By Hanah Cho, The Baltimore Sun
7:14 PM EDT, May 24, 2012
The owner of the financially ailing Sparrows Point steel plant is idling operations there, warning 1,975 workers Thursday that they would be laid off starting next month.
The news, the latest casting doubt on the future of the Baltimore County facility, came as RG Steel is shopping the steel mill and its other assets to potential buyers.
RG Steel informed the Maryland Department of Labor, Licensing and Regulations that layoffs would begin June 4 and continue through June 18. The state said the company would be laying off 1,714 hourly and 261 salaried workers, losses that would be a significant blow to the economy.
For years, the plant has faced uncertainty before last-minute deals salvaged the mill. RG Steel is the latest owner to try to sustain steel production at the once-flourishing facility.
In a letter to the United Steelworkers, the company blamed an "immediate, unexpected liquidity crisis" for the shutdown as its lenders cut off credit to maintain operations. It said it did not know whether the idling would be temporary or permanent.
Joe Rosel, the newly elected president of the United Steelworkers Local 9477, said he expects some workers would remain at the plant to maintain the "L" blast furnace and other parts, though he did not know how many. The total number of affected employees won't become clear until June 4, he said.
Characterizing the situation as "fluid and dynamic," Rosel said the union is working with RG Steel to find capital or a buyer for the company or its facilities.
"We've been through it before. Obviously, people are concerned," said Rosel, who has worked at Sparrows Point for 34 years. "They have every right to be concerned. But we're going to keep them informed, and there is a good workforce here and a lot of smart people."
A handful of workers gathered Thursday afternoon at Micky's bar on North Point Boulevard, just outside the mill's entrance, were not surprised by the shutdown or layoffs, which they've experienced in the past.
"Personally, we've been though this so much, I don't get shook up about this stuff," said Russell Dent, a control room operator who has worked at the plant for 17 years and was on his way to an evening shift at the plant.
"A couple weeks back, they started painting everything," Dent said. "And when they start painting and cleaning up, you know its going up for sale."
Bette Kovach, a RG Steel spokeswoman, said steel-making operations at its other plants in Warren, Ohio, and Wheeling, W.Va., also would be idled as the firm goes into "asset protection mode."
Once a thriving plant, Sparrows Point has struggled in recent years amid industry consolidation and competition from cheaper foreign steel. A series of owners have come and gone in recent years, yet Sparrows Point managed to survive despite being idled several times.
"I'm amazed … it's like the phoenix," said Marc Liebman, president of AIM Market Research, a Pittsburgh firm that provides research for steel companies and their suppliers.
"I don't know," he added, whether this latest shutdown spells doom for Sparrows Point.
RG Steel's parent, Renco Group, bought the mill and other plants in March 2011, seven months after the previous owner — Russian steel giant Severstal — had idled much of the facility, laying off nearly 1,000 workers.
When RG Steel restarted the plant, it needed to win back customers. It also faced a weak economy, reduced demand and high raw-material prices.
Right before Christmas, RG Steel idled the main furnace because of a cash crunch. It restarted in late January after a $125 million cash infusion from Cerberus Capital, a New York-based private equity firm.
With the global steel industry weak and the U.S. suffering from overcapacity, analysts said, it's a difficult time for steel companies to make a profit.
In recent months, RG Steel has been cutting costs at Sparrows Point. In April, it temporarily shut the tin mill because of low bookings. Early this month, it cut the salaries of managers and executives.
Twice in the past few weeks, Sparrows Point idled the main blast furnace, first, it said, for routine maintenance and the second time because of a shortage of raw materials.
In the letter Wednesday to the Steelworkers notifying the union of the shutdown, an RG Steel executive confirmed rumors of another liquidity crisis.
"Unfortunately, in a completely unforeseen and unforeseeable turn of events, the company's lenders and equity investors have advised that they are suspending funding of ongoing ordinary course operations of the company," wrote Thomas Cera, vice president and general manager of RG Steel's Warren and Wheeling plants. "As a consequence of this unexpected development, the company is actively pursuing a buyer of some or all of the company's assets."
Baltimore economist Anirban Basu called the potential loss of nearly 2,000 employees a "significant blow" to the local economy.
"These are reasonably well-compensated jobs with sustainable benefits," he said.
Basu called on Baltimore County and state officials to support RG Steel's plans to find a new owner, "one that actually intends to own the plant for many years."
Taking it a step further, state and Baltimore County officials should try to influence the process by providing an incentive package, such as a tax break, to attract better-quality buyers, Basu said.
"We're one buyer away to turning this around," he said.
RG Steel provided notification under the Worker Adjustment and Retraining Notification Act, or WARN, a federal law that generally requires companies with 100 or more employees to give 60 days' notice to workers or their union, as well as to the state's dislocated-workers unit.
However, Thursday's notification fell short of the 60-day warning, with layoffs to begin in two weeks. RG Steel said it could not give notice earlier because the cash crunch was unexpected.
The state labor department's "Rapid Response" team has been mobilized to help affected workers and provide information on unemployment insurance, job placement and training opportunities.
"Layoffs and plant closures are always tragic, especially when such a historic local institution as Sparrows Point is affected," said Maryland interim Labor Secretary Scott R. Jensen. "While it's unfortunate that efforts by everyone involved in keeping RG Steel open and solvent have been unsuccessful, it is our hope that all RG Steel employees will find new employment as soon as possible, and we will deploy all our resources to assist them in their efforts."
Baltimore Sun reporter Steve Kilar contributed to this article.
Sparrows Point timeline
1889: Pennsylvania Steel pours first pig iron at Sparrows Point
1916: Bethlehem Steel buys the plant and announces $50 million expansion
1959: Steel plant reaches peak employment of 30,920 after major expansion launched in 1957
2001: Bethlehem Steel files for Chapter 11 bankruptcy protection, seeks to reorganize
2003: Financier Wilbur Ross founds International Steel Group and buys Bethlehem in $1.5 billion deal, creating nation's largest steel producer
2005: India-born billionaire Lakshmi N. Mittal merges his growing steel empire with ISG and forms Mittal Steel Co. NV, the largest steelmaker in the world
2006: Mittal announces a hostile bid for rival Arcelor SA in January, a $33 billion acquisition that would create a global giant
2006: The Department of Justice files suit in August to block the sale for antitrust reasons unless Mittal sells Arcelor's Canadian company, Dofasco Inc. But that sale is blocked by a Dutch trust that controls it. Mittal later offers to sell a Weirton, W.Va., facility instead.
2007: The Justice Department tells Mittal to sell Sparrows Point to maintain competition in the tin-plated steel market in the United States
2008: Russian steelmaker OAO Severstal completes $810 million acquisition of Sparrows Point with plans to invest significantly in the plant and rev up production.
2010: Severstal idles main part of Sparrows Point and temporarily lays off nearly 1,000 workers because of weak economy and drop in demand for steel
2011: Severstal announces it is selling Sparrows Point and two other mills to Renco Group
2012: Renco puts Sparrows Point up for sale and then announces it will close the mill in June, laying off 1,975 workers
Source: The Baltimore Sun archives
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