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Sparrows Point mill back on line

Employees of the RG Steel plant in Sparrows Point have returned to work earlier than expected after about 720 people were furloughed right before Christmas.

“Everybody’s coming back,” said Chris MacLarion, vice president of United Steelworkers Local 9477, which represents the Sparrows Point workers.

Most workers returned last week, with about 250 slated to resume their jobs within the next two weeks, he said Friday. The company had said in December that the furloughs would end in early March.

The plant’s “L” blast furnace was fired up on Jan. 13 for the first time since the Dec. 22 shutdown. Steel production has been under way since last Monday, MacLarion said.

The good news comes after local political leaders, RG Steel officials, and union leaders pressured the company’s financiers to free up cash.

“Gov. [Martin] O’Malley was instrumental in pestering different banks in freeing up liquidity,” MacLarion said, adding that plant employees were “optimistic and hopeful” about the news.

Twelve financial institutions have a $750 million credit facility with the company. The financiers had moved funds into reserves, making it difficult for the steel company to continue operations.

The governor wrote a letter in December to Jeffrey R. Immelt, chairman and CEO of General Electric, one of RG Steel’s lenders, asking the company to release funds and stabilize financial agreements with RG Steel.

“Nothing in this world is permanent,” O’Malley told WBAL News, addressing whether workers were coming back temporarily or permanently.

“It appears that they secured a line of capital, operating capital, that allows them to fire the plant back up,” he said.

RG Steel also announced last week that Cerberus Capital Management, a private equity investment firm, had committed money to the cash-strapped company.

“This is a hedge fund that’s committed to investing in underperforming companies, so I suspect that the owners of RG Steel view that as a positive development, which obviously addresses their immediate need, which is increased cash flow,” said Baltimore County Executive Kevin Kamenetz.

The major difficulty for the company is the rising cost of raw materials and the lower world market price for steel, Kamenetz said.

“If we can identify strategies that will help them improve their cash flow, we have a better chance of maintaining the full force of steel workers,” he said.

Right now the industry standard is to run steel production plants at 75 percent of capacity, said Michael Locker, a steel industry analyst and the president of New York-based business consulting firm Locker Associates Inc.

“When you’re running at 75 to 80 percent of capacity utilization, an integrated steel company like Sparrows can at least break even, if not make money,” he said. “If we can push that up to over 80, then people will start really making money.”

Though it’s still a tough market, Locker said things are moving in the right direction for the steel industry.

However, the big issue remains the level of demand, he said

“That has to do with the level of the economy and the strength of manufacturing and construction, specifically auto manufacturing and high-rise construction,” Locker said.

The Sparrows Point steel mill has a history of instability and plummeting value.

From late 2010 to early 2011, under former owner OAO Severstal, the plant saw a six-month stop on steel production.

Severstal, which bought the Sparrows Point mill and two other properties for $2.2 billion in 2008, sold the three plants three years later to RG Steel, a subsidiary of The Renco Group Inc., for $1.2 billion.

The cash component of the deal has become the subject of a lawsuit.

RG Steel’s purchase of Sparrows Point was hailed by county, state and federal officials as a turning point for the long-struggling steel mill.

Formerly owned by Bethlehem Steel, it was once the largest steel mill in the country with about 31,000 workers. As its workforce declined, past owners, including Severstal, routinely shuttered production lines and furloughed workers.