North Star Steel Company

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North Star Steel Company

15407 McGinty Road, Dept. 51
Wayzata, Minnesota 55391
U.S.A.
(612) 742-7575
Fax: (612) 742-6687
Web site: http://www.cargill.com

Wholly Owned Subsidiary of Cargill, Inc.
Founded: 1965
Sales: $570.00 million (1993)
Employees: 3,200 (1993)
SICs: 3312 Blast Furnaces and Steel Mills

As the core business of Cargill, Inc.’s worldwide steel operations, North Star Steel Company has exploited its early expertise in minimill steel production, its ability to stay ahead of the curve of new steelmaking technology, and its long history of expansion and acquisition to become, by 1996, the second-largest minimill steel producer in the United States and the eighth-largest U.S. steelmaker overall.

With scrap recycling and steelmaking facilities in eight states, North Star in 1997 claimed an annual capacity of roughly 5 million tons of steel and overseas customers in 30 countries. North Star’s major products include special bar quality steel for use in automotive applications, deck furniture, and machinery manufacture; merchant bar quality steel—such as rounds, flats, and angles—used in construction and steel fabrication; wire rod used in such diverse products as chain link fences, bed springs, flyswatters, and nuts, nails, and screws; seamless pipe used in the oil and gas well drilling industry; reinforcing bar (or rebar) used in building and highway construction; and grinding balls used to crush ores in the cement, fertilizer, and mining industries. North Star steel has been used in the manufacture of auto parts for Chrysler, engine parts for Boeing, and construction materials for Minnesota’s Mall of America, the largest indoor shopping mall in the world, and the Arizona Diamondback’s major league baseball stadium in Phoenix.

The Rise of a Minimill: 1965–74

North Star Steel was founded in October 1965 for the purpose of constructing a single-plant steel mill in St. Paul, Minnesota. Within two years of its birth, however, North Star’s management had adopted the new “minimill” approach to steelmaking pioneered in the early 1960s. By 1967 the plant was in operation, recycling scrap and turning out basic commodity steel products for the steel products industry. Traditional steelmaking techniques produced steel from raw iron ore, coke, and limestone melted in coke oven blast furnaces. Using clean and efficient electric arc furnaces (EAFs) minimills (so named because they were originally smaller than Big Steel plants in size and capacity) like North Star, however, melted scrap metal from recycled factory clippings and discarded autos and home appliances at a fraction of the cost of the big “integrated” mills.

Besides the 40 percent energy savings derived from the EAF process, minimills were also often strategically located near their customers, usually in nonurban areas; employed nonunion labor; cost half as much to build as typical large blast furnace plants; and boasted substantially superior productivity levels. Because the steel produced by the early minimills was initially inferior in quality to the steel of the big integrated producers, however, North Star, like other minimill producers, at first limited itself to producing wire rods, rebars, angles, flats, and other basic commodity steel products.

Within two years of North Star’s first minimill production in 1967, the Nuclear Corporation of America of Charlotte, North Carolina, opened a $6 million minimill in Darlington, South Carolina. The event was historically significant, for Nucor (as Nuclear was renamed) quickly became the nation’s most profitable minimill steelmaker, a darling of Wall Street, and a synonym for the new focused and efficient steel firms destined to give Big Steel a run for its money. In the 1970s, the rise in foreign, and especially Japanese, steel imports, the debilitating costs of a heavily unionized workforce, and the inherent efficiencies of the minimill’s use of scrap and EAFs took their toll on such big steel producers as U.S. Steel, Bethlehem Steel, and LTV. North Star and its competitors rushed to fill the void, and the so-called golden age of minimills began. In 1970 North Star had increased its St. Paul capacity by adding a second furnace, and by 1974 its annual steel capacity had risen from 125,000 to 300,000 tons. With employees now numbering 600, North Star had begun to establish itself as one of the largest producers of construction industry rebars in the country.

