Ever since the steel industry virtually abandoned Pittsburgh in the 1980s, developers have pondered new uses for the miles of shuttered mills lining its three rivers. Movie studios, industrial malls, even museums were
all considered. Then, on Aug. 11, entrepreneur Matthew Botsford launched the boldest project yet: a new steel mill, the first in western Pennsylvania since World War II. With a $340 million investment, he hopes to expand his small steel-processing outfit into the Iron City's first minimill, WorldClass Steel.
Botsford, 58, represents a new breed of feisty steelmakers. Using largely untested technology and nonunion workers, they're targeting niche markets--such as extra-thin steel--that until now have been dominated by big foreign and U.S. steel companies. And in today's buoyant steel market, they're getting big backing from investors.
TOUGH TIMES. But Botsford is trying to go his fellow entrepreneurs one better by starting his company in Big Steel's backyard. To cut costs, he's fixing up an abandoned U.S. Steel Group facility to house his mill, and he's making use of existing rail lines and river docks. The huge risk: that big, integrated companies will decide to do battle for the same niches. "The existing producers are not going to roll over," says John E. Jacobson, a steel consultant in Swarthmore, Pa.
Botsford has pulled through tough times before. A former salesman for big steel companies, including LTV Corp., he quit his job in 1987 and set out to raise money to start a steel-processing business to trim and cure steel for larger companies. For a grubstake, he and his wife, Gail, mortgaged their house--and nearly lost it when cash got tight and they couldn't make their payments. By 1992, he finally had succeeded in raising $35 million in loans and investments from big investors (whom he won't name) to start WorldClass Processing Inc.
Now, Botsford thinks he sees an opportunity to live peacefully with his brawny rivals. Intent on cutting costs further, Big Steel is bailing out of many of the smaller markets he aims to fill. He believes the big mills can contract such work to WorldClass. In fact, he's hoping that U.S. Steel will swap land for a slice of his company. U.S. Steel won't say whether it is interested.
But the challenges to such a venture are many. Unions, for one. Botsford now employs 65 nonunion workers at his processing operation. Rather than fight the unions--as minimill operators Nucor Corp. and Birmingham Steel Corp. have--Botsford adopts a soft line on labor. As long as the union promises flexible work rules, he says he doesn't care if the plant's 450 workers are represented or fot. The United Steelworkers, though, seem intent on organizing the operation on their own terms. Says USW President George Becker: "I have every reason to believe it will be a union facility."
Then there are the technological risks. Until last winter, Botsford was planning to expand his steel-processing business. Then he heard about a steelmaking technology developed across town by Tippins Inc., a rolling mill manufacturer. The new mill, known as TSP, offered the cheapest entry yet into lucrative flat-rolled steel for products such as appliances and autos. At a base price of $200 million, TSP comes in $120 million less than the German steel-making technology used by Nucor at its two groundbreaking minimills. But if glitches emerge in this first TSP mill, delays could sap Botsford's finances.
Still, Botsford should have plenty of backing for his new venture, which includes a $290 million version of the TSP mill, plus $50 million in additions to his processing business. Tippins and its partner in TSP, Korea's Samsung Heavy Industries, were hungry enough for a first customer to take an undisclosed equity position in the venture. Also ready with about $33 million was the State of Pennsylvania. And Duquesne Light Co. is anteing up cheap electricity, a key cost for minimills, which melt steel scrap in 3,000F electric furnaces.
BIG-STEEL WATCH. Botsford still has to raise more than $200 million of the project's cost, but with steel prices surging, that probably won't be hard. Earlier this year, other steel entrepreneurs--a trio of Nucor renegades led by former plant manager Keith Busse--raised $400 million for their Indiana mill in just a few months.
Botsford's main challenge now may be steering clear of tough competitors such as Nucor, Busse, and a host of Nucor look-alikes coming on stream over the next three years. Even if Botsford succeeds in staying a step ahead of other minis, however, he must also keep a wary eye on Big Steel, which is forging a comeback of its own. It's hard to say just how patient the big guys will be with the only minimill in the neighborhood.
FORGING A COST ADVANTAGE
Initial capital investment