WHEELING, WV (AP) Even with a $250-million loan and status as the first U.S. company able to make steel from either scrap or raw materials, Wheeling-Pittsburgh Steel Corp. still faces major challenges to survive, industry analysts say.
Due to a five-year union contract recently signed that allows it to restructure with lower labor costs, Wheeling-Pitt emerged Friday, Aug. 1, from Chapter 11 bankruptcy protection.
The federally-guaranteed loan will allow the company to modernize by 2005 by building a $110-million facility with an electric arc furnace. That will allow it to make steel from scrap, which is generally cheaper than traditional methods.
Wheeling-Pitt employs approximately 3,800 people at plants in Follansbee and Beech Bottom, WV; in Allenport, PA; and in the Ohio towns of Steubenville, Mingo Junction, Canfield, Yorkville and Martins Ferry.
The company plans to keep its old blast furnace to make higher quality steel with the old-fashioned, “integrated” method of combining iron ore and coke.
“They’ll be able to play the market, buying scrap when the cost of iron ore is high or vice versa,” said analyst Michael Locker. “It gives them more control over their costs and flexibility in their product mix.”
Wheeling-Pitt makes most of its steel for construction businesses.
Combining scrap melting with traditional methods is “not a ubiquitously accepted approach,” said Mark Parr, an industry analyst with McDonald Investments Inc. in Cleveland. “High prices in the scrap market over the next several years could also make things tougher on them.”
Scrap metal costs are zipping up because a weak dollar is accelerating export demand and China is experiencing scrap shortfalls. Parr said questions remain about how Wheeling-Pitt will handle plant logistics, staffing and materials costs.
“It’s all about execution,” Parr said. “It will be an interesting exercise to watch their implementation process.”
President and CEO James Bradley said, “We look to the future with pride, enthusiasm and determination. We’re ready to put our new strategic plan into action.”
Wheeling-Pitt, which filed for bankruptcy in November 2000, is borrowing the $250 million from the Royal Bank of Canada. The loan is guaranteed by the federal Emergency Steel Loan Guarantee Board, which was established through legislation authored by U.S. Sen. Robert C. Byrd, D-WV.
“It’s a monumental step in the right direction,” said Bernie Ravasio, president of Steelworkers Local 1190 in Steubenville, OH.
Since 1998 the domestic steel industry has been devastated by a slowing economy and foreign competition, with imports flooding the market at prices below the cost of production.
Dozens of companies, including Weirton Steel Corp., have filed for bankruptcy, and several have closed. Others have emerged from bankruptcy but in new forms, such as recent mergers of U.S. Steel-National Steel and International Steel Group-Bethlehem Steel.
Analysts say further consolidation is likely, with stand-alone companies such as Wheeling-Pitt a likely target.
“The days of independents like Wheeling-Pitt and Weirton Steel are numbered — not as operating mills, but as separate corporate facilities,” Locker said.
The contract ratified Wednesday, July 30, by the United Steelworkers of America calls for keeping wages at reduced levels until next June. The deal also includes buyout offers for 650 employees so the company can reduce its work force.
“It was the sacrifices of the membership which brought us to this point,” Ravasio said.
Union negotiators have said all buyouts will likely be accepted and management positions will be reduced by approximately 250.
“Even with the tremendous work of everyone in the Ohio Valley that got us to this point, we have to keep our sleeves rolled up to make sure that this company is a success,” U.S. Sen. Jay Rockefeller, D-WV, said.
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