Point has a new owner

Severstal deal raises hopes for future of Md. steel complex

May 08, 2008|By Andrea K. Walker | Andrea K. Walker,SUN REPORTER

Russian steelmaker OAO Severstal completed yesterday its $810 million acquisition of the Sparrows Point steel mill from ArcelorMittal with plans to invest significantly in the Baltimore County plant and rev up production.

Sparrows Point management and labor expressed excitement and hope that the Severstal deal will shore up the future of the 119-year-old plant, which becomes a key part of Severstal's plans to expand in the United States.

The plant, which employs 2,500, has languished under a succession of owners, leaving workers anxious about whether it can remain competitive.

"The steel plant and all of us in management are extremely pleased with the outcome of the plant's sale to Severstal," said plant manager Thomas Russo.

"Their vision for Sparrows Point is very exciting and we hope to make sure they are satisfied with the purchase. We believe Sparrows Point will become one of their key assets in North America," Russo said.

John Cirri, president of the United Steelworkers Local 9477, said workers remain optimistic that Severstal will make good on its pledge to invest up to a half-billion dollars in the plant and boost production over the next five years. Severstal has said it could hire more employees as it increases output.

But the union said it is disappointed that the Russian steelmaker has met with labor just once since the Severstal's successful bid was announced March 21.

"I'm just a little disappointed that they, in my opinion, haven't embraced the union down here as much as I thought they would," Cirri said.

Severstal executives were not available for comment yesterday.

But in March when it announced the planned acquisition, Severstal executives, led by a Russian billionaire who is one of the world's wealthiest men, said it plans to run the mill at full capacity and invest in upgrades over the next five years. The plant turned out 2.3 million tons of steel last year, but is capable of producing 3.6 million tons.

The plant has received no significant investment since it was owned by Bethlehem Steel, which went bankrupt in 2001.

The most recent owner, ArcelorMittal, operated Sparrows Point as a "swing plant," adjusting production according to market demand.

Severstal has said it has no plans to cut employment, wages or benefits and that it plans to keep current management in place. The USW signed off on the deal, which also received approval from the U.S. Department of Justice and the Committee on Foreign Investment in the United States.

The Justice Department ordered Luxembourg-based ArcelorMittal, the world's largest steelmaker, to sell Sparrows Point because of antitrust concerns over the production of tin plate, which is used to make cans among other things.

The sale was overseen by a U.S. trustee appointed after a $1.3 billion deal to sell the plant to a joint venture led by Esmark Inc. of Illinois collapsed in December because the buyer was not able to secure financing and a labor agreement.

Esmark last week announced it had accepted a cash buyout offer valued at about $669 million from India's Essar Steel Holdings Ltd.

Under Severstal, the Steelworkers are hoping for a return to the days when labor and management worked together to increase productivity and resolve problems. That atmosphere of partnership dissipated after Mittal bought the plant and instituted a more top-down management approach.

The Steelworkers' contract at Sparrows Point expires in August, which means Severstal won't have long before it will have to sit down with labor to discuss the plant's future.

"We're confident they're going to do what they said they're going to do," Cirri said. "We're hoping to pick up more customers and more orders and start hiring."

Severstal becomes the fourth owner of Sparrows Point in five years.

Severstal has said it sees acquisition of the plant as key to expanding its footprint in the United States. It said Sparrows Point will complement its other U.S. properties, which include the former Rouge Steel plant in Dearborn, Mich., and SeverCorr in Columbia, Miss.

The company expects Sparrows Point to have synergies with its other U.S. operations, saving at least $50 million a year.

Analysts and those who follow the steel industry say the deal should be a positive for Sparrows Point.

"On paper it looks promising and it certainly is a pleasant contrast to the current ownership," said Mark Reutter, author of Making Steel, a history of Sparrows Point. "In its three years under Mittal Steel, Sparrows Point has received no capital investment and no real commitment by that company. It looked like the plant had a real chance of being closed down or being severely curtailed."

Christopher Plummer, managing director of Metal Strategies Inc., said Severstal is known for continually investing in its properties. He said that there is room for additional capacity at Sparrows Point. For instance, its tin mill produces more than 400,000 tons, but has the capacity for 700,000 tons.

"There are many good features to the plant," he said. "I would think Severstal would be looking to enhance the plant rather than running as is."

andrea.walker@baltsun.com

Sun reporter Paul Adams contributed to this article.

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