California Steel Industries, Inc. History

Address:

14000 San Bernadino Avenue
Fontana, California 92335
U.S.A.

Telephone: (909) 350-6200
Fax: (909) 350-6223

Website: www.californiasteel.com

Private Company
Incorporated: 1984
Employees: 923
Sales: $763.55 million (2003)
NAIC: 331221 Rolled Steel Shape Manufacturing; 331210 Iron and Steel Pipe and Tube Manufacturing from Purchased Steel

Company Perspectives:

California Steel Industries, Inc. will be the most competitive and profitable steel company in the Western United States, and we will seek growth opportunities in order to improve upon our market leadership.

Key Dates:

1984:: Kaiser Steel's steelmaking plant in Fontana, California, is acquired by a group of investors led by Michael Wilkinson; company is named California Steel Industries (CSI).
1986:: After a legal battle, Wilkinson divests his 50 percent stake in CSI.
1993:: CSI invests $250 million in a modernization program.
1998:: A plan to begin manufacturing steel is aborted.
2001:: Escalating energy prices in California lead to a $3.7 million loss for CSI.
2004:: Vincente Wright is named chairman and Masakazu Kurushima is appointed chief executive officer and president.

Company History:

California Steel Industries, Inc. (CSI) ranks as the largest producer of flat-rolled steel in the western United States. CSI does not manufacture steel. The company buys steel slab from third-party vendors and processes the slab into finished steel products, producing hot-rolled, cold-rolled, and galvanized coil and sheet. CSI also produces electric resistance welded pipe. The company's steel products are used in a variety of goods, including appliances, home furnaces, automobile wheels and rims, plumbing fixtures, water heaters, lighting fixtures, decking, and tanks. CSI serves customers in the 11 states west of the Rocky Mountains from its 450-acre manufacturing facility in Fontana, California, 50 miles east of Los Angeles. The company is owned by JFE Steel Corporation (formerly Kawasaki Steel Corp.), a major steel producer in Japan, and Companhia Vale do Rio Doce Ltd., a state-owned Brazilian natural resources company that ranks as the world's largest iron ore producer and exporter.

Origins

CSI began its business life by occupying what had once been home to the largest steelworks in the western United States. The integrated mill in Fontana, California, was built in the 1940s, becoming the jewel of the steelmaking empire controlled by Kaiser Steel Corp. The 350-acre facility bustled with activity in its prime, employing more than 2,500 workers and holding sway as the largest of its kind west of the Mississippi. By the beginning of the 1980s, however, the luster was gone from the Fontana steelworks. The success of foreign competitors, high interest rates in the United States, and adverse conditions in the domestic steel industry drained the factory of its vitality. Financial losses mounted, forcing Kaiser's management to admit defeat and declare bankruptcy. Employees at the Fontana plant were laid off and the mill was closed down, its machinery, presses, and equipment left to lay idle in late 1983.

One individual who was acutely aware of the Fontana closure was Michael Wilkinson, a British-born entrepreneur and steel executive who relied heavily on Kaiser's output. At the time of the Fontana closure, Wilkinson had spent the previous quarter-century owning and managing various steel-related enterprises, building a career that eventually tied his success to the success of Kaiser--the nexus that motivated the formation of CSI. Wilkinson worked at Steel Company of Canada in Hamilton, Ontario, between 1957 and 1962. For the next five years he managed several divisions of steel distributing companies in Toronto and Vancouver. His career in the United States began in 1975 when he formed a partnership with an Italian trading company to acquire Lafayette Metals, a steel producing and distributing company based in Long Beach, California. In 1978, he formed Tecrim, an automobile wheel rim manufacturer, and he acquired 50 percent of Cal Metal Corp., operator of a mill in Irwindale, California. It was through Tecrim and Cal Metal that Wilkinson felt the sting of the Fontana closure; both companies obtained nearly all their steel from Kaiser, ranking among the steelmaker's largest customers.

