The Strange Case of Weirton Steel

Lauded by ISG’s Mott, Weirton was left to “swing” by Mittal and Schorsch

On July 9, 2004, International Steel Group announced that it would restart a second blast furnace at Weirton Steel, the venerable West Virginia tinplate maker, “in response to strong customer demand for its value-added coated steel products.”

In a release to the media, Rodney Mott, CEO of ISG, painted a rosy picture of the mill’s future, saying, “The integration of Weirton Steel into the ISG family of businesses has occurred seamlessly and more rapidly than we had expected.”

Having won a bidding war for the nation’s No. 2 tin producer in bankruptcy court in May 2004, ISG pressed ahead to improve the plant’s steelmaking efficiency as well as its capacity. Repairing No. 1 blast furnace together with reopening idled No. 4 furnace were top priorities. Together they would increase daily iron production by about 2,200 tons.

Click for larger image

National Steel Corp.

Happier Days Weirton was established in 1909 by Ernest Weir, a visionary businessman, who built a steel plant and company town on the Ohio River opposite Steubenville, Ohio. Noted for its excellent local management and high profits, the company was merged into National Steel in 1929.

ISG executed a contract with Cleveland-Cliffs, the shipping and mining company, to supply Weirton with iron-ore pellets through 2019 and further laid plans to upgrade the 48-inch continuous slab caster so that the Weirton “will be able to benefit from the strong demand for value-added tin plated and galvanized steel from our customers in the food packaging and construction industries.” (1)

Mott assigned one of his crack assistants, Bill McKenzie, to oversee improvements at the mill, which is nestled in the upper neck of West Virginia 35 miles west of Pittsburgh. An engineering graduate of West Virginia University, McKenzie had worked for eight years at Weirton and 14 years at Nucor Corp. before serving as general manager of ISG’s Coatesville, Pa., plate division. (2)

Mott attributed the seamless transition of Weirton into the ISG group to the “enthusiasm and hard work of our employees and the cooperation of the Independent Steelworkers Union (ISU),” which agreed to a new contract that reduced job classifications from 30 to five and cut union employment from 3,000 to 2,100.

Mark Glyptis, ISU president, praised ISG’s commitment to Weirton. “The brighter future I’ve often spoke of is within our grasp,” Glyptis said. “We must keep an integrated steel mill in Weirton. It means so much to so many people and this valley.” (3)

Fast forward to June 10, 2005. Eight weeks after Weirton had been absorbed by the Mittal Steel group, the following statement was released to the media:

Mittal Steel has announced a lengthier outage with accompanying layoffs, for its plant in Weirton, W.Va.

The blast furnace had been idled for about 10 days and was to be reactivated this week. “However, the market conditions that led to the earlier decision haven’t improved,” said Bill Brake, Executive Vice President, Operations East.

“We’ve decided that it’s better long-term for the business and for the Weirton plant and its employees to use the next few days to prepare the equipment for a longer outage. We’ll bring it back up when the market tells me that the time is right.”

The shutdown of No. 1 furnace (No. 4 furnace had been idled earlier) had nasty ripple effects. It forced the closure of the basic oxygen plant, which converts blast-furnace iron to steel, and the continuous caster, which makes molten steel into slabs. The number of laid-off employees grew from 370 to 700. (4)

Weirton’s finishing mills continued to fulfill customer orders by using slabs shipped by rail from Mittal’s Cleveland and Sparrows Point plants. Brake estimated that the outage would last between six and eight weeks. A return to full operations was expected between August 1 and 15.

But on August 19, 150 more steelworkers were furloughed, and rumors spread that Bill McKenzie had resigned. That evening WTRF-TV in Wheeling, W.Va., informed its viewers:

We have learned that the plant manager of Mittal Steel is stepping down. Bill McKenzie began overseeing the plant shortly after ISG bought the plant…. It is not clear why McKenzie is resigning. Union stewards were told late this afternoon about the resignation. McKenzie, unlike company heads before him, was well known for working inside the mill along with union workers, although he was management. (5)

Click for larger image

National Steel Corp.

A sprawling empire This 1934 map shows the extent of National’s Midwest properties. Weirton once employed 10,000 people, and the town itself had 30,000 inhabitants.

Stunned by these developments, the ISU came up with a plan for $93 million in cost cuts in order to reopen the hot end. The plan was submitted to Brian M. James, the new GM whom Brake had promoted from the finishing and shipping department at Cleveland. Eventually, the information was relayed up the chain of command, from Brake to Lou Schorsch, CEO of Mittal USA, and, according to Schorsch, to Lakshmi Mittal and the corporate board, which included former ISG Chairman Wilbur Ross. (6)

But the handwriting was on the wall. Demand for steel had plunged, there was a buildup of inventory at steel service centers, and Mittal Steel was determined to work off the inventory by cutting production and stabilizing prices. This is where Weirton came in.

