A letter from the owner of the idled Sparrows Point steel mill assuring customers that some operations are to resume will be welcome news, at least in the short term, an industry observer said Wednesday.

The letter — dated Tuesday and first reported by industry newsletter Steel Market Update — was the first communication to customers since mill owner RG Steel closed down its blast furnace just before Christmas and then notified state officials that it was laying off about 720 workers through March 4.

John Packard, founder of the Steel Market Update newsletter and website, said: "That's very important to their customers because customers don't buy slabs; customers are buying finished steel."

"To have those pieces of equipment up and running provides some assurance to customers who have orders in their systems, that those orders, where there is inventory available, will be produced and shipped. It helps prevent panic and provides some comfort for a short period of time."

But the long-term future of Sparrows Point, which employs more than 2,200 workers, remains unclear. The plant has struggled because of a seven-month shutdown last year and because it has been costly to run, especially now that raw materials prices are high, said Chuck Bradford, a metals analyst with Bradford Research in New York.

"There are several cost disadvantages, and at the same time several selling price disadvantages because they were closed for a while and lost customers," Bradford said Wednesday. "The only way to get them back is by discounting."

In the letter to customers, Jerome V. Nelson, RG Steel's chief commercial officer, said that finishing operations, which include production of tin-plated steel for cans, will restart this week using available inventory. Most of those operations were shut down during the holidays.

Sparrows Point's blast furnace, where iron is extracted and melted, remains on "hot idle" but could restart in a matter of days once a startup date is determined, he added.

The company hopes to resume normal operations at Sparrows Point and to resolve issues associated with the outage, Nelson said in the letter.

"We understand the critical nature of all customer orders and are working hard to communicate to you the effect these events may have to orders on the books," he wrote.

Maintaining the blast furnace on hot idle could signal a quick reopening, but that scenario is not assured, Bradford said. The company is likely weighing the cost of maintenance against the cost of shutting the furnace down entirely, Bradford said.

The plant was shut down last month for an indefinite period.

A spokeswoman for RG Steel could not be reached Wednesday. The company's parent, Renco Group, bought the mill from Russian steelmaker Severstal in March and reopened it after a seven-month shutdown.

Under the new ownership, and in a rocky global economy, the Baltimore County plant has struggled to pay its suppliers and recover from a loss of customers during the shutdown. The letter to customers said the company's other steel mills, in Wheeling, W. Va., and Warren, Ohio, were not affected by problems at Sparrows Point.

Baltimore County Councilman John Olszewski Sr. said Wednesday that county officials have been trying to get information from the company to help the furloughed workers.

"What I'm hearing is that they've shut down and that there are contractors that are due money, some significant amounts," Olszewski said. "The market is down and raw material prices are up, so it's not good right now."

Last week, Gov. Martin O'Malley asked GE Capital, one of RG Steel's 10 lenders, for help "stabilizing the financial arrangements that helped build RG Steel," the fourth-largest steel company in the United States.

GE Capital, the financial service arm of General Electric, and other lenders had provided a revolving line of credit in a deal in which GE and lenders led by Wells Fargo financed the stock-purchase sale that created RG Steel.

The governor, in a letter released Dec. 29, asked the banks to rethink a decision to shift some of the available funds to reserves to secure the loan.

The group of banks is continuing talks with RG Steel, said Ned Reynolds, a spokesperson for GE Capital. He said he could not elaborate.

"We remain optimistic that some kind of solution is reachable," he said.

lorraine.mirabella@baltsun.com

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