Russian Firm Buys Into U.S. Steel Operation

MORGANTOWN, W.Va., Dec. 28 -- A subsidiary of Russian steel giant OAO Severstal will spend $140 million to rebuild the aging coke ovens at Wheeling-Pittsburgh Steel Corp.'s Follansbee site, then take half ownership and share the coke, the companies announced Tuesday.

Severstal, which has been making acquisitions in recent months, aims to become one of the top five steel producers in the world. Severstal North America Inc. signed a letter of intent for the coke plant deal with Wheeling-Pittsburgh last week and plans to close by March 31.

Severstal plans to commit $140 million for improvements over four years and make an additional $20 million payment to Wheeling-Pittsburgh.

The companies each would get 50 percent of the more than 1 million tons of coke the new plant could produce. Coke is a key fuel in blast furnaces and is in short supply worldwide, though Wheeling-Pittsburgh is able to meet about 95 percent of its own coke needs.

"The coke market has been highly volatile," said James G. Bradley, Wheeling-Pittsburgh's president and chief executive. "This transaction minimizes our risk while assuring an adequate coke supply for our remaining blast furnace and freeing up capital for potential future value-added downstream investments."

The Follansbee plant can make about 1 million tons a year, but production was scaled back this year when the company began what were expected to be lengthy repairs.

Severstal officials could not be reached for comment on the Wheeling-Pittsburgh deal, but the arrangement makes sense for the company. Coke plants are huge structures that cost hundreds of millions of dollars to build and are difficult to get approved because of environmental concerns.

Buying coke on the open market is also expensive; it has traded at about $250 to $300 a ton recently.

Severstal North America Inc., headquartered in Dearborn, Mich., makes flat-rolled sheet steel. It has about 2,200 employees and is a wholly owned subsidiary of OAO Severstal, the second-largest steel producer in Russia.