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AK Steel’s pig iron not priority after merger: ‘Ashland at this point is on the back burner’

A merger between Cleveland-Cliffs Inc. and AK Steel may not bode well for the Ashland plant.

In a conference call with stockholders on Thursday, Lorenzo Goncalves, Cleveland-Cliffs Inc.’s chairman, president and CEO, was specifically asked about the role of the Ashland plant in the future of the company and he said there isn’t currently much of a market for the pig iron the plant produces.

He said the market is interested in Hot Briquetted Iron (HBI) steel.

“So Ashland, at this point, is on the back burner. I don’t believe the market needs Ashland,” Goncalves said. “The market definitely leads our HBI. But I’m not sure if they need Ashland. And I’m going to do everything I can for the market not to need Ashland, because I’m going to grow the business of AK Steel.”

Goncalves was asked about Ashland and how, in December, he commented that the growth of the Ashland growth plant seemed to be one of the key incremental growth drivers for the story. He was asked what had changed since then and if market analysis had changed his mind.

He said that is what due diligence is for and that they were really diving deep into AK Steel.

“When we start digging into their business, that business is phenomenal. Their technical capabilities are immense. And I would have to produce pig iron to support as (electric arc furnace steel) EAF our vessel. I’m going to support as HBI so I’m not denying the importance of EAFs,” he said. “So, there is no conflict with previous statements just that due diligence showed that a real potential for the ongoing for the existing AK business, particularly in what related to automotive. It’s extremely impressive.”

He said there is no conflict. It’s just due diligence that companies do when they’re acquiring other companies to really learn what they are getting into.

“So we realized that we’re getting into something a lot bigger and a lot more relevant and a lot more important in terms of return to the shareholders, than just producing pig iron to the marketplace out of Ashland,” Goncalves said. “I’m not saying that’s not going to come, I’ll just say that this was now way behind in the scale of priorities.”

On Feb. 21, Cleveland-Cliffs Inc. and AK Steel announced they had gotten all the needed approvals on their proposed merger. Under the pending transaction, Cleveland-Cliffs would acquire all of AK Steel’s outstanding shares with AK Steel surviving as a wholly owned subsidiary of Cleveland-Cliffs.

The transaction is currently scheduled to close on March 13 and remains subject to adoption by AK Steel’s stockholders of the merger agreement and approval by Cleveland-Cliffs’ shareholders.