Yes, a Steel Mill Thrives in Southland
Not many business people know that a thriving steel company still operates in Fontana, where half of the old Kaiser Steel complex was torn down years ago.
Even fewer people know that California Steel Industries is one of the most profitable steel operations in the United States.
But they’re going to learn more about the company--which last year sold almost $700 million worth of steel and earned $119 million before taxes, depreciation and interest--because California Steel wants to step out and grow. That could mean acquiring or merging with another firm or it could mean issuing shares to the public.
“We need to grow. I have plans but cannot talk about them now,” says Lourenco Goncalves, company president and chief executive.
The company has invested more than $250 million in new steel lines and related equipment in the last five years. Inside the age-worn walls of mile-long factory buildings on the 450-acre plant site (the California Motor Speedway occupies the other half of the old Kaiser property), California Steel has highly efficient machinery turning out 2 million tons of steel a year.
The company is turning a very good profit, which it is sharing with its 955 employees, and it can take on broader horizons, Goncalves says.
California Steel’s success is a reminder of how strong this region still is in basic industry, of how combinations of transportation, labor and finance make Southern California’s economy such a deceptive giant.
Auto manufacturing may have largely vanished and airplane building diminished in the region, but growing in their place is a great diversity.
California Steel’s output goes to more than 300 customers--mainly to steel service centers such as Torrance-based Reliance Steel & Aluminum. The centers in turn supply makers of computer cases, gas pipelines, electronic devices, building structures and the metal sticks that hold up grapevines in the state’s vineyards.
The diversity has caught Wall Street’s eye. Reliance, which has 70 steel centers nationwide and $1.5 billion in sales, has sold for more than a year at a higher price than the average industrial share.
Elsewhere on the West Coast, however, steel has proved a tough business. Portland-based Oregon Steel Mills, which is publicly traded, is struggling and so reportedly is USS-Posco, the Pittsburg, Calif., joint venture of USX’s Steel Group and Pohang Steel of South Korea.
California Steel is doing well because it’s a global company supported by Southern California’s infrastructure. The company got started because Kaiser Steel, which dated to World War II, owed money to a Brazilian iron ore supplier in 1983 when Kaiser went out of business.
The Brazilian firm, Companhia Vale do Rio Doce, took steel assets instead of cash and invited Japan’s Kawasaki Steel in as a partner. But the new company didn’t use the old blast furnaces to make raw steel at Fontana. It relied instead on importing semi-processed slab steel from mills in Brazil.
Slabs are 20-ton lengths of steel that can be pressed in rolling mills into rolled sheets of steel, ready for fabricating into air-conditioning ducts and appliance panels. After 17 years supplying lively construction markets in Phoenix and Las Vegas as well as in the Inland Empire and Orange County, California Steel has become the world’s largest buyer of slab steel.
That gives it leverage in world steel markets. When he came to Fontana from Brazil two years ago, Goncalves, a 41-year-old PhD in metallurgical engineering, decided to force a better price from his Brazilian suppliers by spreading his orders among steel makers worldwide.
“We buy from Mexico, Australia, Russia, China, South Africa and from Geneva Steel in Provo, Utah,” Goncalves says. The imported steel slabs come into the Port of Los Angeles and are brought by rail to Fontana. For the plant’s rolled-steel output, the freeway and rail complexes of San Bernardino County offer fast transport.
“Raw materials are 70% of our costs, so it’s important that we buy well,” he adds. The strategy has succeeded. California Steel’s profit per ton has risen from about $30 a ton in 1998 to $65 a ton this year. That’s five times the average profit for American steel companies and well above the average for the most modern mini-mill companies.
The nonunion employees who work the giant rolling mills and galvanizing lines benefit directly. Profit-sharing distributions in June amounted to $4,450 per person, in a plant where average pay is $40,000 a year.
The company has been gearing up for expansion. It consolidated its debt last year by floating $150 million of high-yield bonds--on which it had to pay only 8.5%, a good credit standing--and by negotiating a new $130-million line of credit with the local offices of Bank of America, Bank Boston and Wells Fargo.
The bonds required California Steel, which is owned 50-50 by Companhia Rio Doce and Kawasaki Steel, to issue reports to the Securities and Exchange Commission. “That gives us transparency for investors,” a factor for any future public offering, Goncalves notes.
But a combination with another steel company in the Western states is more likely. California Steel could contribute its expertise in buying steel slabs, which are not involved in disputes over imports of rolled sheet and other finished steels. Then the company could go public as a profitable supplier of basic materials to a growing Western states economy.
California Steel is an example of things this region sometimes takes for granted: The possibility of renewal in a growing economy, as the Fontana company has resurrected an industrial complex of another era. And the importance of the ports and rail and highway infrastructure, which unglamorously undergird the area’s global eminence.
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James Flanigan can be reached at jim.flanigan@latimes.com.
