Nucor Corp. remains committed to a plant project in south Louisiana, the state’s economic development secretary said Tuesday, even though the company is being described as a potential bidder for a struggling steel mill in Alabama.
The $5 billion ThyssenKrupp AG steel mill, which was the grand prize in a fierce battle between Louisiana and Alabama economic development officials five years ago, is up for sale. Analysts say one of the likely bidders for the plant could be Nucor, which is building a $750 million direct-reduced iron plant in St. James Parish, the first phase in what could eventually be a $3.4 billion facility that could have 1,250 employees by 2019. Other stages of the project call for a second direct-reduced iron plant, a pellet plant and a blast furnace. The final stage of the project calls for Nucor to build a $750 million steel mill.
ThyssenKrupp is selling its mill in Calvert, Ala., and a sister plant in Brazil after sustaining a $1 billion loss in the nine-month period that ended Sunday. The company blamed the loss on high production and transportation costs, a weakening market and intense competition, according to The Wall Street Journal.
The German company spent $11.8 billion to build the two facilities. The Brazilian plant produces slabs of crude steel, while the Alabama facility rolls that raw material into sheets of steel.
Bridget Freas, an analyst with Morningstar Investors, said “every major steel producer” will have a look at the Alabama and Brazil plants. Freas said she expects Nucor will be one of the 10 or so bidders for the Alabama mill. The Brazilian mill will attract separate bidders, she said.
“It might make sense looking out for Nucor to bid on the facility, depending upon how much money ThyssenKrupp wants for the plant,” Freas said. Not only would Nucor have the rolling capacity to produce finished steel right away by buying the Alabama mill, but the company would keep a competitor from producing the metal, she said.
While the Alabama plant processes slabs of crude steel to make sheets of metal, Freas said it could use iron ore pellets, like the ones to be produced in Louisiana, and scrap to make steel. That’s the method that Nucor uses to produce steel.
“It’s a similar process on the back end,” she said. “You don’t need to have melting steel being fed into a rolling mill; it can work either way.”
Louisiana Economic Development Secretary Stephen Moret said in a statement that the Nucor project in St. James Parish remains on schedule.
“Nucor CEO Dan DiMicco indicated to us today that nothing has changed relative to previously announced plans for their project,” Moret said.
In order to lure Nucor to south Louisiana, LED said it gave the company a customized performance-based incentive package totaling $160 million over about six years, along with $600 million in GO Zone bond financing. But to collect all of the LED incentives, Nucor needs to initiate the four additional phases of construction by 2015.
Nucor is building its Louisiana facility on a site near Romeville that ThyssenKrupp had forsaken in its selection of a site near Mobile, Ala.
DiMicco told The Wall Street Journal on Tuesday that the Alabama mill “never should have been built, but the reality is that it’s there, so we’ll take a look at it.”
DiMicco refused to comment to the Journal about analyst estimates that his company would offer $1 billion for the facility.
Freas said while the $1 billion bid would be far less than what ThyssenKrupp spent on the plant, the offer doesn’t sound particularly low. The company is reportedly seeking book value, or $8.86 billion, for the two plants. The Wall Street Journal reported bids were due by the end of September.
“It’s hard to say what the fair value for this facility is,” Freas said.
ThyssenKrupp is clearly a motivated seller after suffering massive losses. And the weak world economy has depressed the demand for steel, making it difficult to determine what the potential for the plant is.
Alabama beat out Louisiana for the ThyssenKrupp plant in May 2007. At the time, higher utility costs in Louisiana were considered to be one of the factors in driving the plant to Alabama.
“We had the best location as far as transportation and logistics, but their decision was largely based on utility rates, which in Louisiana is powered mostly by natural gas,” said former Gov. Kathleen Blanco, who was in office in 2007. “At the time natural gas was high, and part of our incentive package involved help with their power costs. Not long after their decision to build in Alabama, the price of natural gas stabilized and our power costs dropped dramatically,” she said. “Had they accepted our offer, they may have been more profitable.”
St. James Parish Council Vice Chairman Charles Ketchens said Tuesday that he was not aware of the news reports involving Nucor, but would wait to speak with Parish President Timmy Roussel.
Melissa Wilkins, St. James Parish government spokeswoman, said Roussel was in meetings most of the day and not available for comment.
Steve Nosacka, a consultant to the parish for economic development, said he did not have a lot information yet and declined to speculate based on news accounts.
“We are not aware of anything more than what we read in the newspapers,” he said.
U.S. Rep. Steve Scalise, R-Jefferson, said he was “not particularly” involved in the negotiations to bring ThyssenKrupp, but he bemoaned the loss of major industry in the country, even if it was Alabama’s loss and not Louisiana’s.
“Any big plant closure is a big hit to a state’s economy and morale,” Scalise said. “You don’t want to see any company move out of the United States.”
Scalise took the opportunity to attempt to blame President Barack Obama for the loss of industry.
“It’s become harder to make that (heavy manufacturing) in the USA because of a lot of regulations to come out of the EPA (Environmental Protection Agency),” Scalise said.
David Mitchell and
Jordan Blum contributed
to this report.