The closure of the Fontana plant struck the region's steel community hard, particularly Wilkinson. Steel prices rose after Kaiser's steelworks closed. Wilkinson labored to find other suppliers to feed his companies with sufficient amounts of steel product. The idea of acquiring the deserted Fontana plant occurred to Wilkinson soon after Kaiser declared bankruptcy, its genesis springing from his own need for steel and by impending legislation. Wilkinson believed the International Trade Commission (ITC) was preparing to take a stand against subsidized steel imports. "It was very apparent," he said in a May 17, 1985 interview with Iron Age, "that the government was going to do something about unfairly traded steel coming into this market. That was an attraction." The threat of foreign-made steel becoming harder to secure and more expensive to buy exacerbated the effect of Kaiser's collapse, prompting Wilkinson to move ahead with acquiring the Fontana plant. Shortly after the ITC ruled in July 1984 to impose sanctions against subsidized imports, Wilkinson made his offer to acquire the Fontana plant. He sold 49 percent of his Tecrim assets to a Japanese trading company, Itoman & Co., and enlisted the support of two well-financed, well-known corporate partners, Japan-based Kawasaki Steel Corp. and Rio Doce Ltd., the U.S. subsidiary of the state-owned Brazilian natural resources company, Companhia Vale do Rio Doce Ltd. (CVRD). The three partners paid $110 million for the former Kaiser plant, concluding the deal in August 1984. The company formed to manage the plant was CSI, a steel company 50 percent owned by Wilkinson, 25 percent owned by Kawasaki Steel, and 25 percent owned by CVRD.

In the hands of Wilkinson and his two partners, the Kaiser complex was geared to be a quite different type of steel factory. Kaiser had produced steel in Fontana; CSI would not make steel. Instead, Wilkinson intended to purchase steel slab from suppliers--primarily from offshore sources in Mexico, Europe, and South America--and to create finished steel products from the slab, the cold-rolled, hot-rolled, flat-rolled sheet, strip, and coils that would compose CSI's product line. Wilkinson, who initially employed only a fraction of the workforce Kaiser had employed, also changed the way the factory operated. "We chucked out the time clocks and put all our people on salary," he explained in his interview with Iron Age, eschewing the unionized workforce of Kaiser's day. "We got away from the old job descriptions limiting what an employee can do," he added. Wilkinson hoped the combination of reduced labor costs, greater efficiency, and the proximity of CSI's customers (Wilkinson's nearby companies were expected to consume roughly a third of the plant's output) would enable him to compete against the foreign competition that had brought down the once-mighty Kaiser.

CSI's attempt to succeed where Kaiser failed officially began in late November 1984. Using slabs shipped from Brazilian steelmaker Companhia Siderurgica de Tubarao (24.5 percent owned by Kawasaki Steel), CSI delivered its first order to a tubing manufacturer. During its first full year of operation, profits eluded the company as it struggled to eclipse the break-even output of 600,000 tons targeted by Wilkinson. The company achieved profitability in 1986, but by the time CSI moved into the black more dramatic news took center stage. What ensued in 1986 became a struggle for CSI itself.

Ownership Battle in 1986

At the start of 1986, talks of restructuring CSI touched off a bitter battle among the company's three owners. The episode began without acrimony, first made public in January 1986 when discussions of a realignment were revealed by American Metal Market. The company was on the verge of profitability, but the losses incurred since CSI's inception required an injection of cash, $25 million according to reports. Because Wilkinson lacked the financial resources of his two massive corporate partners, his contribution to CSI's capital infusion presumably meant his stake in the company would be reduced. In a January 10, 1986 American Metal Market article, Wilkinson said the proposed changes "are not significant one way or another," but within months the tenor of the discussions changed. Negotiations broke down among the partners, leading Wilkinson to assert, "I'm not selling any of my stock and I'm not going down to a minority position," according to the June 20, 1986 issue of American Metal Market. Kawasaki and CVRD responded by taking Wilkinson to court. Wilkinson filed a countersuit in July 1986. The contentious struggle was resolved several months later, ending with the sale of Wilkinson's 50 percent stake and his complete disassociation with CSI.

