Hamilton Spectator – Canada’s struggling steel industry is recovering, thanks to the relentless demands of hedge fund managers for profits and return on their investment.
Algoma president Denis Turcotte told a conference here yesterday that funds like Tricap Management Ltd. which backed the restructuring of Stelco have brought a needed discipline to a badly fragmented industry.
“Steel producers are return driven today, and the hedge funds will keep them that way,” Turcotte told members of the Automotive Parts Manufacturers Association. “The days of saying we’ll take short-term losses and make money in the long term are over, and in some cases that’s clearly good because it’s holding people accountable to the owners of the business.”
Companies which don’t meet those demands will lose their access to capital, and their presidents and boards of directors will quickly find themselves unemployed, he said.
“As a minimum, the hedge funds are saying they want to see the tough decisions being made that will translate quickly into returns,” Turcotte added. “They will turn over boards of directors and do whatever else it takes to get those returns.”
Steel’s nightmare, Turcotte said, developed slowly between 1974 and 1998 as demand for the metal slowed, but countries continued to add production capacity, creating a situation where returns to the industry sagged well below the cost of the capital needed to produce it.
“The net effect was a complete loss of reasonable returns to the industry,” he said. “It was a very bad situation and half the industry melted down.”
