Sparrows Point likely to survive

Consolidation: That is the current focus in the steel industry as bankrupt Bethlehem Steel Corp. looks to secure its future with U.S. Steel.

January 27, 2002|By Kristine Henry | Kristine Henry,SUN STAFF

PITTSBURGH - The man who wants to take over Bethlehem Steel Corp. and several other steel makers is not sure exactly where Baltimore's Sparrows Point plant fits into the mix, but he believes that it does have a future in a consolidated industry.

"I think it's premature to say exactly where it would fit in, but I would say Sparrows Point certainly is a survivor in all this," said Thomas J. Usher, chairman, chief executive and president of United States Steel Corp. "But a lot of things have to happen to make it happen."

That's putting it mildly.

U.S. Steel is in talks to acquire Bethlehem, National Steel Corp. and Wheeling-Pittsburgh Corp. but is asking the government to lighten the load by assuming responsibility for the health care costs of retirees from those companies. The tab could be as much as $12 billion.

The domestic industry is also waiting for President Bush to announce what level of tariffs, if any, he will impose on imported steel. U.S. Steel and others are hoping for 40 percent, with the proceeds going toward their consolidation efforts. The United Steelworkers of America would also have to agree to work-rule changes and other revisions in its contracts in order to bring the deal to fruition. The union has said it is receptive to the idea but wants to protect as many jobs and benefits as possible.

"Time is running out," said steel analyst Richard Henderson of Pershing, a division of Donaldson Lufkin Jenrette. "The economy looks like it's going to recover, but its strength is questionable and that has a tremendous implication for the durable goods market."

Usher said he gives the consolidation plan a "50-50" chance of becoming a reality and added that it needs to happen "sooner rather than later."

"There are fairly complex issues, but I'm still optimistic," he said from his expansive 61st-floor office in downtown Pittsburgh.

Usher has been meeting with administration officials such as Commerce Secretary Donald L. Evans, Treasury Secretary Paul H. O'Neill and U.S. Trade Representative Robert B. Zoellick to convince them that helping the steel industry makes sense. He also met with President Bush around Christmas but said the two did not discuss the government-assistance program in any detail.

"He's just aware that this process is moving forward," Usher said.

The administration hasn't given Usher any definite reassurances that it will support the consolidation plan, but neither have officials dismissed it.

"We're still getting encouragement to continue with the process," he said.

If the consolidation occurs as envisioned, it is unclear how significant a role the Sparrows Point plant would play in the new entity. Usher said the fact that it's on the water is a plus, but a negative is the fact that it's farther from key markets than he would like.

The Baltimore plant, which employs about 3,500, recently went through more than $650 million in upgrades and has a new cold-rolling mill that makes precision-thickness steel for containers, metal furniture, construction and appliances.

"I guess I would characterize it as a middle-of-the-pack kind of plant in terms of facilities," Usher said.

He declined to outline any possible capacity reduction, plant closures or layoffs under the consolidated entity. He said those decisions are dependent upon which facilities come together, but he acknowledged that some cuts are probable.

"It's hard to really quantify," he said.

U.S. Steel and the three companies it wants to acquire, which now employ a total of about 44,000 people, would have a combined annual production capacity of slightly more than 30 million tons. LTV Corp. of Cleveland, which is in liquidation proceedings now, can produce another 7 million tons.

Usher said he would like to create a 40 million-ton company.

That would put it on par with the world's giant steel makers. France's Usinor is in the process of buying two other European steel makers that would give it a combined capacity of about 45 million tons and make it the world's largest producer. A planned merger between Japanese steel makers NKK Corp. and Kawasaki Steel Corp. would create a 40 million-ton company.

A 40 million-ton U.S. Steel would also dwarf Nucor Corp., a so-called "mini-mill" that makes steel from scrap instead of from scratch as do U.S. Steel, Bethlehem and the other integrated companies. Nucor, which uses nonunion labor and has lower operating costs but cannot make high-grade steel for automobiles as the integrateds do, has largely weathered the weak environment that has beset other steel makers.

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