Mick Wallis heads up one of the largest stainless steel plants in the world and the newest. He is president of Outokumpu Stainless USA, the $1.6 billion stainless steel plant that ThyssenKrupp AG built in Calvert, in north Mobile County.
ThyssenKrupp sold the stainless plant, along with the entirety of its global stainless steel division, to Outokumpu Oyj, the parent company, in January 2012. Headquartered in Espoo, Finland, Outokumpu operates in more than 40 countries and claims a 12 percent share of the global market for stainless, making it number one. To get there, the company acquired stainless companies in the U.S., Sweden and Spain in the 1980s. In 2001, it acquired Avesta Sheffield, an Anglo-Swedish giant that included the U.K.’s Sheffield Steel, legendary inventor of the stainless steel process.
Sheffield is one of the companies Wallis, a U.K. citizen, worked for in his 30 years in the metals business. His most recent venture included managing the P&L for Alcoa’s $6 billion aluminum rolling business across three continents.
Outokumpu was not strong in the U.S. It was strong in Europe, and it exported product from Europe into the U.S. This acquisition allows the merger of all of the stainless business of ThyssenKrupp and Outokumpu and puts Outokumpu in a very strong position in the U.S. and North America. In Mexico, where we have a sister facility, in San Luis Potosi, we’re the only company with any kind of rolling facility, so we’re strong in that market already.
Our goal is to capture 25 percent of the U.S. market. Currently we have about 16 percent of the U.S. market share, excluding the volume supplied by Outokumpu in Europe to the U.S. Out of Calvert, we have sold 150, 000 tons to the U.S. So, as we ramp up into high gear — at the end of the year we will have the melt shop fully ramped up — we will be capable of supplying a full range of alloys and products needed to satisfy these markets.
In 2008, I was operating five aluminum plants in the U.S. and had to close one of those. This recession is the worst I’ve seen in my 30 years in the metals industry. People compare it to the Great Depression. I was not around then, but it’s the worst I’ve seen. The worst part was the uncertainty whether businesses would remain solvent and wages paid and bills paid — uncertainty on both the procurement and the customer side. That uncertainty migrated down to every employee, and it led to people pulling in the reins.
Depending on which industry and market you talk about, the pullback has been different, but we’re certainly seeing demand return, although it is slow growth. People are looking for ways of growing their business. People are again putting buildings up, and transportation and automotive are especially seeing more strength. When they start building houses again, there will be an increase in white goods. And stainless steel benefits from the move by customers to look for a more sustainable form of goods. People like the idea that stainless is infinitely recyclable.
We see 2013 as a transition year. We’ve just invested $1.6 billion and have been running for 18 months with the cold mill. The melt shop has been running for two months. We’re on plan as far as financial goals. Outokumpu came in with its eyes open and knows that this is a new facility, and our remaining goal for the year is to ramp up to full capacity to be financially viable over the next two to three years. But ramping up from zero is not something that will weigh on our minds with the Calvert plant just yet. To begin with, we’ll be replacing a lot of volume out of Europe, so we will not have to supply all new volume with the melt shop. And we’ve had a strong base shipping into Mexico every year for the last few years. The problem is not supply and demand. The market wants product. We’re not worried about demand for the next 12 to 18 months.
The Calvert plant offers a number of advantages, from our perspective. One is that it’s a greenfield site, but also the location and the cost of energy and the supply of labor. There are massive logistics benefits from being close to the Gulf Coast, with river access, so that we can receive a lot of material into the port and ship on barges up the river. We have products shipped by rail and boat into the Midwest, and also a good road network — logistics advantages in all shapes and forms.
We are fully integrated — with a melt shop, a hot line, cold-rolled, annealing and finishing equipment. We have the capability of producing the widest slabs in the marketplace, 72-inch wide. We have customers wanting to buy 72-inch product in a range of different gauges and alloys. Today those customers are manufacturers of tanks, liquid-carrying vessels, who want to minimize the number of welds. We have a bigger opportunity for 72-inch, but generally it will come with the next cycle of capital replacement, which will move to 72-inch as an inevitable step for the U.S. market. We have a great opportunity of being the first in the marketplace, and, so far, we’re encouraged by the comments from our customers.
A very broad range of what we make goes through the service center market, to end users in the transportation, aviation, oil and gas and construction segments. The Calvert plant is designed to serve the service center market with a wide range of alloys capable of meeting the needs of all these end users. Products that go from service centers to the aviation industry are mainly used in the engines, by companies like Pratt & Whitney. The products that go direct to the customer are automotive and white goods. Both require different properties. White goods require high surface finishes.
Stability of price for raw materials is a big advantage of the melt shop coming on line. If the business plan were based on supplying Calvert with hot band from Europe, with the currency exchange issues and variability in price of nickel and chromium over the delivery time, the risks associated with that would be enormous. That was fine last year, when volumes were low. The melt shop gives us better security in terms of lead times, so that we are better positioned to minimize risks in raw materials markets. Going forward, 70 percent of our raw materials will be from scrap. One of the benefits for the Calvert plant is that Mobile is one of the hubs for the scrap business. There are a number of suppliers in the local area we are teaming with.
Chris McFadyen is the editorial director of Business Alabama.
Interview by Chris McFadyen