Cargill, Inc.: 1974–83

In the early 1970s, Cargill, Inc., a privately held Minnesota-based giant in the agricultural products and food processing industries, began to diversify into new fields. Besides a new presence in the waste disposal, metals processing, and beef and salt production markets, Cargill also sought a place in the steel industry, and in February 1974 it acquired North Star and its thriving minimill business. Flush with its new access to Car-gill’s deep corporate pockets, North Star acquired a new mill being built in Wilton, Iowa, in 1974 and in February 1976 broke ground on a grinding ball plant in Duluth. The Wilton mill came on line in 1976 and was soon producing 150,000 tons of rebars and structural flats annually and employing 250. In 1977 the Duluth grinding ball plant began operations.

The energy crisis of the mid-1970s conspired with the inefficiencies and bloated costs of the integrated steelmakers as well as overcapacity and sluggish demand in the worldwide steel industry to send Big Steel into a tailspin from which it never completely recovered. As the integrated steelmakers closed plants, laid off workers, and outsourced production, Nucor, North Star, and new minimill operators like Birmingham Steel and Chaparral Steel began to make inroads into Big Steel’s higher-quality products. Having definitively proved that scrap-based EAF mills could produce basic steel products, North Star and its competitors began adopting improved technologies such as continuous casting, which saved money by enabling molten steel to be shaped into solid shapes without intermediate steps.

With Nucor blazing the trail, North Star and the other minimills moved from commodity rebars, rods, and merchant bars to galvanized steel (i.e., zinc-coated steel with greater corrosion resistance) and structural beams and girders for the heavy construction industry. By 1977, Nucor had expanded into the production of steel decking for floors and roofs and in 1979 began producing cold-finished bars for use in the manufacture of shafts and precision parts. In 1978, North Star also began moving up the quality-steel ladder, breaking ground for a special bar quality steel mill in Monroe, Michigan, to service the auto, petroleum, mining, forging, and cold-drawing industries. Strategically located near the headquarters of the Big Three auto plants, the steel from the Monroe mill would be made into engine parts, suspension components, and power transmission gears.

As employment in the U.S. steel industry peaked at 399,000 in 1980, North Star began full production at the Monroe, Michigan, mill and acquired the Magnimet Corporation (renamed North Star Recycling in 1990) to expand its scrap metal trading and processing operation. Through its network of metal traders, North Star was now buying and processing 10 to 15 different grades of scrap, which could be shredded, sheared, sorted, and cleaned before shipment to its mills. By the mid-1990s, North Star’s scrap recycling operations were producing so much scrap (over 3 million tons a year) that it was selling it off to other steelmakers. In 1982 U.S. steelmakers fell victim to a punishing industrywide depression that raked corporate profits for four years. North Star nevertheless acquired a wire rod steel mill in Beaumont, Texas, from Korf Industries in 1983 and announced the appointment of a new executive vice president, Robert A. Garvey, a fast-rising manager who had begun his North Star career as the St. Paul plant’s melt shop superintendent.

The Garvey Years: 1984–96

A metallurgical engineer who began working in steel mills at age 18, Garvey gave fair warning of his career’s promise in 1978 when he was promoted to general manager of North Star’s St. Paul mill less than a year after joining the company. In 1984, within a year of his promotion to executive vice president, Garvey was lifted to the presidency of North Star and continued the breakneck acquisition program he had begun the year before. His first addition was the rolling mill of the bankrupt Ohio River Steel in Calvert City, Ohio, which he followed in April 1985 with the acquisition of the inactive Hunt Steel Co. mini-mill of Youngstown, Ohio. North Star began retooling the former Hunt Steel plant to manufacture steel billets and blooms (basic types of semifinished steel) as feeder stock for the Calvert City mill, whose acquisition was finally completed in December 1985. After an aborted move to Phoenix Steel in 1986, Garvey returned to North Star in time to see the newly retooled Youngs-town facility come on line in November and to lead the acquisition of Universal Tubular Services of Houston, Texas, which was promptly renamed North Star Steel Houston.

