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Mittal's Chicago plant incurs heavy loss

Sanjay Suri
India Abroad Correspondent in London

Lakshmi Mittal's huge steel plant in the US has run up losses of $60 million in the first quarter of this year. The losses were reported as Ispat moved to close down its plant in Ireland after suffering losses of more than a million dollars a month.

The losses at Mittal's plant in Chicago come as a big blow to the company. Ispat had bought the facility in Chicago for $1.4 billion, of which about $1.1 billion was debt.

In the first quarter of 2000, the plant notched up a profit of $53 million. A $60-million loss in the following year marks a severe downturn in the fortunes of the US plant.

Managers are worried that the drop in profitability also reflected a big drop in sales, down 17 per cent this year over the corresponding period last year.

The losses this year were reported by Ispat in a 10Q form filed with the Securities Exchange Commission. The company said that in addition to a drop in sales, average selling prices fell 11 per cent this year from the same quarter last year. Production dropped 7.2 per cent as a result.

The company's revenue dropped about $300 million this year over the first quarter last year, from $1.4 billion in 2000 to $1.1 billion this year.

Over this period the US company's sales dropped to $510 million compared to $617.4 million in the first quarter of 2000.

There were losses on other fronts for Ispat managers to worry about, too. Losses from operations fell to $70.9 million compared to a gain of $34.6 million last year - a cumulative loss of $105 million.

And there were unsold goods. Ispat Inland reported $81.8 million in inventory compared to $20.6 million in the same period last year. It spent $10 million on capital expenditure, more than twice what it spent in the period last year.

Mittal ran into difficulties with this plant soon after he bought it. He went ahead with plans to buy this plant in 1997 as his share price collapsed and demand for steel from established companies declined.

Ispat bought the plant to step up productivity, while market reports indicated a decline in demand.

Mittal's decision to buy the giant US steel plant for $1.43 billion in a difficult environment was always a debatable issue. Far from adding to the group's profits, the new acquisition immediately needed crisis-management. Ispat fired 300 white-collar managers at the Chicago-based plant soon after taking over.

At least 36 unionised employees at the Indiana Harbour Works of this plant in Chicago were also asked to go. The sackings cut staff by 12.5 per cent to a little more than 2,000.

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