Dofasco Inc. Business Information, Profile, and History

History of Dofasco Inc.

Dofasco Inc. is one of Canada's largest steelmakers. The company and its subsidiaries and joint ventures in Canada and the United States manufacture hot and cold rolled steel, galvanized steel, chromium-coated and flat-rolled prepainted steels, tinplate, and tubular products. Dofasco also has iron ore mining operations. It sells its steel products to a wide variety of customers, including those in the automotive, construction, energy, manufacturing, pipe and tube, appliance, container, and steel distribution industries.

Founded on Steel Castings in 1912

Clifton W. Sherman built the foundry that served as the cornerstone for Dofasco in Hamilton, Ontario, in 1912. Then known as the Dominion Steel Castings Company, Ltd., the foundry initially made steel castings for Canada's expanding railway system. The original plant covered five acres. In 1913 Dominion merged with Hamilton Malleable Iron Company, and took a new name, Dominion Steel Foundry Company (Dominion).

In 1914 Frank A. Sherman, brother of the founder, joined the firm. Production for war goods began to roll. As World War I progressed, orders for stirrups, bridles, and clevises were replaced with orders for munitions, marine forgings, and steel plate, reflecting changes in the nature of warfare. In 1917 a plate mill was purchased, and a new forging plant began churning out shell forgings. The company's name changed again that year, to Dominion Foundries and Steel, Limited, even then known as Dofasco. When the war drew to a close in 1918, Dofasco had 11 open hearth furnaces producing about 750 tons of steel per day. The plant had sprawled to 26 acres, and about 2,280 workers were on the payroll, nearly ten times the number just four years prior.

The 1920s was a difficult decade for the Canadian steelmaker. Following the end of the war, demand for steel dropped off drastically. To make matters worse, low tariffs allowed U.S. steel producers to control a sizable chunk of the Canadian steel market. Dofasco operated Canada's only heavy plate mill capable of producing six- to 42-inch universal steel plate. It was completed in 1921, but tough foreign competition kept the mill working below capacity for most of the decade. The foundry, however, picked up the slack for the mill during the 1920s, and the company's expertise in steel castings improved accordingly. By 1928 the market for Canadian steel plate improved, and in 1929 a second shift was operating at the universal plate mill.

In 1930 Dofasco's foundry poured a 95,000-pound casting for a hydroelectric development in Quebec. It was the largest such casting ever produced in Canada. During the Great Depression demand for steel was up and down. Canada's rail system continued to expand, and it provided sporadic orders for Dofasco. Sometimes the foundry was overbooked; at other times it was virtually idle.

The second half of the decade saw many improvements at Dofasco. In 1935 a 20-inch cold reducing mill was brought on line, and the company began producing the first Canadian tin plate. Dofascolite, the name under which the company's tin plate was marketed, was a tremendously successful product. In 1937 a 42-inch cold mill was built, enabling the company to produce 100 tons of cold-rolled steel per day.

By the late 1930s the menace of war once again loomed on the horizon. Dominion Foundries and Steel geared up to meet Canada's war demands. Between 1935 and 1940, the company spent $5.8 million on new facilities. Three-quarters of all steel and one-third of all tin produced in Canada came from Dofasco. In 1941 the company became Canada's only domestic producer of armor plate, supplying the Canadian armed forces until the end of World War II.

Postwar Growth

After the war the company continued to produce at record levels. In August 1951 Dofasco ignited its first blast furnace. Three years later it became the first North American company to produce basic oxygen steel. This new process resulted in higher quality steel at reduced costs. Also in 1954, Dominion Foundries and Steel acquired the galvanized sheet division of Lysaght's Canada, Limited.

In 1955 the company began operating a 56-inch cold mill with a continuous galvanizing line. In 1956 a second blast furnace began operations. Substantial replacement of facilities was made during the next five years. Between 1950 and 1959 Dofasco had invested $120 million in new plant facilities.

Dofasco's postwar growth continued into the next decade. In 1960 a second galvanizing line was installed. Steel production potential was up to one million tons per year. Dofasco next branched out through acquisition. In 1961 a joint venture to run the Wabush Iron Company was initiated. In 1962 National Steel Car Corporation, a leading manufacturer of railroad cars, was purchased. Another purchase was the Temagami property, destined to become the Sherman mine. The Sherman mine delivered its first iron ore pellets to the Hamilton plant in 1968. In 1970 the company expanded its iron ore capacity when it bought the Adams mine in northern Ontario.

Capital investments continued throughout the 1960s. When industrial impact on the environment became a growing concern in the late 1960s, Dominion Foundries and Steel reacted. In 1968 the company installed pollution-control equipment to improve the quality of water returned to Lake Ontario from the plant.

Steady demand for steel kept the facilities at Dofasco humming through the late 1960s and early 1970s. In March 1973 Dofasco bought the BeachviLime Ltd. quarry, ensuring a steady supply of lime. A month later, pipe manufacturer Prudential Steel was acquired.

In the mid-1970s massive construction was under way to double steel output within 20 years. A second five-stand cold mill was built in 1974. While the world economy was in recession, Dofasco spent several million dollars on environmental controls and renovated its foundry. By 1976 sales rebounded from the recessionary trough, reaching record levels in some areas.

In 1978 the company launched what was at that time its largest single construction project, a second melt shop. It also purchased Guelph Dolime that year, a lime quarry to be operated as a part of the BeachviLime unit. As the 1970s drew to a close, Dofasco announced its plans to build a fourth galvanizing line and a second hot strip mill.

