LTV Steel abandons tinplate; sells business to U.S. Steel

By Staff -- Purchasing, 11/2/2000

LTV Steel of Cleveland will close its plant in Aliquippa, Pa., around year's end and hand over its tin mill products business in East Chicago, Ind., to industry giant U.S. Steel of Pittsburgh. The Aliquippa and East Chicago plants annually produce about 600,000 tons of tin-plated steel products used primarily for food cans and other containers.

"The fact is the tin mill business has been underperforming for a long time, and we have made the decision to concentrate on our core flat-rolled business, which makes sheet products bought by the automotive, appliance and electrical equipment markets," notes an LTV Steel spokesman.

U.S. Steel has agreed to assume $70 million in liabilities and employee-related shutdown costs. The East Chicago plant is near U.S. Steel's huge Gary, Ind., steel works, so "the proximity allows for tremendous synergies,'' says a U.S. Steel spokesman.

Analyst Mike Gambardella at J.P. Morgan Securities tells Purchasing that "U.S. Steel is making the right move in a difficult steel market environment." He says that while many other domestic integrated producers have been busy investing in new but traditional equipment and capacity at their existing plants, U.S. Steel has opted to buy assets rather than build. "While there's no single strategic answer to the domestic steel industry's woes, buying assets-especially under current distressed valuations-makes a lot more sense than building new lines at existing plants at high new-equipment costs." Gambardella adds that the deal allows LTV Steel to eliminate a money-losing operation and concentrate on its sheet and tube businesses.

Gambardella estimates that U.S. Steel is acquiring LTV's tinplate operations for "an attractive price of $155 per ton," since the current market price is barely $400/ton. "In addition, U.S. Steel will reap benefits from consolidating a major competitor and increasing its market share of U.S. tinplate consumption from 16% to 30%," he adds.

The acquisition is expected to bring U.S. Steel's tin mill average annual shipments to 1.1 million tons. Additionally, U.S. Steel has entered into a supply agreement with LTV Steel, for pickled and oiled hot-rolled sheet to be used as the substrate to the cold-rolling and tinplating lines at the Indiana Harbor Works in East Chicago. The five-year supply agreement guarantees U.S. Steel with 2.25 million tons of LTV Steel as substrate at set prices that haven't been disclosed.