With state lawmakers contemplating a $125 million bond program to advance a $1.1 billion steel mill project in northeast Arkansas, a competitor is quietly pushing back at the capitol by raising concerns about the investment group supporting Big River Steel.
Last month, Gov. Mike Beebe (D) and economic officials unveiled the state’s first superproject, which will be located near Osceola (Mississippi County). The billion-dollar steel manufacturing factory, led by steel magnate John Correnti and a group of investors, is expected to employ 525 workers with an average pay of $75,000.
Construction jobs and ancillary or supplier businesses are expected to contribute thousands of more jobs in the coming years.
The bond issue being studied by Arkansas legislators includes a $50 million loan to the company, which is required to be repaid, and $75 million in incentives provided by the state.
As early as Monday or Tuesday, House Speaker Davy Carter, R-Cabot, says he expects to put out a legislative bid for an independent analysis of the state’s review of the project. That process would trigger a 20-day window to create a separate analysis of the superproject deal. Carter said at least four groups have expressed interest in the review bid.
Ultimately, state lawmakers will have to vote the bond issue up or down – a likely “make or break” decision for the steel mill project.
Nucor Corp., which has two major steel factories (Nucor-Yamato and Nucor-Hickman) in Mississippi County, has reservations about Big River Steel. It clearly sees the project as competition for market share, materials, labor, and infrastructure.
Nucor representatives have disseminated documents to Arkansas lawmakers that indicate the Big River Steel Mill could be much more competitive with its Nucor-Hickman plant than has previously been disclosed.
Big River officials said there could be a 20% overlap in business with Nucor, but Nucor suggests that based on an air quality permit filing the competition could be 100% competitive.
“Big River project will be able to make 100% of what Nucor Hickman currently makes,” one document stated. “Nucor Hickman currently operates at 70% capacity and has been in that range since 2008.”
In other documents shared with legislators, news articles involving failed John Correnti projects are highlighted, including two projects in Mississippi, one in Ohio and one in North Carolina.
Those projects involved major capital investments, promises of big jobs, and state incentives to partner with the venture capital deals. In most cases, private financing fell through and it is unclear how much state money was spent, although some government money was laid out for infrastructure improvements.
While the Nucor documents highlight several Correnti setbacks, he has had plenty of success.
His steel career began in 1969 with U.S. Steel where he served in construction management activities until 1980. He’s also done stints at the helm of SeverCorr, SteelCorr and Birmingham Steel.
As president of Nucor Corp. from 1991 to 1999 and CEO from 1996 to 1999, he was instrumental in the growth and success of the company’s two Arkansas facilities.
His departure from Nucor and subsequent stints at other competitors has led to considerable friction between Correnti and his former employer, but there’s no denying that in steel circles Correnti is viewed as a formidable player.
IMPACT TO NUCOR
Another page being distributed offers bullet points on how the Big River Steel project could affect Nucor operations in northeast Arkansas.
“Arkansas taxpayers and existing steel workers will pay for an unnecessary project,” it states.
The one-pager outlines “resource concerns,” which include:
• Poaching Nucor talent
• Shortage of talent and skilled labor
• Scrap availability and pricing
• Energy supply/prices
• Availability of rail cars and cost of rail service
Another page highlights Nucor’s 25 years of investing in Arkansas. From 1987-2012, Nucor says it has invested $1.9 billion in Arkansas and that it is planning to invest another $138 million in 2013. Last summer, Nucor said it would invest $115 million in its Nucor-Yamato plant in Blytheville.
A request for comment from Nucor officials was not returned.
Part of the document distribution includes talking points surrounding a failed ThyssenKrupp AG steel mill in Alabama. The 2008 $4 billion deal was a victim of the recession, according to many analysts. It also incurred significant cost overruns, which other documents in circulation suggest happened with unfinished Correnti projects.
One page also discusses the global steel industry and the new mill’s viability. It says that excess capacity is a main risk factor facing steel producers in the current environment.
“Globally [there are] 542 million metric tons of overcapacity in 2012 and it will be even higher in 2013,” according to a December 2012 Organization for Economic Co-operation and Development (OECD) report.
“It will take 5-7 years to work off the surplus capacity,” OECD said.
When the Big River Steel mill project was announced, officials declared that the $1.1 billion factory would produce steel for the automotive, oil and gas, and electrical energy industries. They also suggested that some of the markets Big River is aiming to compete in is in need of more supply.
An investment group analysis prepared by Delta Trust and Bank for the Arkansas Teachers Retirement System suggested Big River could be positioned uniquely in the market.
“The U.S. is a net exporter of scrap, indicating a scrap shortage is unlikely in the near future,” the Delta Trust report said. “The Big River Steel Mill is expected to be the only mini-mill in the U.S. capable of producing certain grades of steel.”
On Friday, the state of Texas announced that steel pipe manufacturer Tenaris would locate a $1.5 billion plant in Bay City, Texas. Gov. Rick Perry (R) used $6 million from his state-equivalent quick action closing fund to seal the deal, which was promoted as providing seamless industrial pipes for the oil and gas industry.
The Tenaris project appears more likely to be a competitor to Little Rock’s Welspun Pipe facility and could be a new outlet for the type of steel Correnti’s Big River Steel mill will produce.