Another new owner might not be bad for the Point

The Baltimore Sun

Is it too much to ask for a little stability and certainty at Sparrows Point? Apparently.

The storied steel mill is on its third owner in four years. Now come developments that increase the chance it'll be sold again. Changing ownership brings new bosses, distractions and often layoffs.

Even so, it might be good for Sparrows Point and its employees to be sold one more time.

With current owner Arcelor Mittal, which commands a tenth of the world's steel-production capacity, the Point is overshadowed and underappreciated. Another deal might put it in the hands of somebody who could concentrate on making steel rather than seeing it as a 50-cent chip on a $100 poker table.

"I don't see how it could be worse," says author Mark Reutter, who chronicled Sparrows Point in the book Making Steel and has followed the industry for years. "Mittal Steel has put absolutely no capital investment into Sparrows Point."

It's far from clear whether the Point will change hands again. But chances for a near-term sale increased Monday when Mittal's attempt to resell Canada's Dofasco was blocked by a controlling trust.

Mittal is merging with Arcelor, a Luxembourg steel giant that owns Dofasco. The U.S. Justice Department believes the purchase would give the combined company too much power over the North American market for tinplate steel, used mostly for food and beverage cans. The feds told Mittal it had to sell Dofasco or, barring that, sell Sparrows Point or a mill in Weirton, W.Va.

With the Dofasco sale on ice, it's down to the Point or Weirton. Steel analyst Charles Bradford believes regulators may prefer Sparrows Point.

"The Department of Justice could very well find that Sparrows Point has a better chance of surviving and standing alone than Weirton has," he says, even though Mittal has said it would prefer to sell Weirton.

Standing alone is not exactly what the Point needs, though.

An ideal scenario would be for it to end up in the hands of a "strategic" buyer - another steelmaker rather than a financier - who would reinvest in the plant and do a better job of marketing its products.

But Bradford's larger point is that the feds may force a Sparrows Point sale, and that raises possibilities in which the mill wouldn't have to stand alone.

It was owned for years by Bethlehem Steel, which entered Chapter 11 bankruptcy proceedings in 2001. International Steel Group, headed by Wall Street's Wilbur Ross, bought Sparrows Point and other Bethlehem assets and flipped them to Mittal after renegotiating labor agreements, shrinking employment and other restructuring.

Mittal has probably earned decent money on the Point because of the boom in steel prices. But little of the cash flow has gone back into the plant. The Sun has quoted General Manager Thomas Russo as saying that, other than environmental upgrades, Mittal plans no capital investments in Sparrows Point production equipment for at least two years.

Every year that goes by without substantial reinvestment raises chances that someday the Point will close. A flipping calendar with no capital projects was the early-warning sign for the demise of General Motors' Baltimore factory.

For the time being, however, the Point is a viable operation. Its blast furnace has years of operation left. Some of the mill's steel is too narrow for today's market, limiting potential customers. But it produces high-quality product for the right clients, and it's more efficient than ever.

Sparrows Point's cold-roll mill is less than a decade old. Its slab-caster can furnish product to other mills without their own smelting operations. Its port gives it unrivaled access, for an East-Coast integrated mill, to global supplies and customers.

Who might be interested?

Although Bradford believes the Point could be bought by another fast-buck artist (my term, not his) such as Ross, there are also established steelmakers that might want it.

ThyssenKrupp, for example. The German company has contracted to buy Dofasco from Mittal but appears to be blocked by Monday's decision. Plan B for a ThyssenKrupp play on North America might be a Sparrows Point takeover. The Sun's Allison Connolly has reported that ThyssenKrupp officials toured the Point in late May.

Or maybe Brazil's CSN. If CSN fails in its bid for steelmaker Wheeling Pittsburgh - the shareholder vote is on Friday - perhaps it could look at Sparrows Point. Or maybe Severstal North America, owned by a Russian oligarch.

Change has not been good to the U.S. steel business the past decade. But for Sparrows Point, one more change might be better than the status quo.

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