Company Perspectives:

At North Star Steel, we don’t make steel the old fashioned way. We make it efficiently. In a network of streamlined, state-of-the-art mini-mills located close to our markets so we can serve them better.

Highly specialized computer controlled processes and automated equipment help us maintain a level of efficiency unheard of not so many years ago. Every heat is meticulously monitored by the best steel makers in the business. The net result is a line of products with virtually no variations from customer requirements. And because we can produce steel so efficiently, we can price it competitively. Which will keep us growing indefinitely.

In January 1987, Garvey invited North Star’s plant managers and corporate staff to a Florida business retreat where they were introduced to the tenets of the “total quality management” (TQM) movement then sweeping corporate America. North Star’s corporate meetings were soon leading off with discussions of safety and quality, with finances and production relegated to second place on the agenda. As a result of this new emphasis, North Star’s safety record became among the industry’s best, and its quality program was enabling it, through its Youngstown and Houston mills, to become the first U.S. minimill to produce seamless tubing and casing. In 1987 North Star established a minimill industry precedent when it began to recycle so-called white goods (refrigerators, washers and dryers, and the like) for its scrap needs, and in 1989 it began evaluating sites for a new recycling minimill in the West or Southwest to tap that underexploited market.

While North Star was securing its niche in the minimill industry, Nucor was introducing another major weapon in the minimills’ quest for Big Steel’s market share. In 1989 it installed a new thin-slab steel caster made in Germany at its new Crawfordsville, Indiana, plant. The technology would finally enable minimills to produce the high-quality flat-rolled sheet steel used in the automotive and appliance manufacturing industries. Nucor’s smaller minimill competitors were slow to follow its lead, however. North Star, for example, did not announce plans to build its own thin-slab mill until 1994 when it found a partner for the venture in the form of Australia’s BHP Steel. As prices for scrap threatened to rise so high that the minimills’ cost advantage over Big Steel disappeared, North Star and Nucor turned to scrap substitutes to regain their edge. In 1990 North Star and Cleveland Cliffs Inc. of Ohio formed a joint venture to explore the technical and commercial feasibility of producing iron carbide to replace scrap in the steelmaking process. By late 1994 Nucor had completed construction of its own iron carbide plant in Trinidad.

Another slump descended on the steel industry in 1990, and in 1991 North Star was forced to close its Milton, Pennsylvania, rebar/merchant products plant. But North Star and the other minimills had made their mark: by the early 1990s the U.S. steel industry was recycling more cars for scrap than the U.S. auto industry was producing, and fully 70 percent of all steel produced in the United States was being manufactured from scrap. In 1992, the steel industry began to recover, and North Star announced an agreement to sell oil industry tubular steel to a new customer in Russia. On the labor front, North Star was heartened by the decision of its Monroe, Michigan, employees to reject union representation, but late in the year the U.S. Court of Appeals ruled that North Star owed compensation to some of its Minneapolis clerical workers for unilaterally raising their health insurance rates while they were engaged in contract negotiations—a violation of federal law. In 1993, North Star announced it would double the production capacity of its St. Paul mill to 650,000 tons and won Cargill’s final approval for the construction of a new $140 million minimill in Kingman, Arizona. The new plant—North Star’s seventh—would add another 500,000 tons to North Star’s capacity and exploit the 500,000- to 600,000-ton wire rod market on the West Coast. At an industry conference, Garvey explained that “our strategy for a West Coast mill is simple: the Southwest is one of the few regions where scrap is in surplus supply and steelmaking capacity is down…. we will create jobs and capture West Coast and Southwest market share from imports.”