Unknown to Weirton workers as well as to many ISU officers, Mittal Steel kept obsessive track of all financial aspects of its five integrated mills (Burns Harbor and Indiana Harbor in addition to Cleveland, Sparrows Point, and Weirton). The mills were compared and ranked according to their raw material inputs, manufacturing costs, and product profit margins. At the bottom of the list lay the “swing” plant – the facility that, in times of low demand, didn’t generate enough money to please the steelmasters in London.

Weirton was the “swing” plant.

It was hobbled by higher raw material costs, especially for coke, than the other mills. And the ore-pellet contract that Mott had negotiated with Cleveland-Cliffs, which committed Mittal to 14 more years of steelmaking at Weirton, did not please management at all. (7)

Union politics also came into play. Weirton was the only plant that was not represented by the United Steelworkers of America (USWA). Before taking over ISG, Mittal Steel had entered into a “memorandum of understanding” with the USWA in which “the USWA agreed to support the merger and to waive its right of first refusal to acquire ISG under the ISG collective bargaining agreement.” (8)

According to two sources, Lakshmi Mittal gave his word to USWA President Leo Gerard that United Steelworkers would not be laid off unless and until non-USWA workers were dismissed. Mark Glyptis didn’t have that kind of clout. Weirton again was the swing plant.

So it was left to Brian James to break the news that Weirton Steel would no longer be making steel, as it had been doing since 1909. The November 29, 2005 announcement said that 800 union positions would be terminated as part of the shutdown of the hot end.

The announcement caused enough of a stir in West Virginia, where the mill was still the state’s largest industrial employer, to force Schorsch to come to Weirton and address ISU members at the Serbian-American Cultural Center. Adam Townsend of the Wheeling (W.Va.) Intelligencer provided this account:

Schorsch told about 1,400 ISU members that Mittal reviewed the $93-million cost-cutting package the union put together and found that it would not reduce costs enough to keep Mittal Weirton’s hot-end operations open.

“We reviewed it [the plan] in Chicago and, frankly, it wasn’t enough,” Schorsch said at the union meeting. “It didn’t come out with enough improvements to make this a viable hot end…. [The plan] was looking at best-case scenarios versus what we see in the market and what we see in the marketplace and what we see other facilities can do.

“We feel like we’re heading into a very difficult market situation. I understand it’s a very good mill. There’s a lot of money that we’ve put into it. As a company, we’ve got seven hot hills. We don’t have the demand to fill seven hot mills.”

The crowd was spilling out on the banquet hall, and the rank-and-file greeted many of Schorsch’s responses to questions with “boos” and catcalls.

There was talk among union members at the meeting that because the ISU is unaffiliated, it is taking the brunt of Mittal’s cost cutting, while the United Steelworkers members at other Mittal acquisitions haven’t lost their jobs.

“If we were in the USWA, would we be in this position?” asked one ISU member.

Schorsch, however, answered these criticisms by saying the decision to shut down the blast furnace at Mittal Weirton was purely based on numbers – that is, economic viability. (9)

Schorsch outlined the future of Weirton as a tinplate finishing operation and said that the company was exploring the possibility of adding new equipment to the facilities. But he cautioned:

[T]hese capital improvements are “not a slam dunk.” He said he will promote at least the edge cutters and tension-leveling improvements to the tin mill to Mittal’s board, the body that has the final say over capital expenditures. (10)

The ISU met with West Virginia Gov. Joe Manchin and U.S. Senators Robert Byrd and Jay Rockefeller. On December 15, Rockefeller issued a press release from his Washington office pledging to “hound” Schorsch “every day” until “we get a firm commitment about the future” of the tin mill.

“I’m extremely frustrated by Mittal Steel’s decision to close the hot-end plant, and I made absolutely sure that the U.S. CEO, Mr. Schorsch, knew exactly how I felt,” Rockefeller was quoted as saying. His webpage release concluded, “I will not stand by while Mittal plays with the lives of the finest steelworkers in the world. Weirton deserves better.” (11)

To appease Rockefeller, Schorsch promised to assign GM James to “reconfigure” the mill to make its operations both optimal and world class. In fact, by shutting down the hot end, Weirton would now become “more competitive in tin mill operations,” an unidentified company spokesman explained. (12)

On January 11, 2006, GM James acknowledged that the number of sacked steelworkers had reached 950, but said that the additional cuts came from white-collar and support staff. The 950 figure became the official number that Mittal disclosed under the Worker Adjustment and Retraining Notification (WARN) Act. (13)

While Rockefeller’s comments sounded rehearsed, an e-mail I received from a retired steelworker conveyed the pain and anger of workers who discover how easy it is for global companies to abandon their workforce and leave a community in shambles. It read:

I am living in a nightmare caused by Mittal at Weirton Steel. First I lost my retirement benefits, etc., when ISG bought our company for a song. I think that ISG was nothing more than a conduit for Mittal to later purchase the mill. After the purchase Mittal decided to shut down our hot end. This is a way of controlling pricing at the expense of jobs. Weirton has been able to overcome obstacles in the past, but I am afraid we decided to dance with the devil this time. (12/22/05)

