The Severstal NA Sparrows Point mill located outside of Baltimore, Maryland will be idling the steelmaking facilities at the plant (hot end) beginning late this month according to Elizabeth Kovach, spokesperson for Severstal NA in an email to Steel Market Update.

“Sparrows Point's hot end (blast furnace, BOF and continuous casting) will be idled between late June and July 1 for a period of about 30 days in response to weakened market conditions and a need to better balance inventories within the plant. Exact date for idling is being determined. Those facilities employ about 600 people; the exact number to be placed on layoff is also still being determined.” (Source: Elizabeth Kovach Severstal NA spokesperson).

Market sources have confirmed for SMU the finishing side of the mill will continue to operate while the hot end is idle. The mill will continue to produce hot rolled, cold rolled, galvanized, Galvalume and Tin Plate using slabs which have been building over the past couple of months. The mill will have access to slabs out of the Severstal Warren and Severstal Dearborn plants as needed. There are also slabs available from Russia which will be used where appropriate.

The recent success of the mill is actually turning out to be its downfall. Between November 2009 and into February 2010 the Sparrows Point mill was having tremendous production issues due to weather as well as issues with their hot end not being able to produce in sync with their order book. This caused the mill to go to an inquire only basis on new orders for a period of time. By late February the production issues were resolved and our sources are telling us their hot end began producing above and beyond their order book.

The “L” furnace at Sparrows Point is one of the larger furnaces in the United States rated at 8500 tons per day of raw iron production. According to our sources the lowest level at which the furnace can be “throttled back” is approximately 6500 tons per day.

The Sparrows Point mill is tied to two main industries. Tin Plate which is used for storage of food (tin cans) and our sources tell us the tin plate business continues to be “strong to stable.” The other main area of the Sparrows Point facility is involved with the construction industry – especially metal building (Galvalume) as well as residential and commercial construction (studs, HVAC, etc.). Our sources are telling SMU construction has not come back as originally forecast thus causing a weaker order book than expected.

Our sources also point to normal summer factory shutdowns at automotive plants and other manufacturing operations which impact the company’s overall order book.

Costs of raw materials were reportedly part of the reasoning behind picking the Sparrows Point facility’s hot end versus picking the Severstal Warren or Severstal Dearborn plants. Of the Severstal NA facilities Sparrows Point is reportedly the one plant which purchases raw materials on the spot market thus paying higher prices. The company wants to minimize its costs and run the lowest cost plants in times when orders do not match up with their full production capabilities.

According to our sources the plan is for the hot end of the Sparrows Point facility to come back online at the end of July. The shutdown of various manufacturing facilities will have run its course by then and the Severstal company order book is forecast to improve as the mill moves into late 3rd Quarter and 4th Quarter.

Unlike an EAF mill (electric arc furnace or mini-mill) blast furnaces do not work by the use of a switch which can be turned on and off depending on the flow of orders. A blast furnace either produces or it doesn’t.

Once a furnace is idled the process of bringing the furnace back online is tedious and the furnace can go through fits and starts (not run smoothly) during this restart process. Severstal is taking a calculated risk by bringing the “L” furnace down for 30 days that they will be able to bring it back up smoothly.

Our sources were not able to peg what impact the shutdown of the hot end of the mill would have on the union employees. There are approximately 600 workers at the mill according to a recent Baltimore Sun article.

Steel Market Update will continue to monitor the Sparrows Point mill as well as the other mills here in North America. For more information regarding the status of various blast furnaces in North America go to the “Steel News” section of our website: www.steelmarketupdate.com