Esmark CEO Bouchard: Steel industry 'weathered through the storm'
James Bouchard, CEO and founder of steel company Esmark Inc., has been waiting several years for the nation's economic recovery to hit the steel industry.
He's still waiting, as imports push steel prices down and the oil and gas industry cut orders in response to low energy prices.
In an interview with the Tribune-Review at Esmark's headquarters in Edgeworth, Bouchard discussed how the company is dealing with the downturn, its recent failed bid to buy a former U.S. Steel Corp. mill in Serbia and his interest in investing in the oil and gas industry. Below are edited excerpts.
Trib: How is Esmark doing, and how are you managing through the downturn?
Bouchard: On the steel group side, we've taken about $7.5 million in cost out over the past 12 to 18 months. So we got on the forward curve before the whole steel market collapsed. We've weathered through the storm pretty good. We're not losing a lot of money, and we're not making a lot money.
Trib: You also have holdings in oil and gas. Is that a double whammy?
Bouchard: We're lucky there because we have no debt on the oil and gas side. Our costs are about $45 a barrel. Right now, today at $53, we're not making a lot of money. But at the same time, as long as it stays above $45 we're not losing money.
Trib: What do you think will help stimulate business in the steel industry?
Bouchard: The United States is in a recovery, and automotive is having record shipments. Usually how the auto business goes, the steel industry goes. But that correlation isn't happening this time. Steel mills are running at about 60 percent of capacity while the auto industry is running at record rates. It's been a tough recovery for the steel mills.
Trib: Why is that?
Bouchard: A lot of has to do with currency manipulation (by foreign governments). We are seeing record imports, not only of steel products but all finished products. That's good for the general economy because it's giving the American consumer cheaper products to consume, so their dollar goes further. But usually, you'll see when the dollar strengthens, which it has done in the last nine months to a year, you'll start to see some of that industrial production come back to the states. But we started buying steel companies in 2010, and we thought it was going to recover by 2012, and then it was 2013, then 2014. Then the end of 2014 and 2015 were a disaster. So now we're hoping it will be 2016 or 2017. It's like a never-ending story of hoping for when the steel economy is going to recovery.
Trib: So why invest in steel production?
Bouchard: We've always bought our assets cheap. This time around, we thought we bought the assets very well. But even buying those assets well, it has not had the return on investment that we would have liked. On the steel side, we've looked at three or four acquisitions in the past year, and the numbers don't work out. There's too much risk to grow it. So you've seen most people, like us, take cost out, shrink it and run it better, more efficiently to weather the storm.
Trib: Why look to buy a steel mill in Serbia?
Bouchard: We thought we had a couple very good fits. We had negotiated a deal to restructure it so it would have absolutely no debt. If you look at the steel mill industry, having a debt-free steel mill would have given us a huge advantage over our competition. They also have a tin mill which is very similar to one we own in Ohio, and the European and American tin manufacturers like to have global suppliers. We believed we could have filled that line. We'd also lined up partners with a large German mill and a large Japanese mill, two international partners that opened up markets for us. So we had a strategy to fill the mill and lower the cost structure down. In the end, though, Serbia wanted to have more involvement in it. It's very difficult to run a steel mill when you have a sovereign government involved. We thought we had a deal. But the whole thing broke down, and we disengaged from it.
Trib: And Esmark has sued one of its business partners over the deal. Where does that lawsuit stand?
Bouchard: He went behind and structured his own deal behind us. We've taken venue in the Hague, so its proceeding. But because it's a Slovak businessman working in Serbia, his family's in Slovakia and we're here, it just takes a long time to go through the European process. Which is what we are doing.
Trib: If you got back to the original deal that you thought that you had, would you still want to proceed?
Bouchard: Yes, absolutely.
Trib: Are there other areas or industries that you'd like to invest in?
Bouchard: We're going to take a look at some more oil and gas things. There's a lot of pressure there. A lot of debt was put on oil and gas companies when oil was $100 a barrel. Things were booming and a lot of debt was put on. Banks are working to restructure some of those companies, but sooner or later, you'll start to see some of those companies fail. Since we don't have any debt in our oil and gas, we're definitely interested in acquiring some of those debt-heavy companies as they go through their restructuring because we'd like to expand our oil and gas.
Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or email@example.com.