In the aftermath of the ownership battle, CSI settled on its course, developing into a profitable, growing steel enterprise. The first profits registered in 1986 set a precedent that was followed for the remainder of the 1980s and throughout the 1990s. The success of the company coupled with the financial resources of CVRD and Kawasaki Steel allowed for a major capital improvement program, giving the company modern and efficient machinery to expand its production output. In 1993, the company embarked on a six-year modernization program aimed at reducing operating costs, broadening its product line, and increasing production capacity. CSI spent roughly $250 million on the program, increasing the amount of tons billed during the period by nearly 90 percent.

An indication of the prosperity and optimism pervading the Fontana headquarters was demonstrated during the late 1990s. In 1997, with still two years to go on its modernization program, company officials began discussing the possibility of another major expansion program. Their confidence drew its strength from the company's admirable performance during the mid-1990s. Annual sales topped $700 million as production increased 70 percent to 1.7 million tons. The increase was achieved by only increasing payroll from 850 to 945 workers, which meant the gains were realized, in large part, by operating more efficiently. In response, management began considering another $250 million improvement project, one that flirted with the idea of CSI making steel for the first time in its history. The plan to produce steel for the company's sheet metal rolling operation was abandoned in 1998, but the exploration into the idea pointed to the vitality of CSI.

By the end of the 1990s, CSI was a well-established, profit-making enterprise, firmly footed as a fixture of the steel community in the western United States. In 1999, a year in which the company posted a record high $47 million in net income, it ranked as the largest producer of the flat-rolled steel in the West. CSI served customers in the 11 states located west of the Rocky Mountains, devoting much of its manufacturing operations to the production of hot-rolled sheet and coil, which accounted for 47 percent of total tons billed at the end of the decade.

CSI in the 21st Century

CSI's impressive record of profitability came to an end as the company entered the 21st century. In the first three months of 2001, the company posted a quarterly loss of $1.9 million, the first loss recorded in 15 years. The company's president and chief executive officer, Lourenco Goncalves, listed a combination of weak demand, low prices, and out-of-state competition as causes for the loss, but most of his frustration was directed at escalating energy prices in California. In the first quarter of 2001, CSI's electricity bill increased 25 percent, a price hike far outstripped by the $5 million the company had to pay for natural gas, a 725 percent increase. The company recovered in the second quarter, but the $3.4 million posted in net income for the period was wiped away by a $3.4 million loss in the third quarter. For the year, CSI ended with a deficit, registering a $3.7 million loss.

When the severity of California's energy crisis ebbed, CSI regained its financial health. In 2002, the company billed more than two million tons of steel products for the first time in its history. More important, the losses recorded the previous year were thoroughly swept away with the $35 million in profit recorded in 2002.

As CSI prepared for its 20th anniversary, the company could claim to have achieved what Kaiser did not: make the Fontana steelworks a profitable, thriving enterprise. The leadership of the company changed as its anniversary approached, giving it the management team to guide its future course. In 2003, Goncalves resigned to head Houston-based Metals USA, leading to the appointment of Vincente Wright as president and chief executive officer. Wright, who joined CVRD in 1975, put together the slab supply contract in 1984 that helped CSI begin operations when he was the 29-year-old marketing manager at Siderurgica de Tubarao. In mid-2004, Wright was appointed chairman of the company, paving the way for the promotion of Masakazu Kurushima to the posts of president and chief executive officer. Kurushima began his career at Kawasaki Steel in 1972, rising to head the company's U.S. subsidiary before being tapped to lead CSI. To these two individuals fell the responsibility of ensuring that CSI's future was as successful as its past.

Principal Subsidiaries: CSI Rolling Mills, Inc.

Principal Competitors: Oregon Steel Mills, Inc.; USS-POSCO Industries; Steelscape, Inc.

California Steel Industries, Inc. History

Company Perspectives:

Key Dates:

Company History:

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