By KEVIN NEVERS

When USW Local 6787 President Paul Gipson met with Lakshmi Mittal on Tuesday, he had two things in particular to say to the chair and CEO of the world’s largest steelmaker.

In its hostile bid to acquire Luxembourg-based Arcelor SA, the world’s second largest steelmaker, Mittal Steel Company (MSC) has the support of the United Steelworkers and Local 6787.

But if the “unfounded charge” of Arcelor CEO Guy Dolle is not one day to ring true—that MSC’s U.S. mills are inferior to Arcelor’s—then MSC needs to pursue an aggressive program of capital improvements and to maintain the cutting edge of its “crown jewel,” the Burns Harbor facility.

As Gipson told the Chesterton Tribune shortly after the conclusion of the two-hour meeting—accompanied by the camera crew of a French news network but not by Mittal USA CEO Lou Schorsch—he found Mittal “well informed about unionism both here in the U.S. and in Europe” and was “extremely impressed with his knowledge of the global steel industry.” And in Mittal’s ongoing efforts to consolidate that industry, most recently the company’s $22.5 billion offer for Arcelor, is the promise of a new and lasting stability in steel, Gipson said.

For one thing, Mittal possesses a wisdom about market equilibrium which always eluded Bethlehem Steel in its “mismanagement of volume,” Gipson noted. “Increased production without matching demand leads to pricing below fair market value, which leads to operating in the red. . . . Bethlehem would just put it on the ground and hope someone bought it. Customers liked that. They could pick and choose. . . . Bethlehem got the Saturn contract by pretty much giving them the price they wanted. So Bethlehem and the others ended up cutting each others’ throats. Then came the Asian crisis in the 90s and the illegal dumping. That was the final nail in the coffin.”

Mittal, in contrast, has already shown himself to be willing to cut production in order to shrink customers’ bloated inventories. In both the second and third quarters of 2005 MSC reduced worldwide production by around 1 million tons, split equally among the company’s North American, European, and Rest of World operations. “It’s all about supply and demand,” Gipson said. “Mittal idled five blast furnaces a year ago to cut back on supply. There were no massive layoffs but the idling helped to stabilize and hold the price. If you want to stay in business you’ve got to create stability in the market.”

The sheer “size” of MSC, Gipson added, “will control panic buying of steel that creates huge inventories that are damaging to our industry.”

MSC brings something else to the table too: an extremely strong position in raw materials, especially coal, coke, and iron ore. International Steel Group (ISG) had nothing like it, since one of Bethlehem’s last gasps was to sell its mine holdings. “It is my opinion Lakshmi Mittal’s long-term objective is geared toward reaching self-sufficiency in the iron ore and coal supply,” Gipson said. “If he succeeds, the automotive market is his, both Eastern Europe and North America.”

Should Mittal be successful in his bid for Arcelor, by 2010 MSC would have a worldwide capacity of 200 million tons. For a U.S. market crippled only a few years ago by a flood of cheap subsidized imports, that kind of global muscle and reach can only be a good thing, Gipson said. “It help corrects the import problem. He’s not going to import against himself.”

Capital Improvements

Meanwhile, Gipson said that he gave Mittal something of a shopping list while they toured the 80-inch hot strip mill (HSM). “The one thing I wanted to accomplish is to tell him we need capital money. It’s not enough to say Burns Harbor is the crown jewel. The place gets old. You’ve got to keep it up.”

Besides upgrading and refinishing the facility’s power generating station and modernizing the cold mill pickle lines and plate mill furnaces, Gipson pointed to two other investments of which Burns Harbor is in sore need: liquid metal furnaces, which keep iron hot for the high-end metallurgical characteristics required by special customers; and a walking beam furnace system for the 80-inch HSM, which would replace the dragging and dropping method that causes flaws in the product like slivers and laminations.

Mittal also saw the need—if Burns Harbor is to produce an additional 500,000 tons of plate this year, as Mittal wants it to do—to provide from other Mittal facilities the slabs which Burns Harbor is unable to provide itself in order to keep both rolling mills in full operation, Gipson said.

Gipson noted as well that plans have been made but not yet finalized for blast furnace re-lines next year and in 2009.

“Mr. Mittal was very receptive and returned very positive remarks,” Gipson said. “He is very impressed with Burns Harbor. He emphasized yield as a great concern and customer satisfaction. Both are a big part of what is required to improve our plant. An additional $20 per ton yield is worth $100 million annually at Burns Harbor.”

Mittal the Man

Gipson had a few other observations about the chair and CEO. “Lakshmi Mittal is not new to the USW,” he said. “His first experience with our union and the collective bargaining process was in 1998, when he acquired Inland Steel Company . . . . History reveals our agreements with Mittal have gone a long way toward making the workplace healthier and safer. To this date, Mittal has lived up to his commitment to our members and the communities, as well as other stakeholders.”

On the subject of the Arcelor CEO, who has characterized U.S. mills as “antiquated,” Gipson called Dolle a “pessimist” and said that the “political fears . . . are somewhat ridiculous, with no substance from French investors.” The European unions, for their part, have been conspicuously silent, he said, on the synergies and stability which the merger of MSC and Arcelor would create.

“We do not expect cost reductions or massive layoffs,” Gipson said. “We expect long-term stability with prices remaining firm for all. The strength of Mittal’s steel performance clearly indicates current market conditions have emerged based on consolidation of the industry.”

In a perfect world an industry consolidator on the order of Mittal would have emerged not from Europe but from the U.S., Gipson observed. Yet he trusts Mittal, his acumen, and his instincts, Gipson said. “Trust is a word you can use. It appears he has done some of the things I always thought should be done.”

Posted 3/16/2006