While concerned by the prospects of an anticipated downturn in the now-robust steel market, a Geneva Steel official says the Utah steelmaker can survive declining demand because of its production flexibility.
Geneva Director Chris Cannon said the domestic steel market may be fractured in the near future by the demise of several steel industry giants, a scenario that could prove to be a boon for smaller mills like Geneva that can adapt quickly to a changing marketplace.Cannon made the remarks Thursday night to a group of Provo business people at a business-survival seminar sponsored by a downtown business organization, the Association of Involved Merchants.
While professing to be "scared to death" by the cyclical downturn expected to hit the steel industry later this year or early next year, Cannon said Geneva could survive a 30 percent drop in the price of its products even if its production level was halved.
In fact, the market demand for steel, which has been unusually strong for the last eight months, is already showing signs of softening, he said. The softening is not due to new or formerly idle steel mills being brought into production, but rather is a reflection of market supply beginning to catch up with demand.
Geneva is positioned to last through a downturn because its flexibility of production would allow the mill to remain profitable, or at least break even, at production levels much lower than the plant is currently operating at, Cannon said.
Thus in a soft steel market, the Utah plant could continue operating at a reduced level while other steelmakers may have to shut down their larger mills to cut losses.
The steel market has been crazy and may get even crazier, he said.
"(Former Geneva owner) USX has basically let it be known that everything it has is for sale," Cannon said. "They're getting out of the steel business and that will fracture the market."
Some other steel giants are in bad financial trouble and also may not last, further fracturing the market. A scenario that includes the loss of the industry's biggest producers, and their steelmaking capacity, would damage the country both economically and potentially from a national security standpoint.
"We wouldn't have gotten involved with this mill if not for our belief that it had life left in it and it was important to the state of Utah," Cannon said.
The mill is a $400 million per year business and is continuing to expand its operations. A number of facilities idled some years ago by USX, including the pipe mill and the machine shop, have just recently been restarted.
"We made a bet on Utah and on its workforce, and we won," Cannon said. "We see Utah as a boom state that is likely to make real economic gains over the medium term."