RG Steel Sparrows Point has not been Idled as reported by analyst(s)
Based on Steel Market Update (SMU) sources, RG Steel Sparrows Point blast furnace was taken down on Wednesday for maintenance. The furnace was originally scheduled to come back up by this morning but was extended for an extra day or two. The rest of the mill is running as normal and SMU is not aware of any interruptions in source materials or any other issues with the mill.
The rumor mill has been rampant for a number of months ever since RG Steel took an unexpected outage just prior to Christmas 2011. At that time the company brought in financial help from Cerberus and the mill has been running consistently since January 2012.
Late last night KeyBanc steel analyst, Mark Parr, published a note to his customers regarding the “idling” of the RG Steel – Sparrows Point facility. In retrospect his choice of words could have perhaps been better chosen and provided more details regarding the specifics regarding what was meant when he reported the mill as being “idled.”
This is what Mr. Parr’s report had this to say:
“Following recent due diligence, we have learned RG Steel's Sparrows Point facility in Baltimore, Md., capable of producing three million tons of carbon flat-rolled steel annually has recently been idled.”
After that statement the note went on to speak about their opinions on the steel space – addressing supply or capacity issues for their investors. Although they did say RG Steel was, “…indicating that the outage is for scheduled maintenance to last through the weekend to align production with customer demand. This may be somewhat plausible given two to three-week lead times for spot market carbon flat-rolled steel business, challenging import pressures, and pending seasonal automotive (albeit more abbreviated this year) and industrial shutdowns.”
The note continued with, “That said, it is difficult for us to believe the Company is cash viable at present levels of spot carbon hot-rolled steel pricing. Recall Sparrows Point went on "hot-idle" late in 2011 when the spot market was looking to find a bottom around $650/ton. The facility was re-started roughly a month later in mid-January after a capital infusion from GE Capital, Cerebus,and Ira Rennart concurrent with HRC pricing upside to February highs of $720- $740/ton. Current pricing near the $660-$670/ton level appears problematic for Sparrows, as the raw material environment has been relatively sticky since late 2011.”
Mr. Parr’s note then made an assumption regarding the long-term status of the Sparrows Point facility when he told his clients, “Assuming the idling is more permanent than temporary, we believe this may remove one of the overhangs for the flat-rolled carbon steel mills, including AK Steel Holding Corporation (AKS-NYSE). United States Steel Corporation (X-NYSE), Nucor Corporation (NUE-NYSE), and Steel Dynamics, Inc. (STLD-NASDAQ).”
Local media in the Baltimore area was not reporting on any pending shut-down of the Sparrows Point facility as of this morning.
We will continue to following the events at RG Steel and report of them in our Steel Market Update newsletter which will next publish on Sunday evening.
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