Rouge Steel to Temporarily Idle a Blast Furnace
9 January 2001
Rouge Steel to Temporarily Idle a Blast Furnace
DEARBORN, Mich., Jan. 9 Rouge Steel Company, the primary
operating subsidiary of Rouge Industries, Inc. , announced today
that it will idle the smaller of its two operating blast furnaces for a period
of three to five weeks to reduce steel slab inventories. The shutdown
decision was made prior to last Friday's unplanned blast furnace outage.
Despite Rouge Steel's lower raw steel production during the fourth quarter of
2000, the deteriorating domestic steel market situation caused by unfairly
dumped foreign steel, and more recently, a weakened automotive demand have
made further production cuts unavoidable.
"We have no choice but to make deeper production cutbacks given the
severely depressed steel market and high levels of imported steel products,"
said Gary P. Latendresse, vice chairman and chief financial officer of the
Company. "We were hopeful that our 10% reduction in raw steel production
during the fourth quarter would be sufficient to balance our production with
sales, but it is now clear that a more substantial production adjustment is
necessary. Steel shipments in the fourth quarter of 2000 were approximately
563,000 tons; 3% below the Company's plan and 9.5% below the third quarter of
2000. Announced production cuts at the Company's major automotive customers,
coupled with a chronically weak spot market, drove the decision to temporarily
idle the blast furnace. These factors plus spiraling natural gas costs will
cause the Company's financial results to worsen from the third quarter level
in both the fourth quarter of 2000 and the first quarter of 2001," added Mr.
Latendresse.
The Company's natural gas supply situation was exacerbated when a supplier
of approximately 30% of the Company's requirement defaulted on its contract to
supply natural gas to Rouge Steel through March 31, 2001. The Company has
filed a lawsuit to enforce the terms of its purchase agreement and to recover
financial damages. This breach of contract has caused the Company to replace
this supply shortfall in the spot market and record a cost penalty in December
and the first quarter of 2001, in excess of $2.0 million per month, which will
further depress earnings.
"On a more positive note," continued Mr. Latendresse, "we commissioned two
newly constructed electrical substations during the last week in December 2000
replacing the temporary electrical facilities that were installed on an
emergency basis following the Rouge Powerhouse explosion in early 1999. These
substations will distribute safe and reliable electrical power to the entire
Rouge Complex from either the Southeastern Michigan electrical grid or the new
power plant that is now expected to commence operation in the second quarter
of 2001. The Company's industrial processing and heating steam requirements,
however, will continue to be supplied by the temporary boilers, also installed
in early 1999, until the new power plant begins operating its steam generating
boilers late in the first quarter of 2001," said Mr. Latendresse.
Rouge Steel's primary insurer, FM Global, discontinued its reimbursement
of the Powerhouse-related business interruption costs as of December 31, 2000,
although the Company continues to challenge that position. These costs are
comprised primarily of excess utility costs resulting from the Company's
inability to utilize its blast furnace gas. These business interruption costs
are estimated to average $3 to $4 million per month, depending upon the cost
of natural gas.
The continuing market decline and the unprecedented levels of unfairly
dumped imports have necessitated the idling of the small blast furnace, which
will result in the reduction of approximately 120 production jobs at the
Company's Dearborn, Michigan steel mill. Approximately one half of the
reductions will coincide with the period of the temporary blast furnace
outage.
The Company has also been working with its present bank group and other
financial institutions to extend its borrowing capability. Although the
Company ended fiscal year 2000 with only $66 million of long-term debt, the
Company will need borrowing capacity beyond its present $100 million revolving
line of credit due to continuing steel market uncertainties, unprecedented low
steel selling prices and runaway natural gas costs. "At the moment, we are
confident that the Company will secure borrowing capability above $200 million
to permit uninterrupted operations as the steel market settles out," concluded
Mr. Latendresse.
Rouge Industries, Inc. is a leading producer of premium quality, flat
rolled steel products for the automotive, converter and service center
markets.
Safe Harbor Statement
This press release contains forward-looking information about the Company.
A number of factors could cause the Company's actual results to differ
materially from those anticipated, including changes in the general economic
climate, the supply of or demand for and the pricing of steel products in the
Company's markets, potential environmental liabilities and higher than
expected costs. For further information on these and other factors that could
impact the Company and the statements contained herein, reference should be
made to the Company's filings with the Securities and Exchange Commission.