American workers caught in steel trap

September 19, 2006|By Martyn Chase

Welcome to the new era of global steel. You might also call it the downside of The World is Flat.

Steelworkers at Sparrows Point in Baltimore County and at Weirton in the northern panhandle of West Virginia are being battered by the consolidation wave sweeping through the steel industry worldwide.

They work for Lakshmi Mittal, the Indian steel mogul who is both a visionary and the pied piper of steel globalization. He's also the fifth-richest man in the world, according to Forbes magazine. As chairman and chief executive officer of Mittal Steel Co., he led a revolution that transformed steel from a national to a global industry. He forged an empire by buying mismanaged, government-owned plants in the developing world at bargain prices, eliminating inefficiencies and making them competitive in world markets. His first big move into the U.S. came in 1998 when he bought Inland Steel Co., then this country's most efficient integrated producer (one that owns all stages of production), for $650 million.

In the aftermath of Mittal's recent $33 billion merger with Luxembourg-based Arcelor, Mr. Mittal sits atop a global giant that produces 120 million tons of steel annually, three times more than its nearest rival, Nippon Steel Corp. of Japan. Initially, Mr. Mittal and his family will control 43.5 percent of the shares of the new Arcelor-Mittal, and the chief executive will be Roland Junck, an Arcelor executive. Make no mistake about who will be calling the shots. Mr. Mittal confronts new challenges trying to navigate his way through Arcelor's European-style bureaucracy, but he retains veto power over all company moves.

Mr. Mittal and his new partners from Arcelor face decisions affecting thousands of U.S. jobs. Before the end of the year, his company probably will be forced to sell either Weirton Steel or the Sparrows Point plant to satisfy Justice Department antitrust concerns about a potential tin monopoly.

Both Weirton and Sparrows Point are fighting for survival. Workers there have been put through the wringer by investor Wilbur L. Ross and his International Steel Group, which axed jobs and pension and health care benefits at both facilities. Mr. Ross scooped up Bethlehem, LTV, Weirton and others in bankruptcy proceedings, then sold ISG to Mittal Steel for $4.5 billion in late 2004. He reportedly made $267 million from that transaction and now sits on Mittal's board.

Wall Street investors and most of the financial press are cheerleaders for Lakshmi Mittal, who owns 67 plants in 27 countries employing more than 320,000 people. Investment bankers at Goldman Sachs alone pocketed more than $100 million in fees for advising Mr. Mittal in the Arcelor deal.

Workers at Weirton and Sparrows Point see a different picture. They don't buy fashionable theories from country club pundits suggesting the world is flat. They are living examples of globalization's downside. What they see are devastating job losses and a downward spiral of despair as Mittal, and ISG before it, relentlessly cuts jobs and "legacy costs" - industry jargon for health care, pension and other benefits.

At Weirton, the outlook is especially bleak. Only 1,200 workers remain at an aging facility that once employed 14,000. Long-term, steel analysts are pessimistic on the future for Weirton, though pieces of it may survive for a few more years as a center for tin-mill production.

As the only integrated plant on the East Coast, Sparrows Point is in far better shape. It's likely to survive in some form, either with Arcelor-Mittal or with another firm, such as ThyssenKrupp of Germany.

Bethlehem invested about $1 billion in upgrading Sparrows Point before filing for bankruptcy protection in 2001. The plant, which employs about 2,400, sits at a major deep-water port close to rail and road transportation. Despite substantial downsizing, it still produces 3 million tons of steel per year and pumps more than $1 billion annually into the Maryland economy.

Despite these advantages, all bets are off in the new age of global steel. The Point's large L-blast furnace will need a $300 million overhaul in the next few years. That decision will be made by cold-eyed analysts in boardrooms somewhere in Europe.

There's a good chance Mr. Mittal (or someone else) eventually will shutter the blast furnace at Sparrows Point and import slab steel for processing from lower-cost subsidiaries overseas. That would eliminate many more jobs at Sparrows Point, but it's probably the cost-effective move.

Arcelor-Mittal is just the first in a series of unprecedented consolidations on the horizon for steel. Mr. Mittal's vision of the future is a world where two or three global goliaths produce 150 million to 200 million tons of steel a year. He built his empire on low-cost labor and raw materials.

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