Investors' Group to Build Steel Mill (SeverCorr).
 
Investors' Group to Build Steel Mill
By Paul Glader
Staff Reporter of THE WALL STREET JOURNAL
October 3, 2005; Page A12

In a move that could boost competition among U.S. steelmakers -- and potentially bring down prices -- a group of investors is poised to announce the construction of an $880 million mill in Mississippi that would initially churn out 1.5 million tons of steel sheet a year.

The plant, to be called SeverCorr, will make mostly higher quality steels for use by foreign auto makers such as BMW, Mercedes and Honda that have built assembly plants in the South. The site for the new plant is in Columbus, Miss., within easy reach of 14 car plants producing about four million vehicles a year, or a quarter of the vehicles assembled nationwide each year.

"It's an ideal location from a customer standpoint," said John Correnti, former CEO of Charlotte, N.C., Nucor Corp., who will be the president and CEO of the new company, SteelCorr Inc.

Russian steelmaker OAO Severstal Group is investing about $200 million in the project along with other large investors such as General Electric Co.'s GE Capital, said Mr. Correnti, who hoped to close financing for the deal on Friday. Severstal, in 2003, purchased a steel plant in Dearborn, Mich., from Rouge Industries Inc. and has continued to expand its presence in the U.S. with joint ventures for steelmaking and raw-materials assets. Severstal executives could not be reached for comment.

The company says it has 80% of construction contracts in place and plans to begin building immediately the 1.2 million-square-foot plant. Steel production is expected to start by the end of 2007 with about 450 workers.

Most auto-quality steel is made from steel mills using a different production technology than SeverCorr plans to use. "There are a lot of skeptics in the industry about whether it makes sense or not," to build this plant, says Chuck Bradford, a New York steel industry analyst with Bradford Research/Soleil Inc.

Some analysts also caution that it is not an easy time to build a new steel mill in an industry given to volatile swings in supply and demand as well as prices. Mr. Correnti points out, however, that the U.S. consumes roughly 130 million tons of steel a year and produces about only 100 million tons.

"There's always room for an efficient low-cost quality producer," he says. He says the company will be a low-cost producer with a long-term energy arrangement with the Tennessee Valley Authority. Global Principal Partners LLP in Cleveland arranged financing for the project.

Mr. Correnti's former employer, Nucor, the largest minimill company in North America, last spring announced plans to spend $40 million at plants in Alabama and Arkansas to upgrade equipment in order to make higher-grade steels for autos and appliances, similar to those SeverCorr will make.

On Thursday, Mississippi Gov. Haley Barbour signed legislation that gives Mr. Correnti's company $85 million in local and state support, including a $25 million grant to help build infrastructure and $60 million in loans. The company also said it is receiving tax benefits given to manufacturers locating in the region.

Some in the industry criticized the company for accepting subsidies from the state at a time when the U.S. and other steelmakers want to see subsidies, including government loan guarantees, end internationally.

But Mr. Correnti points out that other companies in the U.S. have benefited from similar incentives in the past.

Copyright © 2009 Global Principal Partners LLC. All Rights Reserved.