In a sense, Weirton workers were reliving the experience of Irish steelworkers. Mittal had bought Irish Steel, the nation’s only steel plant, in 1996 for just 1 English pound, then shut it down five years later on one-day’s notice, leaving 400 employees jobless. The workforce had tentatively agreed to wage reductions, but Mittal had closed the facility before the plant’s union could formally respond. Irish taxpayers, meanwhile, were left with a $60-million bill to clean up the plant’s wastes. (14)

In late January, another Weirton worker reported on the mood of the town:

No good news for us, especially after Mittal’s purchase. He is taking advantage of our ignorance. Houses in the Valley are emptying out. I was ready to buy a van, but I don’t know if I’ll have a job to make the payments. Who is buying the steel if Mittal forces us all out of a job? I don’t want to rule the world or beat out Bill Gates, alls I want to do is load up the kids and grandkids and visit the zoo. I always made middleclass money and probably spent more than I should have, but spending money helps the economy, right? Or what the hell is the rule now?

I am upset because of the anger I have and not to be able to fight this system that is being created. Our congressmen haven’t returned my letter I wrote 2 months ago. Our president is more worried about corn in Florida than steel in WVa. I wonder how he is going to shoot corn through an enemy tank? I think the world is watching us destroy ourselves. (1/29/06)

In February, Mittal USA offered ISU workers a “voluntary termination” buyout plan. They were given a choice of lump-sum payouts and a bonus or extended health care and jobless benefits. Those with 20 or more years of service could take either a $60,000 payment plus a $13,500 bonus or supplemental jobless benefits and 30 months of health-care coverage. Workers with between 10 and 20 years of service could opt for a $47,000 payment and the bonus. (15)

Those who did not take a buyout and lost their job would be placed on a preferred hiring list. Depending on future production demands, the mill would have between 1,100 and 1,200 jobs available, according to the company.

Company lawyers, meanwhile, had prepared papers requesting an immediate $600,000 reduction in Mittal’s property-tax bill, and informed officials that Mittal would ask for another $500,000 in cuts in the future.

Speaking of the effects of the lost revenues on public education in Weirton and surrounding Hancock County, W.Va., School Superintendent Dan Kaiser said simply, “This is devastating.” (16)

Notes

By buying Weirton, ISG controlled about 37 percent of the U.S. tinplate market, having acquired about 17 percent of the market through its purchase of Beth Steel’s tin mills at Sparrows Point. U.S. Steel Corp. had about 40 percent of the market through the American Sheet & Tin Plate Co., a descendent of the infamous “Tinplate Trust” put together by Daniel Gray Reid and William B. Leeds in 1898. “ISG Weirton to Start Second Blast Furnace,” Steel News, July 12, 2004; “ISG to Assume Cliffs-Weirton Pellet Contract,” May 19, 2004.
From ISG press releases.
Glyptis openly favored ISG in its bidding war against the Informal Committee of Secured Noteholders. For the inside story of how Weirton landed up in Chapter 11 bankruptcy, see C. John Kruzeski, WESAP: Weirton Steel Employee Stock Annihilation Plan, www.mcclainprinting.com, 2005.
“Mittal Steel Extends Weirton Blast Furnace Outage, Steel News, June 10, 2005.
Shauna Parsons, “Mittal Latest,” posted on WTRF website, Aug. 19, 2005.
Rodney Mott had jumped ship upon Mittal’s takeover of ISG, but Wilbur Ross remains on the Mittal board of directors. Ross has had nothing to say about Weirton, as far as this writer is aware. But Ross has had many words of praise for Lakshmi Mittal, who paid him such a generous premium in buying ISG.
Mittal broke its contract with Cleveland-Cliffs, which led Cleveland-Cliffs to bill Mittal for 325,000 tons of iron-ore pellets that were not purchased by the Weirton plant in January 2006. On April 13, 2006, Cleveland-Cliffs canceled the Weirton invoice when Mittal agreed to purchase an unspecified minimum tonnage of ore through 2010 for its Cleveland and Indiana Harbor mills.
Form 20-F, 2005, Mittal Steel Co. NV, submitted to U.S. Securities and Exchange Commission, pg. 105.
“Mittal Chief: No Hope for Plan,” The Intelligencer, Dec. 14, 2005.
Ibid.
“Rockefeller Meets with Mittal Steel USA CEO,” Sen. Rockefeller’s webpage, Dec. 15, 2005.
Scott Robertson, “Mittal Tells Weirton Plant: Tin Is In, But Furnace Out,” American Metal Market, Dec. 15, 2005.
WARN requires companies with 100 or more employees to provide 60-days advance notice of plant closings and/or mass layoffs.
The purchase of the former government-owned facility was made through Ispat International, a Mittal subsidiary. See http://www.makingsteel.com/whoishe.html
“Union Details Buyouts at Mittal,” Pittsburgh Tribune-Review, Feb. 23, 2006.
Dave Elias, “Mittal Steel Asking for Tax Cut,” WVNS News, Feb. 15, 2006.