V & amp;M STAR High gas prices prove bittersweet for steel tube mill

New owners are spending millions to upgrade the Youngstown company.
THE VINDICATOR
By CYNTHIA VINARSKY
VINDICATOR BUSINESS WRITER
YOUNGSTOWN -- High natural-gas prices are fueling sales for seamless steel tube maker V & amp;M Star.
But the Youngstown mill is also suffering from the skyrocketing utility costs.
"High gas prices are bittersweet for us," said Roger Lindgren, president and chief operating officer of the Youngstown-based company.
On the positive side, it looks like the company formerly known as the Tubular Division of North Star Steel is on track to surpass its best production year on record.
Lindgren, who took over V & amp;M's top job in March, said the mill is operating at about 80 percent of capacity and producing an average 35,000 to 40,000 tons of seamless steel tube a month.
Orders were especially brisk in June, when workers produced 40,000 tons.
By comparison, the Youngstown facility averaged 37,000 tons a month in 1997, the best year in its record books so far.
This year's production far exceeds the company's 2002 numbers, he said, which averaged 27,000 tons a month.
Main business
V & amp;M Star's main business is making seamless pipe for the gas and oil well industry, so it benefits when prices increase because the number of wells generally grows proportionately.
Wholesale natural-gas prices climbed to $6.58 per thousand feet last week, more than double its price at the same time a year ago. That makes drilling more profitable.
But V & amp;M has to pay the big gas bills too, Lindgren noted. Its production lines are fueled by natural gas and electricity, so higher costs mean bigger gas bills and higher electric bills -- gas is often used to produce power.
Company officials are also concerned that chemical plants and other customers that require large amounts of gas or electricity may be forced to halt or slow production because of the high costs.
"If this goes on too long, it could become a negative," Lindgren said, referring to the high gas pricing trend.
Climbing utility bills, continuing high scrap metal costs and low product pricing are three factors holding down profits for V & amp;M, he said.
New owners
New owners Vallourec, a French tube maker, and Japanese-owned Sumitomo Corp. of America are disappointed that the mill isn't making more money because of those factors, Lindgren said, but they're "happy with the performance of the people."
V & amp;M employs 440 at its Youngstown pipe-making and pipe-threading mill and 131 at its Houston heat treating and finishing mill and sales office. An additional 131 contract workers are on the job at the two mills.
The owners are showing their support for the mill by spending millions to improve the Youngstown facility, on Martin Luther King Boulevard.
Renovations are under way on the third floor of the old brick administration building where V & amp;M plans to consolidate about 20 offices. Accessible only by a narrow set of service stairs, the space has been mostly vacant for years.
New windows, an elevator and conference room are part of the project, which will cost about $972,000.
New owners will have spent about $9.01 million on capital improvements in their first two years, including the office improvements.
Scheduled work
Other work completed or still scheduled for the second half of this year includes a new pipe measuring system, improvements in the water discharge system and improvements to the steel making and pipe rolling facilities.
Lindgren said plant managers will propose an additional $8.6 million in projects for 2004. Some improvements will be recommended for the Houston mill but most target the older and larger Youngstown mill.
V & amp;M's Houston and Youngstown facilities were owned by Cargill Inc. before the new owners bought the plants for $380 million in May 2002.
Vallourec, the world's largest producer of seamless steel tubes, said it purchased the mills to get a larger share of the growing global energy market. Vallourec is the majority owner with 80 percent of V & amp;M; Sumitomo owns 20 percent.
vinarsky@vindy.com