Severstal Reapplies for U.S. Department of Energy Loan
06/22/2012 - Severstal North America has reapplied for a loan from the U.S. Department of Energy to produce lighter and stronger steel for automakers and suppliers.
Severstal North America has reapplied for a loan from the U.S. Department of Energy to produce lighter and stronger steel for automakers and suppliers.
The Russian steelmaker's earlier request for a US$730-million loan was rejected in January by the agency after the Republican-led House Oversight Committee raised questions about the loan. Now, Severstal is asking for a US$320-million loan.
"We believe that this investment is needed for the car industry in the United States," Severstal CEO Alexey Mordashov said following a celebration on Thursday marking the Russian company's $1.4-billion investment in its Dearborn plant. "With a strong financial backer, we could do it faster."
Thomas Marchak, a Severstal North America vice president, said there is "no question" that the company's original loan was rejected because of politics.
Republican congressmen accused the Energy Department of favoring Obama administration allies after solar-panel manufacturer Solyndra, which received a DOE loan, filed for bankruptcy.
Marchak said the company was encouraged to reapply by Michigan legislators. He said Thursday he did not know U.S. Energy Secretary Steven Chu was speaking just a few miles away at a workshop about making electric vehicles affordable.
Chu said the department is encouraging investments in lightweight steel for the auto industry, but warned that the government is not interested in subsidizing projects that companies can do on their own.
"If we think a company will do it (fund projects) then it is not an ideal use of taxpayer money," Chu said.
Severstal's celebration at the former Rouge Steel operations in Dearborn drew about 350 customers, guests and politicians. A giant banner depicted the steelmaking process and read "We can achieve more together." It hung from the rafters as Mordashov, Russian Ambassador Sergey Kislyak and others spoke.
Michigan Gov. Rick Snyder said Severstal exemplifies the spirit of innovation, manufacturing and entrepreneurship championed by Henry Ford a century ago.
"The very center of that -- the best-known place in the world -- is where we stand and sit today on the Rouge complex," Snyder said.
Rouge Steel was owned by Ford and was the main steel supplier of the Rouge complex that the automaker completed in 1928. The Rouge put the entire manufacturing process to assemble a car in one location. But Rouge Steel fell on hard times after Ford spun it off in 1989 into an independent steel company.
Severstal bought it for $285 million in 2003. Investments since then include:
• $450 million for a new pickling line that cleans steel by putting it through a bath of acid.
• $285 million for a galvanizing line that applies a zinc coating to the steel.
• About $100 million for environmental measures to improve air-quality emissions.
Bernie Ricke, president of UAW Local 600, said he remembers when the union decided to support Severstal over a competing bid by U.S. Steel.
The UAW preferred Severstal even though it was asking for workers to take pay cuts.
"We felt that U.S. Steel just wanted the customer order book," Ricke said. "With Severstal, we felt that they offered the best opportunity for long-term investment."
The UAW initially accepted a $3-an-hour pay cut. But in April, the UAW and Severstal agreed to a new five-year contract that included a $5,000 signing bonus and raises.
