RG Steel filed for Ch. 11 bankruptcy protection earlier this morning, and we want to step back and contemplate how the RG Steel failure came about and the impact on the entire sector.
First, credit should be given the men and women of the USW who sacrificed wages to restart this plant, and the private equity folks at Renco and Cereberus who provided the lifeline a year ago.
But the failures that caused this event include:
- Failed trade policy
- Failed anti-trust policy
- Failed industrial policy
- higher cost imported steel surged this year, to a market share of 30%; domestic steel production is still down 10% from pre-recession levels, while Chinese production is up 50%, and global production is up nearly 8% from pre-recession levels. We are the lowest cost producer of steel to the domestic market, and not a ton of the global steel that’s coming into this country could compete on a level playing field.
- the reason the Sparrows Point piece of RG Steel has changed hands and done the start-stop over and over again all these years was the Justice Department’s mandate that ArcelorMittal sell this facility a half-dozen years ago – in order to “protect” the tin mill buyers from overconcentration. If Justice had allowed Mittal to retain ownership, the Sparrows Point piece of this would have thrived under that ownership, much as other previously bankrupt or near bankrupt facilities – like Bethlehem’s Burns Harbor plant, or National Steel’s Granite City Works or Birmingham Steel’s many facilities have all thrived under new owners, ArcelorMittal, US Steel and Nucor – consolidation works!
- private equity – which the administration is demonizing as a campaign strategy – provided the only lifeline for this massive employer.
In terms of steel market impact, we see very little impact from this bankruptcy – a Ch. 11 filing provides protection from creditors and allows companies to operate more easily, as debtor-in-possession financing – new loans granted during Ch 11 – takes precedence in a bankruptcy over existing debt.
Typically Ch. 11 enhances cash flow, minimizes prior existing obligations and allows companies breathing room to operate during a reorganization, so we do not see any benefit to RG Steel’s competitors in the short run.
For a free trial subscription, please contact Jasmine.
First, I’ll admit I don’t know the entire history of this company.
However, blaming the bankruptcy of RG Steel solely on government policies fails to take into consideration the plant’s responsibility to operate efficiently and at a profit and seems to be a bit short-sighted.
I think you may not know the history. This plant has been sold and sold and re-sold so many times that you have to look to the macro factors for the failuire – in fact I would argue that the people who restarted it never really had a prayer. So if you want to blame them for dreaming big then I guess I would agree. Perhaps you would like to get better acquainted with the ills of the global balance of trade in steel; from a free trader perspective it’s truly pathetic.