.S. Steel (X) dumped its plans to build an electric arc furnace. Others cut their capital expenditure and cut dividends (NOBL) in bids to control cash outflows.
The fact that most steel companies were saddled with huge piles of debt wasn’t helping matters either. What’s worse, some companies like ArcelorMittal (MT) had significant upcoming debt maturities. Given the market scenario early in 2016, it was difficult for many steel companies to refinance their debt.
However, as we saw some improvement in steel companies’ stock prices in February, companies started to look at equity issuance. ArcelorMittal (MT) raised nearly $1 billion through asset sales and another $3 billion through a rights issue. AK Steel (AKS) also raised $220 million through equity issuance. Now, U.S. Steel is looking to raise cash through an equity offering.
Steelmakers chasing growth now
Meanwhile, rising stock prices and improved steel market conditions have prompted some steelmakers to look at future growth now. Nucor (NUE) is investing in developing a steel mill in Mexico to cater to automakers who are planning to shift some of their manufacturing to the country.
Steel Dynamics (STLD) has also completed the acquisition of Vulcan, a producer of threaded rod products. ArcelorMittal is also looking at acquisitions and has submitted a bid to buy the Ilva steel plant in Italy. According to MT, the plant would complement its Europe operations as currently, it has a limited presence in Italy.
However, it’s important to note that while the steel industry has seen a change of fortunes in the past six months, it’s not yet entirely out of the woods. You can explore this further in Steel Industry Mid-Year Review: Can the Party Continue?
You can also visit Market Realist’s Steel page for more updates on this industry.