No Sparing Sparrows Point, Mittal Must Sell to Settle Antitrust Issue

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Researched by Industrial Info Resources (Sugar Land, Texas). Mittal Steel USA, a subsidiary of the Mittal Steel Company (Rotterdam, The Netherlands), became Sparrows Point's third owner in 2005 when it bought International Steel Group (ISG), forming the world's largest steel maker. ISG bought the facility from bankrupt Bethlehem Steel in May 2003. Sparrows Point was once considered the flagship of Bethlehem Steel Corporation. Nearly 2,400 workers are employed at the Sparrows Point, Maryland mill, which produces about 3 million tons of steel and 500,000 tons of tin mill products a year. Now, it will only be a matter of time before another owner takes over.

An upgrade to the 10,000-ton a day blast furnace was being reviewed at the mill in the latter part of 2004. When Mittal took over the plant, the $300 million project was deferred for a number of years, virtually shelved. Now, one of the questions being asked is will a new owner have the money to rebuild the plant, thereby allowing the plant to expand and implement upgrades that can improve operations? It’s been a number of years since any major upgrades have been performed at the plant.

While some hopes might be running high for a new owner with deep pockets, there is also talk that the Justice Department's decision would be challenged. The United Steelworkers Union, which represents the 2,106 production workers at Sparrows Point, said it would ask for a review of the decision in hopes of a reversal. The Justice Department had ordered Arcelor-Mittal (NYSE:MT) (Rotterdam, Netherlands), now the world's largest steel company, to sell one of its North American tin producing mills after the 2006 merger of the Netherlands-based Mittal Steel N.V. and Arcelor of Luxembourg, because of antitrust concerns.

The fact that it was the selling of Sparrows Point plant came somewhat as a surprise. It was expected that Arcelor-Mittal would sell its Canadian Dofasco division to meet the aforementioned antitrust concerns. Arcelor had previously placed that facility in a trust in order to avoid its takeover by Mittal (before the agreed merger). It was precisely because of that very trust that the newly combined company of Arcelor-Mittal was unable to sell the Dofasco division to resolve the antitrust issues. The next step was to release a statement that stated the company preferred to sell the Weirton, West Virginia mill. With that announcement, Esmark, Incorporated, a Chicago Heights, Illinois-based company expressed interest in purchasing that plant. That desire has not been dampened with the forced sale of Sparrows Point. Discussions are on going in regards to that matter.

The Justice Department said selling the Sparrows Point mill would make the most sense because it is a lucrative and diversified facility. Unlike the Weirton mill, Sparrows Point can also make the steel slabs necessary to produce the tin mill products. The Weirton mill has not produced steel since a temporary shutdown of blast furnace operations in May 2005. The mill continues to operate its hot rolling mill with steel slabs delivered from its Cleveland and Sparrows Point steel mills.

It appears likely that there will be both foreign and domestic interest in the purchase of Sparrows Point. While some domestic companies will be unable or unwilling to consider the purchase, not willing to endure the conundrum of antitrust issues. A number of foreign players could be open to the purchase. The Russians, Brazilians, Chinese and other overseas steel-makers could be interested in finding an entrance or strengthening their footing in the North American market. OAO Severstal (OTC:SVJTF) (Moscow, Russia) owns the River Rouge Steel mill (Michigan). It seems improbable at this time that ThyssenKrupp would be interested as they are moving forward with plans to build its own new steel and stainless steel mill in either Alabama or Louisiana (See related February 9, 2007 article - Alabama and Louisiana in the Running for $3 Billion Steel Mill). Also among the players, we have the Russian Evraz Group that recently acquired Oregon Steel Mills for $2.3 billion.

Sparrows Point, along with the Weirton mill, will continue to be newsmakers in the coming months and Industrial Info will continue to track the progress of any ownership changes and new capital work at these plants. Weirton was reviewing an upgrade to the Tandem cold mill that carries a price tag of $6 million. The project, still considered in the early planning stages, was expected to begin construction in the third or fourth quarter of this year and be complete in early 2008. Whether the sale of the Weirton mill effects the project is yet to be seen.

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