New challenge to Big Steel (SeverCorr).
New Challenge to Big Steel - Russian Money Builds Mississippi Mill

Tuesday, January 30, 2007
Peter Krouse
Plain Dealer Reporter

On a rural road in eastern Mississippi, near a Weyerhaueser plant that makes absorbent diaper material, John Correnti's highly touted steel mill is taking shape.

It's doing so with foreign money. Russia's Severstal, once a major dumper of below-cost steel in the United States, has ponied up big bucks to help Correnti, a long-time steel executive, realize his vision.

The joint venture, called SeverCorr, will use low-cost technology to produce high-quality steel, including grades suitable for exposed auto parts like hoods and trunks. It's a market largely served by U.S. Steel, Mittal Steel and AK Steel, which employ more-expensive techniques in integrated mills.

If successful, SeverCorr could prompt a whole new wave of steel industry investment in the United States.

The so-called integrated mills use a blast fur nace to make molten iron and then a basic oxygen furnace to convert it into steel. SeverCorr will make its steel in an electric arc furnace, a more-modern technique that uses greater amounts of scrap -- but that, generally speaking, has been unable to match the integrated mills for overall quality. That's because "tramp" materials in the scrap wind up in the finished product, creating imperfections. But Correnti and his backers believe that will all change with their new mill.

How confident are they?

"Eight hundred and eighty million dollars confident," said David Stickler, whose Cleveland-based Global Principal Partners put together the financing for SeverCorr.

That $880 million includes a $210 million investment from Severstal and related parties. And $440 million in senior debt is being supplied by a bank syndicate led by GE Capital and including National City Bank.

Most of the money is for technology that will produce cleaner steel with greater quality control, said Mike Wagner, chief commercial officer for SeverCorr. The process calls for using more virgin iron, such as pig iron, in the electric arc furnace and less scrap. Much of the technology comes from Europe and Japan, most notably SMS Demag of Germany.

The mill, near Columbus, Miss., is slated to be completed later this year. A pickling line, which cleans steel of rust, is already operating. The rolling mills and finishing lines will follow, then the electric arc furnace and slab caster in June. Capacity will be 1.5 million tons of flat-rolled steel a year, but Stickler said he's already working on raising the $500 million necessary to double the plant's size.

SeverCorr believes it has other advantages over its northern rivals: It's non-union and strategically located. Much of its raw materials will come from places like Brazil or Russia, entering the United States through the port of Mobile, Ala. From there it will travel by rail or barge to the SeverCorr plant, only six miles from the Tennessee-Tombigbee Waterway.

Also, SeverCorr is close to a number of foreign-owned auto plants, including Nissan in Mississippi and Tennessee and Toyota's in Kentucky and Texas. The mill plans to supply steel for others products, such as appliances.

If SeverCorr has competitors worried, they are doing a pretty good job of playing it down. Then again, it remains to be seen if SeverCorr can make steel good enough to form the hood of a car.

"I'm not going to challenge Mr. Correnti's assertion," said Alan McCoy, spokesman for AK Steel. "I am just saying historically those applications are best met with the integrated process."

In the same breath, McCoy said that kind of competitive threat is why AK Steel wants a new kind of labor arrangement with its workers. AK's union employees in Middletown, near Cincinnati, have been locked out for 11 months without a contract.

If SeverCorr succeeds, its initial impact will be limited because it will be making a relatively small amount of steel. What it does produce will displace imports, "which is a good thing," said Mark Parr, an analyst with KeyBanc Capital Markets in Cleveland, which conducts business with several steel companies but has no relationship with SeverCorr.

And what if the technique catches on?

"Other steel producers will implement this technology," said Stickler of Global Principal Partners. "I have no doubt about it."

However it plays out, Correnti firmly believes his new mill will get noticed for its low-cost quality. And the fact that he's partners with Severstal, a company whose low-cost imports once confounded him as an executive of Nucor Corp., does not appear to bother him in the least.

"I never shut the door on anybody," he said.

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