SteelCorr flat mini on track to start in Mississippi at close of 2007: John Correnti, former...

While it has been a long time coming--over two and a half years--veteran steel executive John Correnti has finally got the green light to start construction of his new mill in Lowndes County, Miss, that he believes will usher in the next generation of steel production facilities. When it starts

The mill became reality by the formation at the end of September of a joint venture company by Correnti's SteelCorr LLC and Russian steelmaker JSC Severstal, which they have dubbed SeverCorr. Under the joint venture agreement Severstal will have an 80% interest in the steel mill in return for putting up about $200M of the financing for the mill. The bulk of the $880M in financing will come from GE Capital, Stamford, Conn, which will put up about $440M, followed by KfW Bankengruppe, a government-owned bank in Germany, which is investing $227M while the State of Mississippi has given a $60M loan guarantee.

Correnti says that he actually expects to be able to build the steel mill for under $700M "but we decided to raise $880M through Global Principal Partners of Cleveland to ensure that we had enough working capital for startup expenses and other contingencies".

As to Severstal, Correnti says he is pleased having the Russian company as a key strategic partner. "They are already in the automotive industry with their acquisition of the former Rouge Steel facility, which is now called Severstal North America and they are interested in learning the minimill culture," he declares. "They are a young group and they think a lot like I do. They are aggressive and they aren't afraid to take risks and to invest in new technologies."

Correnti notes that while Severstal will have a majority on the board of directors of SeverCorr, most of the key executives will be from SteelCorr people--people he has worked with at Nucor Corp and/or the former Birmingham Steel Corp (two companies that he had headed) and most of which have been involved in starting up a new minimill. Correnti is to be chief executive officer of SeverCorr; Eddie Lehner the chief financial officer; Michael Wagner, executive vice president and chief commercial officer; Richard Painter, construction manager; Leroy Pritchard, engineering manager; and Wynn Calland, head of regulatory affairs.

Correnti admits that the idea to start SeverCorr was not initially his own. He was approached by German mill equipment maker SMS Demag AG and a representative from an investment bank company asking him to build a mill using SMS' new 'evolutionised' thin slab casting technology that they said could be used to produce high enough quality steel to be used in exposed automotive and other high-end steel applications.

SMS and Correnti have a long lasting business relationship. In fact, Haroldo Costa-Lima, president of SMS Demag's Pittsburgh-based US subsidiary, observes that when SMS pioneered its Compact Strip Production (CSP) thin slab caster directly linked to a hot strip mill in the late 1980s, it had really launched it with the aid of Correnti and Ken Iverson at Nucor, whose success in using the technology for its Crawfordsville, Ind, minimill in 1989 led to a flurry of CSP sales worldwide.

Correnti says that when he was approached by SMS, his first thought was why they didn't approach an established company--either an integrated mill or another mini-mill--that would be able to fund the project internally. "But they said they wanted someone who would devote 100% of the time to this one mill because it is important that it is done right" so that they could promote this as the next generation flat product steel mill.

Correnti says that he was impressed when he looked at one of SMS' newest technology casters in action--one being used by ThyssenKrupp in Germany to sell steel to such automakers as Mercedes-Benz and BMW there. "They weren't feeding it off of an electric arc furnace but rather a BOF," he admits. "But the caster doesn't know where the ladle's hot metal is coming from. Ali it knows is what the chemistry has to be," he says, adding, "I was very impressed with the quality."

"We have made incremental improvements (to the thin slab casting technology) over the past 20 years," Costa-Lima says, although he did not go into the exact details of what changes have been made that enables this, the third generation of CSP technology, can be used now for exposed automotive applications. "The whole quality starts with the liquid steel, so there will be a lot of care taken in the (SeverCorr) plant's melt shop," he says. While not the sole equipment supplier to the mill, SMS Demag is supplying the steelmaking equipment for everything from the melt shop through to the galvanizing line, Costa-Lima says.

What will make the SeverCorr mill unique from others in the United States and even from the ThyssenKrupp mill in Germany, Correnti says, is its width. The new facility will be producing 74-inch (1879mm) wide hot band and 72-inch (1829mm) wide cold-rolled and hot dip galvanized steel. It is this, he says, that really allows it to sell into the exposed automotive market. "It is pretty difficult for someone who is only producing product that is 55-65 inches (1397-1651mm) wide to sell into that market," he declares.

