Top aides to Alexei Mordashov, owner and CEO of Severstal, have told Sparrows Point managers to prepare for an orderly shutdown of the finishing mills, except for tin production, sources and union leaders have told The Brew.

The new business plan will basically idle the Baltimore County steel plant through the rest of this year.

Under the plan, still subject to change, some mill operations may be temporarily restarted for a week or two over the next four months.

But in a major development, detailed by well-informed sources for The Brew, the company will not reopen the “L” blast furnace in October, as previously announced, and will, in fact, sell off raw material intended for the furnace.

As a result, what was described as a temporary reduction of production to fit customer orders will turn into a long-term shutdown of the sprawling steel plant, the biggest in the eastern U.S.

“The future has never looked so dim,” John Cirri, president of USW Sparrows Point Local 9477, told members in an e-mail yesterday.

The plant has 2,500 employees, while independent contractors employ another 300-400. Last month, 500 steelworkers were placed on a two-week layoff; how many steelworkers will be let go in the future has apparently not been determined.

“Everything is Chaos”

Adding to the confusion – growing anger among the rank and file – Severstal has not signed a contract with the United Steelworkers Union (USW). After marathon negotiations, a contract was supposed to be signed by September 7 to replace a contract covering Sparrows Point and two other Severstal plants that had expired in 2008.

One of Severstal’s demands was a forced reduction of the unionized workforce at Sparrows Point.

No settlement was reached. Instead, employees are working under a day-by-day extension of the old contract.

“Everything is chaos down here. We don’t know if we’ll be working next week. We’re not told anything,” complained a veteran worker who asked that his name not be used.

In a statement to The Brew last night, Cirri said:  “Shutting down all operations except for tin product … has placed us in a catch-22 position and has hindered our ability to attract customers.”

He added, “Our customers know that our experienced and dedicated workforce produce a high-quality product and Severstal needs to restart ‘L’ so that customers know their orders are coming from Sparrows Point and will be fulfilled.”

Severstal spokesperson Marika Diamond last night declined to discuss Severstal’s future business plan for Sparrows Point. Referring to a prior press release, she said only that “the hot-end facilities will resume operations once market conditions improve.”

Plant Manager David Howard is expected to discuss the business plan this week with union officials.

Customers Go Elsewhere

While the company has blamed poor economic conditions for the sharp drop of orders at Sparrows Point, informed sources said that several customers bolted after The Brew reported that Severstal was importing Russian steel to the plant.

“A good number of customers want their steel made in the U.S. for quality control and because of ‘Buy America’ rules,” said one industry insider. “They didn’t like hearing that slabs were coming in from Russia.” (The company has ceased importing Russian slabs.)

Additionally, last winter the company told some customers to place their orders elsewhere because the L blast furnace was malfunctioning, causing delivery dates to get delayed. Some of these customers never returned.

With orders falling and operating losses ballooning, the company decided to close the huge finishing operations once the current inventory of steel stock has been exhausted, which will take about two weeks.

Specifically, the company plans to idle the hot mill, cold mill and coated mill – and transfer orders that would be coming to the Point to other Severstal plants.

The tinplate mill, which makes specialty steel for the container industry, is expected to operate because it has a number of long-term contracts and Severstal’s other tinning facilities are very limited.

Prospective Buyers Rejected

The decision to idle the Baltimore mill comes on the heels of Mordashov’s rejection of several bids to buy Sparrows Point and his Midwest mills at Warren, Ohio, and around Wheeling, W.Va.

Mordashov was shopping the three mills in a package deal, but at least one bidder sought to buy only Sparrows Point.

The Russian billionaire reportedly called the bids “embarrassing” – one was said to offer about $400 million for Sparrows Point, or half the $810 million Mordashov paid for the mill in 2008.

Mark Reutter can be reached at reuttermark@yahoo.com.