A Nucor Corp. decision to temporarily halt production at its St. James steel mill because of market conditions clouds the future of Convent as the site of a much larger proposed $3.4 billion steel complex.
Nucor said Wednesday that its plant — already plagued by mishaps over its first two years of operation — is shut down for routine maintenance. Once the work is complete, the company will mothball the St. James facility until market conditions improve.
About 170 people work at the plant, according to Louisiana’s economic development department.
St. James Parish President Timmy Roussel, who won re-election last month to a second term, said plant manager Les Hart told him none of the employees at the direct reduced iron plant would be laid off.
Nucor issued a statement saying the company has a long history of keeping its “teammates” even in down markets. A 2009 story by Bloomberg.com, written in the depths of the Great Recession, said Nucor hadn’t laid off anyone since 1966. Instead the company went to shorter work weeks.
Roussel said he was hopeful the plant could restart production in mid- to late-January, if market conditions improve.
Roussel said he did not discuss whether Nucor would proceed on any of the four additional phases once envisioned for the $3.4 billion complex on the Mississippi River near Convent.
“I believe with the market like it is, I believe he (Hart) won’t be focused on that. He will be focused on getting the plant back up,” Roussel said.
“When the raw materials market improves, Nucor Steel Louisiana has the ability to quickly ramp up and resume producing DRI,” spokeswoman Katherine Miller said in a news release.
Nucor invested $750 million in the St. James mill, a direct reduced iron plant that uses natural gas to make high-purity steel pellets from iron ore. Nucor mixes the pellets with scrap metal to make steel.
Philip Gibbs, an analyst with KeyBank Capital Markets, said the plant’s shutdown “comes as no surprise.”
The move makes sense because it’s cheaper to import pig iron from Russia and Brazil than for Nucor to make the intermediate material at the plant, Gibbs said in a Wednesday note to investors. However, assuming scrap prices stabilize in 2016, the performance of Nucor’s raw materials business should substantially improve, he said.
Still, the announcement caught St. James Parish officials by surprise, although they had been told earlier about the plant’s struggles with market conditions.
Roussel said he was more optimistic after a conversation with the plant’s manager than after reading early press accounts of the shutdown.
“It didn’t sound like any doom and gloom,” Roussel said.
Roussel said Hart told him Nucor was taking advantage of the market downturn to do a turnaround. A turnaround is industry parlance for doing major maintenance and cleanup on a plant.
The St. James plant can make 2.5 million tons of direct reduced iron per year and is the first of five phases — the largest a $1 billion pig iron plant — that altogether would directly employ 1,250 people and generate close to 5,000 indirect jobs.
Touted early in Gov. Bobby Jindal’s tenure as a major economic development win, Nucor was promised $160 million in state incentives. Under the agreement with Louisiana Economic Development, Nucor must let LED know by Dec. 31 what the company’s plans are for the remaining $2.65 billion in construction phases.
LED said Nucor received a $30 million performance-based grant for Phase I of the reduced iron plant, and would be eligible for an additional $30 million performance-based grant upon committing to a second phase.
The St. James plant has been hampered by mishaps, including a storage dome’s collapse just days before operations were to begin in 2013 and the November 2014 failure of what has been called the world’s largest process gas heater. Without the heater, the plant couldn’t operate. The repairs and replacing the related piping took several months. Those issues and the collapse of material prices contributed to operating losses at St. James of $44 million, $20 million and $28 million during the first three quarters of the year.
Peter Ricchiuti, a finance professor at Tulane University who tracks regional stocks across the South, said while there’s been a lot of talk about oil’s price collapse, steel prices have been hit just as hard “if not worse.”
According to data from the London Metal Exchange, a ton of steel was selling for $480 on Dec. 16, 2014. As of Dec. 9, that price had plunged to $170 per ton.
A number of factors have hit the steel industry, Ricchiuti said. The slowdown of the Chinese economy is one issue, along with the fact that Chinese steel mills have not ramped down production, flooding the global market with metals.
“Steel mills need to employ zillions of people, so it’s a great way to get people working,” he said. In China, the mills are continuing to run, even at a loss, instead of being shut down as they would be in a free-market economy. Along with the China issues, the slowdown in the energy industry has reduced demand for steel to make pipes.
Industry experts say global steel production has outstripped demand by about 32 percent, or 770 million tons, with much of the excess exported from China. Cheap imports, which critics say are illegally subsidized by China and other exporters, mean U.S. mills are working at less than 70 percent of capacity.
Despite all that, Nucor — which operates “mini-mills” that use scrap metal to make steel — has fared a lot better than some of its competitors, Ricchiuti said. While Nucor stock has fallen from just under $49 a share on Dec. 16, 2014, to $38.23, US Steel stock plunged from just under $28 to $8.29.
“Everybody wants to be Nucor,” Ricchiuti said. “They’re definitely the right player, with the right technology. They’ve just been hit by this tidal wave of low steel prices.”
Nucor and other U.S. steel makers have called for the federal government to levy duties on imports to offset foreign subsidies.
Advocate staff writers Timothy Boone and David Mitchell contributed to this story. Follow Ted Griggs on Twitter, @tedgriggsbr