Make no mistake: Severstal’s decision to idle the steelmaking side of Sparrows Point for about 30 days goes beyond the need “to balance inventories” in a weakening market, as the company stated in a release late Friday.

Nor is the decision a result of environmental costs imposed on the company by government regulators or the Chesapeake Bay Foundation, as darkly rumored by some Severstal employees. While the mill has many unresolved issues stemming from a 1997 consent decree to end pollution of Baltimore water and air, Severstal has expended little hard cash on environmental remediation.

No, the problem lies within the mill – the lack of trust between the workforce and the company – as it faces serious competition from two steel mills opening in the South.

Finger Pointing over Red Ink

The immediate issue dividing the local workforce and the Moscow-based conglomerate is money. Sparrows Point has apparently lost tens of millions of dollars since the world recession began in September 2008 (the exact figure is closely guarded by Severstal).

Are the losses due to high raw material costs and lack of investment or because the workforce is bloated? United Steelworkers Local 9477 and the management running Sparrows Point – known collectively as “the Russians” – have engaged in increasingly bitter finger pointing and recriminations.

The battle has raged over a host of issues, including the failure of the two sides to reach a new contract and the company’s plans to eliminate or restructure about 600 jobs plantwide.

The just-announced idling of the steelmaking furnaces will affect about 700 workers and could result in the very job cutbacks that “the Russians” are seeking.

Consider what would happen if the shutdown extended beyond 30 days starting July 1. With hundreds of workers still on layoff in late summer or fall, Severstal would have a powerful tool to force Local 9477 to accept the restructuring plan.

What’s more, Severstal plans to import steel slabs when the furnaces are idled. If slabs brought by boat to Sparrows Point prove to be cheaper than making them from scratch, Severstal is likely to close down the steel side permanently.

The Lure of Southern Steel

Focused on each other, management and the union appear unprepared to meet a major challenge before them – crafting a strategy to cope with two state-of-the-art steel mills opening in the South.

Of key concern is the ThyssenKrupp plant starting this summer at Calvert, Alabama, upriver from Mobile. The “greenfield” plant represents the biggest new investment in the U.S. steel industry in many decades – $4 billion, according to the German steelmaker.

The mill will open its hot-strip mill in a matter of weeks, followed by the cold-rolling mill and pickling line, followed by four hot-dip galvanizing lines as 2010 draws to a close.

When production is fully ramped up next year, the Calvert plant will produce about 4 million tons of carbon steel – compared to 3 million tons at Sparrows Point – that could lure away many of the Point’s big-ticket customers in construction, consumer appliances and steel service centers.

Already ThyssenKrupp salespeople are taking orders, and it’s believed that they have picked up orders at the expense of the Point.

Competition from Severstal, too

Were this not enough, competition will be coming soon from Severstal itself. The Russian steelmaker is the owner of Severstal Columbus in east-central Mississippi. Partly completed, the plant is now producing about 1 million tons a year.

Unlike Sparrows Point, the mill uses an electric-arc furnace rather than a massive blast furnace to make steel. The mill also has “compact-strip technology” to produce flat-rolled products. This machinery is far superior to the Point’s aging 68-inch hot strip mill, which is a major clog-point for production and a sore spot for quality.

The Columbus plant is now producing steel for automobile plants nearby and has a limited impact on Sparrows Point’s order book. But once Phase 2 is finished next year, the plant will be able to make all of the products made by Sparrows Point except for tinplate.

In particular, Columbus will possess a cold-roll mill coupled to a pickle line – something that is the most modern feature of the Baltimore mill.

Non-Union Shop

The two southern mills operate as non-union shops. That fact was driven home to Local 9477 President John Cirri, who was given a tour of the Severstal plant in Mississippi courtesy of the company.

This week Cirri and other officials expect to meet with management to review their plan for shutting down the steel side. “At that time [we] will have a clearer picture of the affect it will have on our workforce,” Cirri said in an e-mail to members.

So far, Severstal has not issued WARN (Worker Adjustment and Retraining Notification Act) Notices. They are required for the layoff of 500 or more employees for a period exceeding six months.

Given the company’s determination to thin employment ranks, the union appears to have little choice but to agree to forced temporary layoffs.

As to the broader question – can the two sides set aside their distrust and cooperate in a long-term plan to turn around the fortunes of the 120-year-old mill – that remains to be seen.

Mark Reutter wrote the definitive history of Sparrows Point, “Making Steel: Sparrows Point and the Rise and Ruin of Industrial Might” (2005). He can be reached at reuttermark@yahoo.com.