Sparrows Point owner considers selling plant
Potential buyers eye mill owned by RG Steel
Aerial photo of the Sparrows Point mill. (Lloyd Fox, Baltimore Sun / July 2, 2009)
"We're not going to be specific at this time," said Bette Kovach, an RG Steel spokeswoman, as she confirmed comments by two company executives that potential buyers were eyeing the Baltimore County plant, as well as others owned by the firm.
Speaking last week to the Baltimore chapter of the Association of Women in the Metal Industries, Jerry Nelson, RG Steel's chief commercial officer, said that "people have expressed interest" in acquiring some RG Steel plants and that "I think it's safe to say everything is on the table."
Continued Nelson, whose comments were reported by the Steel Business Briefing newsletter, "That may mean some of the facilities, six months from now, are not part of RG Steel."
Sparrows Point, which employs about 2,200 workers, has changed hands several times over the past decade.
RG Steel's parent, Renco Group, bought the mill and other plants in Wheeling, W. Va., and Warren, Ohio, in March 2011 from the Russian steelmaker Severstal, becoming the fourth-largest flat-rolled steel producer in the United States. The Russian company had idled much of the plant the previous fall, laying off nearly 1,000 workers.
RG Steel restarted the plant after a seven-month shutdown and needed to regain lost customers. It also faced weak demand, a result of the slow-to-improve economy, and high raw material prices.
Facing a cash crunch, RG Steel had to idle the main furnace right before Christmas. It wasn't able to restart until late January, when it received a $125 million infusion from Cerberus Capital, a New York-based private equity firm.
The company has spent the spring reorganizing its operations and trimming costs. In April, it temporarily shut down the tin mill because of low bookings. At the beginning of May, it cut the salaries of managers and executives.
Earlier this month, the mill also shut down its "L" blast furnace for routine maintenance, restarting it after a few days. On Friday, the blast furnace was "hot idled" due to a shortage of raw materials, but it was placed back in operation on Saturday, Kovach said.
RG Steel's chief operating officer, Mark Whalen, who also addressed the local chapter of the business group, said the company had made significant progress in cutting costs since the acquisition.
Whalen added that the company had "some decisions to make in the next few weeks about what we are and how we want to run," Steel Business Briefing reported.
Officials with the United Steelworkers of America, which represents workers at the plant, did not return calls seeking comment Monday.
One analyst said he would be surprised if a single buyer acquired all of RG Steel's plants, saying the company would be more likely to sell off plants separately.
Rick de los Reyes, a portfolio manager with Baltimore-based T. Rowe Price who follows the steel industry, said RG Steel took over the mill at a difficult time.
"The steel industry globally has been weak and even in the U.S. has suffered from overcapacity," he said, adding that German steelmaker ThyssenKrupp Steel has been marketing a recently built steel mill in Alabama. "It's a tough industry to be in. There's a reason why Sparrows Point changed hands so many times; it's because it's a difficult operation to run. It's a difficult operation to run profitably."
A likely suitor for Sparrows Point might be a firm such as CSN, a Brazilian steel company with access to raw materials that could supply a mill, de los Reyes said.
"Sparrows Point is disadvantaged compared to other mills from a raw materials standpoint" because steel mills in the Midwest are located closer to iron ore mines, de los Reyes said. "That's always been the challenge for Sparrows Point, particularly in an environment of high iron ore prices."
But with Sparrows Point, an integrated plant that makes steel and runs various production lines, the company has alternatives to selling the plant outright, experts said. RG Steel could decide to bring in an independent contractor to run specific lines, sell only specific functions at the plant, or sell equipment that could be reassembled elsewhere, experts suggested.