Point repairs set for summer

Blast furnace upgrade is Severstal's 1st project

June 24, 2008|By Andrea K. Walker | Andrea K. Walker,Sun reporter

Russian steelmaker OAO Severstal, which closed on an $810 million deal to buy Sparrows Point in May with promises to invest significantly in the steel plant, said its first major project will be to upgrade the blast furnace.

The $10 million renovation will begin in late summer and the blast furnace, which creates raw steel from ore, would be shut down for about 14 days.

It was unclear what would happen to employees during the shutdown. The upgrades would allow the plant to produce more steel and in turn increase profitability, the Severstal executives said.

The company talked about its plans during a visit yesterday by Alexey A. Mordashov, Severstal's general director, majority owner and the man who has guided the company's growth. It was Mordashov's first trip to Sparrows Point.

Plant general manager Thomas Russo said Mordashov's visit and the planned upgrade show that Severstal is serious about earlier promises it made to reinvest in the facility. Severstal has pledged to spend $500 million over the next five years to bring it to full capacity of 3.6 million tons a year.

"It's an extremely positive statement by Severstal about their... commitment to the plant," said Russo.

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. Russo noted that the head of ArcelorMittal, Lakshmi N. Mittal, never visited Sparrows Point.

Mordashov, who owns about 82 percent of Severstal, said he visits all his plants. He also plans to visit the former Rouge Steel plant in Dearborn, Mich., which Severstal also owns.

"It's extremely important to see the premises and see the people ... and discuss the business," Mordashov said.

Mordashov also attended a cocktail reception with employees and customers yesterday. He met with Lt. Gov. Anthony G. Brown and government officials from Baltimore County.

Analysts have questioned Severstal executives in the past about the profitability potential of Sparrows Point. Mordashov said his visit to the plant reaffirmed his belief that Sparrows Point is a good investment. The plant had $1.6 billion in sales last year, according to a Severstal presentation.

"The plant is in better condition than is reported," Mordashov said. "Of course it's not perfect and there are upgrades to be done. But its better than its image."

Mordashov said the company is still evaluating what other upgrades will be made at the 119-year-old plant. So far, the company has completed administrative changes such as replacing signs and transferring business operations from Mittal.

The U.S. Steelworkers union contract at Sparrows Point expires in August, and Russo and Mordashov said they'll have to look at balancing the number of employees with expansion plans. They also have to contend with 700 employees reaching retirement age in the coming months.

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 Rouge Steel plant and SeverCorr in Columbia, Miss.

Severstal is currently in a bidding war to buy Esmark, the West Virginia-based steel company that was also in contention to buy Sparrows Point. The Esmark-led deal fell apart when the company couldn't secure financing.

Mordashov declined to discuss further details yesterday.

The company expects to be able to reduce costs at Sparrows Point and its other U.S. operations by at least $50 million a year.

andrea.walker@baltsun.com

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