Most of Sparrows Point to be idled

Citing poor market conditions, Sparrows Point steel mill owner OAO Severstal said Tuesday it plans to idle most of the facility through the end of the year.

The Russian steelmaker, controlled by billionaire Alexei Mordashov, said it would extend the idling of its hot?end facilities at Sparrows Point, which began July 25, through the fourth quarter.

“The idling of blast furnace and steel?making facilities is in response to weakened market demand allowing the company to better optimize production capabilities and balance internal inventories,” the company said in a prepared statement. “The hot?end facilities will resume operations once market conditions improve.”

The company said the hot strip mill and all finishing facilities including tin plating lines of Sparrows Point would continue. The decision affects 2,500 workers at the plant.

“The market is very challenging right now,” Nick Sowar, a steel industry partner for Deloitte & Touche USA LLP, said. “There is an apprehension in key markets to make purchases.”

John Cirri, president of Local 9477 of the United Steel Workers union, which represents Sparrows Point workers, did not return phone or e-mail requests for comment.

News of the extended idling was first reported by the Baltimore Brew website.

Sowar said companies like Severstal are recognizing the drop in steel buying and, in Sparrow Point’s case, for construction steel, reducing output to control costs.

“The companies are going to be taking production down rather than lowering the cost,” Sowar said. “It’s a more disciplined approach. This way it’s not performing a race to the bottom to see how low the price can go.”

He said this was a relatively new approach for domestic steel producers. He said in the past, steel makers would have maintained output levels regardless of dips in demand.

“The mentality has changed in the North American steel industry, and I applaud it,” Sowar said. “The mindset used to be, ‘Keep moving the tons through the mills.’ Now it’s more disciplined.

“Otherwise, you flood the market, and that can impact the long-term price.”

On Sept. 3, Severstal reported net income of $192 million in the second quarter after posting a loss in the previous quarter. In the filing, the company said its U.S. facilities continued to lose money, but posted a $1 million loss for the second quarter compared to a $138 million loss in the first quarter. Mordashov said the company would focus on restructuring its North American holdings.

The United Steel Workers union has said it is working with the company to find buyers for the Sparrows Point plant as well as plants in Ohio and West Virginia that Severstal acquired for a total of $2.2 billion in 2008. Sowar said the threat of emissions legislation coming from Washington is likely to chill the acquisition market given the huge impact it could have on steel industry.

“I don’t think anytime imminent there’s going to be anyone wanting to jump in and get into the U.S. steel market,” Sowar said. “I think they’re going to have to wait this one out.”

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