The SteelCorr Story
by Lynne W. Jeter
Published: February 28,2005
Columbus — Landing SteelCorr’s new $650-million technologically-advanced steel mini-mill to be built on the 1,500-acre Tennessee Valley Authority (TVA)-certified megasite in Lowndes County is an economic development coup, say proponents of the project, particularly since Mississippi was not on the short list of sites announced by the company last year.
The project will reportedly bring 450 jobs paying an annual average salary of $70,000 plus competitive fringe benefits and up to 1,000 indirect jobs to the Golden Triangle area, making it among the state’s top-paying manufacturing jobs. It has been described as “the best thing since Nissan.”
“It doesn’t surprise me that SteelCorr selected Columbus because there’s been a lot of interest in the megasite since it was certified,” said Mark Sweeney of Greenville, S.C.-based McCallum Sweeney Consulting, the firm that recommended the Madison County site to Nissan North America.
Last year, TVA contracted Sweeney to assist with certifying megasites within its seven-state service area. Columbus was selected as one of only two TVA-certified megasites. Sweeney has not worked with SteelCorr on its site selection process.
“The megasite program is designed to be particularly attractive to large projects like (SteelCorr),” he said. “Readiness is one of the most important characteristics we’ve dealt with during the last two years. Once a site is selected, time is of the essence for corporations, so they must know everything about it to move quickly.”
The final three sites in the South being considered for the SteelCorr project last year were located on the Mississippi River in Arkansas, Louisiana and Missouri, with a site in Osceola, Ark., speculated as the leading contender. The city of 10,000 already has two Nucor steel plants and the local community college has a steel-training program.
SteelCorr CEO John Correnti had said he preferred a deep-water port site for the mill to help with costs related to the transportation of raw materials, and was still looking for a favorable power contract. Correnti found it with TVA, who offered to invest $14 million to build a transmission line that would extend 20 miles from its West Point substation to power the area. He also chose Columbus partly because the city is located on the Tennessee-Tombigbee Waterway, a 234-mile manmade waterway that passes from Tennessee through eastern Mississippi and down to the Gulf of Mexico at Mobile, Ala.
Senate Finance Committee chairman Tommy Robertson (R-Moss Point) is lobbying for $20 million in bonds — authorized in 2001 but never issued — for rail improvements from North Mississippi to the Gulf Coast to convince SteelCorr to have raw materials shipped to the Port of Gulfport instead of Mobile Bay. Kansas City Southern Company, the Golden Triangle’s primary rail carrier, expanded its Mexican rail service January 1 with the acquisition of Mexrail Inc., and has reportedly reached an agreement with SteelCorr for future rail service.
“If we’re putting state money into (SteelCorr), we want the company to use our state ports,” said Robertson.
SteelCorr would invest about $250 million in construction and up to $450 million for equipment. The proposed facility would produce automotive grade and other high-value steel alloys from steel scraps, with an annual production of 1.7 million tons of steel per year. The company has pre-sold approximately 30% of the plant’s projected output for the next six years.
The new facility is expected to take two years to construct and create 2,200 construction jobs, and will feature the latest steel-making technology, providing it with a low-cost position and high quality standards. According to a legislative briefing provided by the Mississippi Development Authority (MDA), SteelCorr has more than $200 million of equity in the project and several major financial and technology consortium backers. GE Capital and other lenders and investors have completed extensive due diligence on the project, which has supplier performance guarantees, insurance coverage and other financial mechanisms to protect the state’s proposed investment.
Running the numbers
Specifically, SteelCorr plans to put into place senior debt facilities of $345 million, a $25-million U.S. Department of Agriculture (USDA) loan, $15 million for water treatment facility financing, $18 million in vendor financing and a $75-million company bond issuance, necessitating the state to commit $25 million (4% of the total project investment) through an infrastructure grant, and a $12-million Lowndes County grant. If needed, the state would provide a $75-million contingent loan, which could only be accessed incrementally five years after the project has begun, and a $10-million contingent construction differential loan.
Even though the Mississippi Beef Processors fiasco, which cost the state $54 million — and is accruing thousands of dollars a day in interest alone — for a plant that shut down three months after it opened, has haunted state-elected officials and legislators, and rumors are swirling about which state jobs will be cut as a result of the state’s severe budget crunch, legislation approving $100 million in public funds incentives to the Birmingham, Ala.-based company was moving rapidly through the Legislature at press time and was all but guaranteed a quick signing by Gov. Haley Barbour. A provision in the bill would require the workforce to reflect the region’s diversity, which is 34% black.
“Before any state funds are invested, MDA will satisfactorily complete its due diligence, including reviewing business plans and financial reports, meeting with financial and strategic partners and steel industry experts,” said MDA spokesperson Scott Hamilton.
Opponents to the SteelCorr project say the numbers are skewed, that building the plant for one-third the industry standard is unreasonable.
“Based on a simple model backed with information from publicly available sources, I believe that it’s going to cost $1.1 billion to get the mill going,” said Peter Morici, a business professor at the University of Maryland. “(SteelCorr) is saying $650 million, but they’re also assuming they can build it for 35% to 40% less than anybody else because they’re going to be their own general contractor. Then why aren’t existing steel mills doing that themselves? They have the equipment. But the point is, the people that run the existing mills and add to capacity have the same capability.”
Morici, author of “The SteelCorr Project in Columbus, Mississippi: An Economic Analysis,” and former chief economist of the U.S. International Trade Commission, concluded that there’s a significant chance the SteelCorr project “will not be able to yield the cash flow needed to fund bond and loan payments” and calculated that the company would have a tough time turning a profit, especially the 16% return he deemed necessary for it to be viable.
