Sparrows Point is up for sale by its Russian owner, union and industry sources told the Brew, confirming reports in an industry newsletter. Meanwhile, rank-and-file employees brace for layoffs and managers prepare to temporarily idle some operations next week.

The United Steelworkers Union (USW) is spearheading efforts to find a new owner for the troubled steel mill controlled by Russian billionaire Alexei Mordashov, founder and CEO of Severstal, the Brew has learned.

Sparrows Point is not the only Severstal operation being shopped around. The company’s North American division is also soliciting bids for its money-losing mills in Ohio and West Virginia, according to a report by Metal Bulletin.

Several foreign companies are reportedly mulling a bid for Sparrows, including Germany’s ThyssenKrupp and Brazil’s CSN. Two domestic companies, U.S. Steel and AK Steel, have reportedly looked over the property.

Whether potential buyers will actually submit bids that are acceptable to Severstal is an open question. Severstal purchased the mill in May 2008 for $810 million. Four months later, the world recession sent steel prices tumbling. Since then, Sparrows Point has not made a monthly operating profit, according to management sources.

Asked about a potential sale, Marika Diamond, spokesperson for the company, replied today by e-mail, “It is Severstal’s policy not to comment on market rumors or speculation.”

Finishing Mills to be Idled Next Week

On Sunday the company plans a two-week outage of all but one of its finishing mills, the Brew has learned. The facilities will include the hot-rolled, cold-rolled, galvanizing and coated steel mills, which produce the bulk of product.

Only the tinplate operation, which makes specialty steel for the container industry, will remain open.

This follows the close of the “L” blast furnace on July 25 and suspension of all steel-making operations. The company has told union officials that the furnace will be closed until market conditions improve. The earliest date for resuming operations is said to be in October.

Together these cutbacks mean that most of the plant’s 2,300 union workers will not be assigned their regular tasks for the final two weeks of August.

Attempt to Delay Layoffs

Layoffs at the mill have been delayed in part because of union complaints that Severstal violated the union contract by importing Russian-made steel slabs. That controversy has stopped the influx of foreign steel at least temporarily, according to sources.

These sources say that USW Local 9477 President John Cirri has offered to terminate the complaint over Russian slabs in return for no forced layoffs. Cirri is on vacation this week and did not respond to an e-mail request for comment.

USW Local President John Cirri issued this statement to the Brew tonite:

I have been informed that Severstal NA is for sale. I have not signed any confidentiality agreements so very little information has been shared with me about the details of any pending buyer.

[RE: the Russian slabs]: I was willing to a settlement on Severstal’s violation of our basic labor agreement when they began processing Russian slabs while our furnace was not at full capacity. The settlement would have had to meet these conditions … Severstal would have to admit that they violated our basic labor agreement and would cease and desist from such future practice and there would be no forced layoffs during the Primary Side shutdown period. The company decided to reach no agreement, so the grievance is moving through the process and will go to arbitration.

I also want to point out that with the right quality and price of raw material, Sparrows Point can compete with anyone in our industry. We have been through many changes and restructuring over the many years and have a highly dedicated and experienced workforce that is committed to Sparrows Point having a long term viable future and we can make that happen with the right owners.

John Cirri – President
District 8, USW Local 9477, Sparrows Point Plant

For months, Cirri and Moscow-based Severstal have fought over job cutbacks and a stalled contract (employees are still working on a contract that expired in 2008).

“The union has lost faith in the Russians, and the Russians are tired of losing money at this plant,” said one source, using the word “Russians” to describe Severstal’s management team.

Point Losing Money

Both the union and company agree that Sparrows Point is losing money. The reason for the losses differs according to the party being questioned.

The company blames overmanning and insists that 500 jobs must be cut or handed to subcontractors, while the union says that the company’s lack of long-term contracts for iron ore has made the mill uncompetitive and subject to skyrocketing raw-material costs.

Whether a property that has lost money since the onset of the world recession – and was only marginally profitable before then – would be attractive to another steel company is an open question.

Equally critical is the question of whether a potential purchaser could (or would) make the necessary investment to turn the mill into a consistently profitable operation.

Yet another issue is the potential environmental liability facing a new owner. Sparrows Point is under a court decree to clean up years of pollution, including the toxic chemicals that continue to flow from contaminated groundwater into Baltimore Harbor.

Severstal’s Unhappy Tenure

Mordashov was encouraged to buy Sparrows Point by the USW after a prior bidder, the Bouchard brothers of Chicago, failed to secure financing.

Mordashov pledged to spend $500 million to modernize production, which had suffered from sustained underinvestment following the 2001 bankruptcy of Bethlehem Steel Corp.

That promised investment was derailed by the world recession. Since 2009, Severstal’s efforts have been directed at reducing costs at the plant, including using a new type of iron-ore feed for the blast furnace that resulted in repeated malfunctions.

Brazilian steelmaker CSN reportedly offered $400 million for the steel mill in June, but Mordashov rejected the offer.

Non-union mill expanding

While Sparrows Point suffers from widespread cutbacks in production, Severstal is concentrating output at its non-union facility at Columbus, Miss.

The new facility can make everything that Sparrows Point makes except for tinplate. It is widely believed that Severstal is sending as many orders as possible to the Columbus mill, bypassing the Point and its high cost margins.

The Mississippi mill is attracting other steel processors and new jobs. Last week Gov. Haley Barbour hailed the opening of a new facility at the Severstal site for creating “high-quality jobs for Mississippians.”

Mark Reutter can be reached at reuttermark@yahoo.com