Correnti states that about 17-18% of its output would be used for exposed automotive applications. The remainder would be sold into a plethora of other end-use markets including pipe, construction products, unexposed automotive and appliances. "This is the first electric arc furnace minimill that is being engineered, constructed, started up and operated to hit the quality standards of automotive."

This, he says, is being achieved by a number of "bells and whistles" designed into the facility, including its vacuum degasser. In the initial stage, which will allow SeverCorr to produce up to 1.5M short tons of steel, the mill equipment is to include a 175 ton electric arc furnace, two ladle metallurgy furnaces, a vacuum degasser, a single-strand thin-slab caster, a tunnel furnace, a pickling and oiling line, a 3Mt/y five-stand tandem cold mill, a temper mill and a 400000 ton/y galvanizing line. Should the company choose to expand its capacity to 2.5M tons a year, Correnti says it would require adding a second electric arc furnace, a couple more ladle metallurgy stations, another vacuum degasser and another strand on the caster. He says, "We will make provisions for all of this when we build the facility," which will occupy some 1.2 million square feet under roof on a 1400 acre site.

Correnti plays down criticism that another steel mill is unnecessary, stating, "The United States consumes 130M tons of steel per year. If everybody ran at 100 percent of capacity, we could only produce maybe 105M tons, which means we still would have a 25M ton shortfall. That's why we have imports. The reason that people say that we don't need any more steel mills is because they want to keep prices high but prices don't have to be high for us to be profitable. When business is good and our prices are high, the price of scrap and pig iron are high. And when business slows down, guess what? The price of scrap and pig also goes down. All you can control is the margin in between," he declares.

"I've always said if you are a low-cost, high-quality producer, you'll get your share of the market. If you won't and with new equipment and new technology, if you manage it right and if you've got good energy costs, that's the equation for success."

And he says he feels he has all the makings to be a low-cost, high-quality producer, especially given the location he has chosen in northeastern Mississippi. "With Tennessee Valley Authority (TVA) power, we should have one of the lowest electrical rates in the country," Correnti says, noting that labour cost component should also be low. The location also gives the company good access to its customers, he says. "Probably close to 25% of (US) autos are assembled within a 300-mile radius of the plant," with the New Domestics (formerly known as the transplant automakers) located in South Carolina, Georgia, Tennessee, Alabama, Mississippi, Louisiana and Texas and the number of plants are growing.

While SeverCorr does not currently have any contracts directly with the automakers (it does have one with a large Japanese trading company), there are advantages to being closer to its customers, especially with rising fuel prices and freight costs. "Most of their steel today is coming from Chicago, Detroit, Cleveland, Pittsburgh, Ontario or from Asia or Europe. Depending on who the customer is and where their current supplier is, we can probably have anywhere from a $15 to $90 a ton freight advantage over other steelmakers," Correnti says, noting that the mill is also close to its other end-use customers as well.

SeverCorr also has contracted for its raw material needs, including a supply agreement for scrap metal with Jefferson Iron & Metals, Jefferson City, Mo and a supply agreement for pig iron, direct reduced iron (DRI) and hot briquetted iron (HBI) with Stena Metall AB, Goteborg, Sweden. Correnti says the mill's raw material mix will vary depending on the product being produced. "If we are making construction products, we'll probably use 90% scrap and 10% DRI, HBI or pig iron. But if we are making it for exposed automotive, we will probably be using 80% pig iron and only 20% scrap. The percentages will change with every grade in between."

The biggest obstacle that SeverCorr encountered thus far, Correnti says, has been putting the financing together. "I was surprised it took so long. I thought we could do it in nine months to a year but it took double that. But in one way the process has been beneficial in that the project has been due diligenced to death," he declares, adding, "What is ironic is that we'll build the plant and start it up faster than it took to raise the money."

The major challenge now is getting the plant up and running, Correnti says but he is confident that will go well as it is a process that both he and his management team has been through before. "It is like being a fine French chef. If it was just a matter of reading the cookbook and putting a meal together, anyone could be a fine French chef. But you have to have cooked for a while and lived through it for a while and burnt some stew or other entrees in order to do it. There's always challenges but experience helps you work through those challenges."