“The market’s not there,” he said. “This (steel mill coming online) will depress prices and everybody will lose money. At that point, a newly established company that’s highly leveraged is vulnerable.”
Morici said there’s nothing terribly complicated about the numbers.
“If you want to make cars, you can build a state-of-the-art car factory, but you have to have a car to make,” he said. “If you want to make steel and you have experience making it, you can make steel. Everybody’s going to pay about the same price for scrap and electricity. An established mill is going to have lower conversion costs because it’s going to be easier for them to get out the kinks over the first several years. And they’re going to have a larger company standing behind them as a source of capital if they miss their cost by $50 million or if the market takes a hiccup of $100 million. An establishing mill will not have that, and will run into difficulties if it’s highly leveraged.”
Jay Moon, president of the Mississippi Manufacturers Association, said he wasn’t clear on what Morici’s use of the term “highly leveraged” meant “because all projects are financed these days, and this one is very similar, but I’ve seen a lot of confidence by people financing it that this is a good deal or they wouldn’t be doing it. They’ve done their own analysis and studies, and not relied just on what the company has given them. They must feel that it’s serving a market with some real growth capabilities.”
Proponents of the SteelCorr project say the opposition can be traced to Nucor Corporation, the nation’s largest and most profitable steel producer and recycler that bought the Birmingham Steel facility in Flowood in December 2002. The first footnote in Morici’s study shows that Nucor funded the January 2005 report. Nucor also sponsored a similar report when SteelCorr was considering building the mill in Arkansas.
A December 10, 2004, Wall Street Journal article that mentioned Morici began with: “If a professor takes money from a company and then argues in the media for a position the company favors, is he an independent expert — or a paid shill?”
“The competitor must believe that SteelCorr will be a success or it would not have hired a researcher and a lobbyist in Mississippi to kill it,” said Hamilton.
In early 2003, Jim Sheble, general manager for Nucor Steel Jackson Inc., said Nucor recognized the Flowood operation as “a diamond in the rough.” The Flowood plant, which opened in 1955, recycled 315,000 tons of scrap metal in 2002. It features a melt shop and rolling mill where Nucor makes merchant bar, rebar, and specialty shapes. Within a year of acquiring the plant, Nucor had spent at least $5 million on capital improvements and other expenses, including making extensive improvements on environmental controls.
Nucor was founded in 1903 by automaker Ransom E. Olds, founder of Oldsmobile and REO Motor Cars. Through a series of transactions, the company became known as the Nuclear Corporation of America. It had a small but profitable division called Vulcraft, which made steel joists, but its primary focus was on the nuclear instrument and electronics business and in the 1950s and 1960s, the company suffered through several money-losing years before Ken Iverson, who was named company president in 1964, devised a turnaround plan. In 1966, the company moved its headquarters from Phoenix, Ariz. to Charlotte, N.C., and expanded its joist business in the Southeast, building its first steel bar mill in Darlington, S.C., in 1968.
SteelCorr is a relatively new company headed by Correnti, who began working in the steel industry in 1969 and is former president and COO of Nucor. He reportedly left Nucor when he and board members had differing views on the direction of the company and later became CEO of Birmingham Steel, and left when Nucor bought it.
“It’s the law of the jungle,” Correnti has said, regarding criticism of the SteelCorr project, “the survival of the fittest.”
SteelCorr investors include billionaire Carl Icahn, the Bank of Austria and “other European lending institutions,” according to state and federal documents.
Nucor reported its best ever years in 2003 and 2004 — last year, the company established records in its steel mill segment for steel production, total steel shipments and steel sales to outside customers and produced 19.7 million tons of steel — but Morici warned that raw material prices as a percentage have risen more than steel prices in recent years because of trade activity in China. He pointed out that it takes 1.1 tons of steel on average to make a car, that foreign automakers in the U.S. buy American steel, and that the number of cars being made in North America is flat.
“About 16.7 million cars will be made this year, requiring 18.3 million tons of steel,” he said. “If this guy (Correnti) sold one-third of his steel, which is higher than everyone else, he has to offload a considerable share of the market, and his claim is that he’s going to sell virtually entirely auto-grade steel. Where’s he going to find a market that large when the market is fixed, especially in an environment where the integrateds have greatly improved their cost productivity?”
SteelCorr already having a sizable contract for nearly one-third its production “indicates to me that there’s a fairly good demand out there,” said Moon. “I think they’re going to do well.”
SteelCorr’s mill would be located near the center of the Sunbelt automotive corridor, which includes 13 plants spanning from Texas to South Carolina making 3.385 million vehicles per year. An unnamed major automaker is reportedly perusing sites in the South for a new assembly plant.
Last month, TVA added another certified megasite to its short list: the Wellspring Project, a 1,200-acre industrial tract located 10 miles west of Tupelo. (The only other TVA-certified megasite is in Hopkinsville, Ky.)
“It’s been of great interest to me that SteelCorr’s announcement continues the process of increasingly attracting more players to the Southern auto zone,” said Moon. “It’s not for nothing that just about everybody around the world wants to be in this huge car market. And we’re on the radar screen. People are seeing Mississippi as a good geographical centralized location for developing this system.”
Calls to Nucor and SteelCorr were not returned to the Mississippi Business Journal by press time.
Contact MBJ contributing writer Lynne W. Jeter at firstname.lastname@example.org.
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