Analyst: Bethlehem Bankruptcy to Bring More Protectionism

Tuesday, October 16, 2001

Latin America's steel and iron ore producers face a tougher time exporting to the US after Pennsylvania-based Bethlehem Steel filed for Chapter 11 bankruptcy protection, a Chicago-based steel analyst told

The problems of the country's second-largest integrated steelmaker will only add more ammunition to calls from the US steel industry and its powerful union USWA for higher tariffs on steel imports, he said.

The analyst said possible consequences include lower sales volumes and income for the many Latin American steel companies who rely on the US for a large part of their export revenues, such as Brazil's Gerdau and Mexico's Imsa, SanLuis and Ahmsa.

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Suppliers of iron ore, pellets and related products, such as Brazil's CVRD and Mexico's Minera Autlan, can expect lower demand from US customers who are likely to cut production as the market there weakens, he added.

But Latin American steel producers looking to secure a foothold in the US will gain opportunities as some companies will be eligible for takeover or merger offers while the US steel market consolidates, he said.

Brazil's CSN has already bought Indiana-based Heartland Steel and, with an estimated US$1bn to invest, has made no secret of its desire to acquire more US steel companies. Gerdau and Imsa are also present in the US.

Bethlehem filed for Chapter 11 Monday after registering heavy losses for five straight quarters, culminating in a US$152mn loss for 3Q01. The company cited cheap imports as a main reason for its continued losses, plus pension commitments to 74,000 former employees, a US$3bn healthcare obligation and the fractured state of the US steel market with many small players.

"I believe that consolidation of the American steel industry is absolutely required. There are far too many players, and they are all small and weak compared to their global competition," said CEO Robert Miller.

In a company statement, he said: "One thing is clear, our national security and our economy depend upon a sound and productive American steel industry, and Bethlehem is determined to be an integral part of the future of our industry.''

But the Associated Press quoted New York-based steel analyst Charles Bradford saying it was probably too late for Bethlehem as its liabilities with retirees would make negotiations to save the company difficult.

Bethlehem says its steel production will continue during its reorganization. Its stock closed down 82% on Tuesday, following Monday's US holiday.