Recently announced, Harsco Corporation (HSC) received a 20-year contract for providing slag processing and management services to the Tangshan works in China. This deal strategically extends Harsco’s existing resource recovery services agreement with Tangshan Iron & Steel.
Targeted to ameliorate the surrounding area of the steel-making site with better handling and management of by-products, the contract is currently projected to generate revenues surpassing $375 million through its 20 year time period. By providing state-of-the-art slag management tools, Harsco will speed up the metal recovery process, thereby creating an avenue for the creation of environment-friendly by-products from the slag generated at the site. Then, these products shall be dispersed in the market to benefit cement, concrete and other related industries.
The agreement entered into is quite momentous for both parties. Not only does Tangshan Iron & Steel’s social motives get highlighted, thereby enhancing its goodwill in the market, but also offers Harsco a major award, not to mention the profitable long-term alliance formed between the companies.
Owing to the detrimental effects of the diminishing world steel demand, the company’s Metals and Minerals segment suffered an 8% annual downfall in revenues to reach $360 million during its first quarter of 2012. Margins looked quite under pressure too, mainly due to the additional restructuring expenditures incurred during the quarter.
Harsco expects a similar weakened performance from the Metals and Minerals segment in the upcoming quarter, primarily due to the existing downsides accruing from the European and Middle Eastern regions. However, even though the short-term situations appear onerous, we feel that such multi-year prestigious awards would bolster growth for this segment incipiently at substantial levels, paving a brighter path for the company in the long run.
However, it would be wise to remain wary of proactive peers in the industry at all times. Big players to take note of in this regard include Hudson Technologies, Inc. (HDSN), W.W. Grainger, Inc. (GWW) and TMS International Corporation (TMS).
The company currently retains a Zacks #5 Rank, which translates into a short-term ‘Strong Sell’ rating. We also maintain a long-term ‘Underperform’ recommendation on the stock.
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