Baltimore Brew Reports RG Steel Suffering a "Liquidity Crisis"
The Baltimore Brew has published an article this evening that RG Steel is suffering from a “liquidity crisis” based on reports coming from USW Local 9477 which is responsible for the union workers at the Sparrows Point mill. Reports coming from the union expect layoffs in the coming weeks.
The steel community has been watching the RG Steel mills – especially their largest mill – Sparrows Point – for some time now waiting to see if the company can afford to continue to operate the mill. The company reported total company shipments as being 300,000 tons during the month of April. This equates to a 3.6 million ton annualized rate for the three mills which when purchased by RG Steel were rated at over 7 million tons.
However, the company has been under extreme pressure – partially at their own doing – when the company unexpectedly took the “L” blast furnace at Sparrows Point down just before Christmas 2011. We learned the furnace and production at Sparrows Point was interrupted due to liquidity issues which were later resolved when RG Steel brought in an infusion of cash from Cerberus Capital.
The “L” blast furnace was restarted in the middle of January but the damage to the credibility of the mill had already been done. Steel Market Update has had many conversations with previous customers of the mill who were nervous to place new business with RG Steel without first having a backup supplier.
Steel prices were rising when the “L” furnace was shut down. By early February when the furnace was back online the bloom was off the rose and prices once again began to move lower. Since the time Sparrows Point came back to life in steel prices have dropped by $85 per ton ($745 down to $660 per ton).
The unexpected shutdown of the “L” furnace and the uncertainty which followed also cost RG Steel a portion of their tin mill customer base which took contract business to the competition. This forced RG Steel to close down the tin mill operations and move the product to Yorkville and Ohio Coatings. According to the Yorkville union president the tonnage moved was only 6,000 tons per month.
The mill reduced management salaries at the beginning of May in an effort to provide more liquidity. According to the Baltimore Brew article last week the company tried to get wage concessions out of the union workers but were turned down.
On Wednesday of this past week the “L” furnace at Sparrows Point was taken down for maintenance and the rumor mill began working in earnest anticipating the shutdown of the entire operation. The “L” furnace was brought back online on Friday evening but questions remain as to the status of the Sparrows Point order book.
In the most recent lead time sheet published by RG Steel on the 11th of May – hot rolled lead times out of Sparrows Point were being quoted as of the week of May 28th (3 weeks) and out of the Warren facility the week of June 4th (4 weeks). The Sparrows Point cold mill – which is a rolling process after hot rolled and hot rolled pickled and oiled – was also being quoted as of the week of May 28th (3 weeks) – a very short lead time for that product. Coated products (galvanized and Galvalume) were being quoted the week of June 4th (4 weeks).
This brings us to today’s events – according to the Baltimore Brew. We have reprinted the original article and you can come to your own conclusions as to what will happen next:
“Sparrows Point is in a ‘liquidity crisis’, union president says”
Written by: Mark Reutter, Baltimore Brew
Members of United Steelworkers Local 9477, Sparrows Point, received sobering news tonight that the steel mill is in a “liquidity crisis” and “running day to day” because of a credit crunch.
The statement by local president Joe Rosel confirms reports in The Brew and elsewhere that parent company RG Steel, owned by billionaire financier Ira Rennert, is in dire financial condition.
According to well-informed sources (the media was banned from the meeting), Rosel likened the company’s condition to its status at the end of last year, when it was forced to shut down the blast furnace because it could not secure raw materials from unpaid vendors.
The blast furnace was reopened in January when the company received an emergency $130 million cash infusion from Cerberus Capital Management. Last week, the blast furnace was shut again for routine maintenance, according to the company. The furnace is currently running at low volume.
Some Layoffs Expected
In an email tonight reviewed by The Brew, another union official, David Dearborn, told members that the plant’s main finishing operation, called the cold mill, has no orders beyond the end of May.
He said that layoffs are expected at the coated line next week.
“Bottom line is, this company is out of cash again and now apparently out of orders,” he wrote. “Bills are not being paid again and the company is back to penny-pinching mode.”
The email continued: “The press has addressed our financial problems publicly and customers appear to be leary [stet] of dealing with RG. With any luck and hope the company will be able to successfully find customers to place orders with us to keep us running.
“The bankruptcy rumors are premature as of now and have no truth or validity as of now,” the email concluded.
RG Asks Permission to Sell Sparrows Point
In another key development, Rosel confirmed tonight that RG Steel has asked for – and received – permission from the USW to put Sparrows Point and its two other operations in Ohio and West Virginia on the market for sale.
Under a unique contract with the union, RG Steel may negotiate a sale of the company to new owners, but the International USW has veto power over any transfer.
There are no confirmed reports that company has taken steps to sell the plants (although it’s been widely rumored that Rennert is seeking a buyer from overseas).
RG Steel also talked to the USW about wanting the union to find a buyer.
At a meeting last week in Columbus, Ohio, the company called on the union for wage and benefit concessions, which were flatly rejected, Rosel and USW District Director Billy Thompson said tonight.
Wage rates at Sparrows Point and other RG mills at Warren, Ohio, and the former Wheeling Pittsburgh mills are below those of U.S. Steel, ArcelorMittal and other USW-represented mills.
Rosel, who officially became president of Local 9477 today following an election monitored by the U.S. Department of Labor, blamed the downturn of orders on a stalled economy – and also said layoffs are a distinct possibility.
The Baltimore County mill employs about 1,600 union workers and more than 400 contract workers.
RG Steel’s spokesperson, Bette Kovach, was out of the country and did not respond to a request for comment tonight. (Source: Baltimore Brew)