After Garvey won an unprecedented concession from Arizona power utilities in early 1994 to allow North Star to buy electricity from any utility it chose, construction of the new plant began in May. The $40 million expansion of the St. Paul mill was completed the same year, and in November Garvey announced a joint venture with the world’s 13th largest steelmaker, BHP Steel of Australia, for a thin-slab flat-rolled steel minimill in the Midwest to rival Nucor’s revolutionary Crawfordsville, Indiana, facility. The venture would be named North Star BHP Steel and would turn out 1.5 million metric tons of steel when operational. North Star too now seemed poised to invade Big Steel’s high-quality sheet steel business.

By 1995 it was becoming clear that the original minimills would face competition in their ongoing quest to unseat the big integrated producers’ dominance of U.S. steel; ironically, it would come from a new generation of minimills. Although Nucor was on a pace to become the largest U.S. steelmaker by the turn of the century—and could therefore only loosely be described as a “minimill”—a host of new minimills under construction were threatening to flood the U.S. steel market with flat-rolled steel by the end of the 1990s. Such upstarts as Gallatin Steel and Steel Dynamics (led by a team of former Nucor executives) were expected to quadruple U.S. minimill production in the space of only three years, and North Star’s venture with BHP in northwestern Ohio was only one of at least ten new plants whose output was expected to drive up scrap prices and lead to a “death spiral” price war among the less stable U.S. producers. In June 1995, North Star finally broke ground for its Ohio mill, and in September Garvey announced North Star would infuse another $1.3 million into its St. Paul mill to optimize its ability to generate scrap from car bodies and appliances. North Star also placed orders for the bar and rod rolling bar for its new Kingman, Arizona, plant and signed a ten-year contract with BOC Gases who would provide the oxygen, nitrogen, and argon as well as some of the equipment for North Star’s pollution-control systems. With its new Arizona and Ohio plants under way, North Star seemed to have secured its place among the leaders of the growing minimill crowd.

New Leadership, New Markets: 1996–97

North Star’s optimism was dealt an unexpected blow in January 1996 when Garvey shocked the industry by announcing he was moving to North Star’s closest competitor, Birmingham Steel, as its new CEO. The departure surprised everyone and left Cargill, one industry expert guessed, “just a little bit ticked.” While Garvey noted the many similarities between Birmingham and North Star as a factor in his decision to leave, some suggested that the real reason North Star’s “moneymaker” had switched ships was the freedom Birmingham had offered him—at North Star Garvey’s decisions were always subject to Cargill’s approval. Within days, Cargill named James T. Thompson, a former vice president of Cargill Steel, as Garvey’s successor and promoted two other North Star executives to senior positions.

Despite Garvey’s abrupt departure, his two key projects—the Ohio flat-rolled steel mill and the new Arizona wire rod and bar mill—moved toward completion in 1996. North Star began commissioning the Kingman, Arizona, site in March and it came on line in September. North Star officials boasted that the minimill was “a quantum leap forward in steelmaking” and as evidence cited its continuous shaft furnace, the first in the United States; a fully automated production process that enabled the entire plant to be run by only 180 employees; a state-of-the-art emissions control system; and an efficiency level that allowed a truck delivering scrap in the morning to leave five hours later with steel made from the same scrap.

In October North Star’s scheduled startup of its $400 million joint venture with BHP Steel hit a snag when some supplies failed to meet specifications, and full production at the plant was put off until the first quarter of 1997. When operational, North Star’s eighth plant would add 1.5 million tons to North Star’s capacity and bolster its position in the automotive, original equipment, and industrial manufacturing markets.

Principal Subsidiaries

North Star Steel Kentucky; North Star Steel Minnesota; North Star Steel Duluth; North Star Steel Iowa; North Star Steel Michigan; North Star Steel Texas; North Star Steel Arizona; North Star Steel Ohio; North Star Steel Houston; North Star Recycling Co. (Eagan, Minnesota); North Star Recycling (Monroe, Michigan); North Star Recycling (Tampa, Florida); North Star Recycling (Toledo, Ohio).