Sparrows Point for sale, plans to idle operations

Russian owner Severstal reportedly looks to sell U.S. assets

August 13, 2010|By Andrea K. Walker, The Baltimore Sun

Russian steel company Severstal is looking for a buyer for the Sparrows Point steel mill in Baltimore County and its other financially strapped U.S. plants, according to union officials.

The news comes as Sparrows Point plans its second shutdown this summer — leaving three-quarters of the plant idle starting next week, said John Cirri, president of United Steelworkers Local 9477. The shutdown could result in more layoffs at the facility.

Cirri said he learned this week from higher-level union executives that Sparrows Point was among several steel mills that Severstal was shopping around.

"I have been told the company is for sale, but because of confidentiality agreements they can't tell me further details," he said.

Officials with United Steelworkers said they are working with Severstal in hopes of finding a single buyer for Sparrows Point and properties in Wheeling, W.Va., and Warren, Ohio. Severstal brought the three properties for more than $2 billion in 2008 as part of a strategy to expand in North America.

The union represents about 6,000 workers at the three sites, with about 2,500 at Sparrows Point, 2,200 at Severstal Wheeling and 1,300 at Severstal Warren.

"We are very concerned about keeping those jobs and keeping a certain capacity of steel in this market," said Gary Hubbard, a United Steelworkers International spokesman in Washington.

This week, trade publications cited anonymous sources who said Severstal, which also has operations at other U.S. locations, had sent information packets to potential buyers, including U.S. Steel and Brazil's Companhia Siderurgica Nacional, and requested responses by the end of the week. The Baltimore Brew also reported the sales effort.

Severstal executives declined to comment on reports of a sale.

"It has not been company practice to address market rumors and/or speculation, including the articles recently printed," company spokeswoman Marika Diamond said in an e-mail message. "We remain committed to North America and have no plans to exit the North American market. We are committed to serving our customers."

The fate of Sparrows Point has been under a cloud for several months as Severstal has been restructuring its money-losing North American plants. The company has said that it could sell plants, but this appears to be its most aggressive attempt to do so.

Nucor Corp. said in a recent earnings conference call that it had considered buying Sparrows Point but decided against it.

The union at Sparrows Point has not been able to negotiate a new contract with Severstal and has been operating under extensions of the old contract for several months.

The plant is still reeling from an earlier shutdown of its primary steel-making facilities in July, which included idling the blast furnace. It was considered a serious step because restarting the furnace is a slow and complex process. Those operations are expected to resume when the market improves.

After the July shutdown, about 1,800 of the regular work force of 2,200 remained on the job, Cirri said. He said Thursday that those operations are expected to resume in October.

The shutdown that begins next week affects the finishing side of the business, including the cold mill, and will likely result in job losses. The work will be ramped up after two weeks and then brought back down two weeks later, continuing the pattern until the market improves, Cirri said.

"We're going to try to manage it with retirements and voluntarily layoffs," he said. "If we don't get enough of that, you'd be looking at forced layoffs. It is more than likely there could be some forced layoffs."

Only the tin mill, which makes cans, will continue running through next week's shutdown.

Severstal executives said the most recent closing was the result of low demand for steel because of the slow economy.

"Due to softening market conditions, we are temporarily idling some of the finishing operations for a two-week period … so that we can align our capacity with market demand," Diamond said.

Steel companies across the country are dealing with a slowdown in the industry as demand wanes. Construction companies and other customers that buy steel from Sparrows Point and other plants haven't needed to restock.

Steel prices have declined, putting a dent in steel company profits. And the cost of raw materials has risen, making it more expensive to run the business. Sparrows Point is at a further disadvantage because it buys its raw materials instead of producing them.

"The general steel market here in the U.S. and even around the world has been in a fairly significant correction mode since April," said Christopher Plummer, managing director of Metal Strategies Inc., a Pennsylvania consulting firm. "It relates to the weakness of this economic recovery overall. It's much weaker than people were expecting."

Plummer said it might be hard for Severstal to find a buyer.

"With conditions so bad that the mill has to be almost entirely closed, that is one of the worst times to have to sell it," he said.

Plummer and Cirri said a new owner could bode well for Sparrows Point operations.

"If it's a company that has a long-term business vision and has access to good quality cheap raw materials, I think it could be a good thing," Cirri said. "We've proven before the market crash that we can make money."

The Associated Press contributed to this article.

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