Became Dofasco in 1980

In October 1980 Dominion Foundries and Steel, Limited officially changed its name to Dofasco Inc. A severe recession struck Canada in the second half of 1980, causing a plant shutdown for part of July. The steel industry was hit hard, but Dofasco continued with new plant construction on schedule. As the recession deepened, however, Dofasco had to take cost-cutting measures. Demand for steel was low. In November 1982 the company laid off 2,100 employees. Net income in 1982 dropped to $63.8 million from $169.3 million the previous year.

In 1983 production levels improved, and laid-off employees were called back. Demand for higher-quality steel prompted Dofasco's conversion in 1984 of its number-one galvanizing line to production of a new corrosion-resistant steel, Galvalume. In 1985 a $750 million cast slab expansion, Dofasco's most expensive project ever, was begun. The new facilities enabled Dofasco to produce new and higher-quality steel products.

Several major acquisitions helped Dofasco's sales jump from $1.9 billion in 1985 to $3.9 billion in 1989. In December 1986 Dofasco acquired the Whittar Steel Strip Company of Detroit. Whittar specialized in strip products used in the automotive industry. In August 1988 Dofasco purchased the Algoma Steel Corporation of Sault Sainte Marie, Ontario, for C$713 million, thereby becoming Canada's largest steelmaker.

Early 1990s Troubles Led to Restructuring

The purchase of Algoma, a fully integrated steel manufacturer, turned out to be a major blunder for Dofasco. Algoma ran into serious difficulties in 1990, suffering a C$702 million loss that year, in part as a result of a lengthy strike. It also had run up a huge debt of C$800 million and was able to stave off bankruptcy only through a bridge loan from the government of Ontario. As Algoma reorganized itself, Dofasco cut its losses first by writing off its entire investment in Algoma in 1991, then by giving up ownership of Algoma in 1992.

The Algoma debacle exacerbated Dofasco's own troubled situation, which was caused in large measure by economic forces. Demand for durable consumer goods was weak during the early 1990s, and as a result Dofasco's major customers--the automotive, appliance, and construction industries--cut orders. All told, the company suffered three straight years of net losses: C$679.2 million in 1990, C$25 million in 1991, and C$207.1 million in 1992.

To rebound from its troubles, Dofasco began restructuring its operations. From the mid-1980s to the mid-1990s, the company cut its workforce nearly 45 percent, from 12,700 to 7,000 workers. Most of the reductions were achieved through voluntary retirement programs and attrition. Dofasco also divested a number of noncore businesses in an effort to focus more on higher-end steelmaking. In 1991 the company sold Whittar Steel Strip (acquired only five years earlier) to Samuel, Son & Co. Ltd. of Mississauga, Ontario. The following year, Dofasco sold its Steel Castings division, the unit upon which it was founded, to Atchison Castings Corp.; its National Steel Car railway car manufacturer to TMB Industries of Chicago; and its BeachviLime lime-quarrying unit to Calcitherm Group, a holding company based in Holland. Also jettisoned in the mid-1990s were the pipe and tubular steel maker Prudential Steel and the company's 50 percent interest in Ferrum Inc., also a producer of pipe and tubular products.

Meanwhile, the company joined a general trend in the steel industry toward joint ventures--which combatted overcapacity problems--and high-tech, low-labor-cost minimills. In 1990 Dofasco entered into a joint venture with NKK Corporation of Japan and National Steel Corporation of the United States to build a plant in Windsor, Ontario, to make hot-dip, galvanized, flat-rolled steel. The venture, called DNN Galvanizing Limited Partnership and 50 percent owned by Dofasco, was the first steel industry joint venture involving companies from three countries. The plant was completed in 1993, producing its high-margin galvanized steel primarily for the automobile industry.

Also in 1993, Dofasco formed another joint venture, Gallatin Steel Company, 50-50 owned by Dofasco and Toronto-based Co-Steel Inc. Gallatin was created to build a C$400 million minimill in Gallatin County, Kentucky, to produce hot-rolled, thin-slab steel. The venture took advantage of the two companies' bases of experience: Co-Steel's in minimills and Dofasco's in flat-rolled steel. Minimills--which were typically nonunion, used state-of-the-art equipment, and required only a few hundred workers--were designed to produce lower-cost steel, compared with traditional integrated steel plants. The Gallatin plant began production in July 1995; in 1997 it shipped more than one million tons of hot-rolled steel and was profitable for the first time.

In 1996 Dofasco completed installation of a new electric-arc furnace and slab caster at its Hamilton facilities; this new technology enabled the plant to reduce its consumption of purchased semi-finished steel. The following year, a new 140,000-metric-ton-per-year tube mill began production at the Hamilton plant, with the resulting products designed specifically to help automakers build stronger and lighter vehicles. In December 1997 Dofasco entered into another joint venture, this one with Sollac, a division of French steelmaker Usinor. Eighty percent owned by Dofasco and utilizing technology developed by Sollac, the venture was created to build a 400,000-metric-ton-per-year, 72-inch-wide hot-dip line to make corrosion-resistant galvanized steel primarily for automotive body panels. The line was slated to be operational by mid-1999. In early 1998 Dofasco issued a statement denying rumors that the company was negotiating with fellow Canadian steelmaker Stelco Inc. about a merger or alliance.

Through its successful restructuring--particularly its use of joint ventures, its emphasis on higher-margin specialized products, and its use of the latest technology--Dofasco was consistently profitable in the mid- to late 1990s. Sales in 1997 were C$3.07 billion, with net income a respectable C$193.2 million. By continuing to react quickly to changes in the steel market, Dofasco assured itself of a bright future.

Principal Subsidiaries: Iron Ore Company of Canada (6.9%); Quebec Cartier Mining Company (50%); Wabush Mines (24.3%); Baycoat (50%); DNN Galvanizing Limited Partnership (50%); Sorevco and Company Limited (50%); Dofasco USA Inc.; Gallatin Steel Company (U.S.A.; 50%).