Arkansas to double capacity with $1.2B expansion of bond-financed steel mill

Register now

DALLAS – An Arkansas steel mill financed in part with $125 million of state general obligation bonds will launch a $1.2 billion expansion under the umbrella of a newly protectionist U.S. policy.

Big River Steel, which agreed to build its plant on the west bank of the Mississippi River with state incentives in 2013, made no reference to the Trump administration’s tariffs on imported steel. Company executives have been dismissive of the tariffs as a factor in Big River’s business plan, which emphasizes technological innovation.

“Our $1.2 billion expansion will further cement Big River Steel’s position as a global leader in terms of advanced manufacturing and environmental stewardship,” said Dave Stickler, Big River Steel’s chief executive officer. “Announcing this investment less than 18 months after beginning operations is a testament to the hard work and great success of the men and women on our team.”

Arkansas Gov. Asa Hutchinson, who arranged the state’s largest subsidy for the $1.1 billion plant, said the expansion plan announced June 29 confirms the wisdom of the original decision in 2013.

“When Big River Steel chose Arkansas as the site of its new plant, it was the largest economic development project in the state’s history,” Hutchinson noted. “Our state’s pro-business climate has led to the company deciding to expand here. That means even more jobs and more investment in Arkansas.”

The state’s $125 million of general obligation bonds included $50 million as a direct loan to the corporation. That drew criticism from some state tax hawks who warned that new state law created loopholes that could be abused in future deals.

Last September, Big River paid off the state loan 17 years ahead of schedule. Although the Arkansas bonds carried the state's GO pledge, debt service comes from steel mill revenues.

Big River Steel was Arkansas’ first project under constitutional Amendment 82 and is the single largest private investment in its history. Amendment 82 was approved by voters in 2004 and amended in 2010. It allows the state to issue bonds to provide funding for infrastructure and other needs, including land acquisition and site preparation, environmental mitigation, roadway improvements, rail access, water and sewer services, employee training and training or research facilities for major projects.

Local subsidies of $14 million included $2 million from the city of Osceola, Arkansas, and $12 million from Mississippi County. The county was to have received a fixed annual payment in lieu of taxes of $3.5 million over the 20-year term of the GO bonds.

The Advantage Arkansas program allows for a 4% income tax return on total net new payroll for jobs created in Mississippi County. The income tax credit begins the year in which the new employees are hired and is earned each tax year for five years.

Big River invested $10 million with Arkansas Northeastern College for training programs to prepare applicants for the mill’s 425 positions with average compensation of $75,000. State officials said average compensation is closer to $90,000.

State officials said the mill has also helped attract to Arkansas an additional $300 million in investments and another 100 jobs from suppliers and support services of Big River.

“Big River Steel continues to perform beyond expectations,” said Mike Preston, executive director of the Arkansas Economic Development Commission.

In 2014, Arkansas Teacher Retirement System trustees authorized investing up to $125 million in Big River Steel. Koch Minerals, a subsidiary of Koch Industries of Wichita, Kansas, was a major investor, as well.

Two years after construction began in 2014, the plant processed its first batch of steel. Unlike traditional integrated mills fueled by coke, the new mini-mills use electricity to recycle scrap.

With steel production in the South rivaling that of the Midwest, Mississippi County is among the largest steel producing counties in the country. Nucor, the largest steelmaker in the U.S., has two plants in the county and is adding a $230 million cold mill.

Nucor is also expanding a $750 million plant in Louisiana with $160 million of state subsidies. In January 2016, the company temporarily halted production because of market conditions. In 2013, a few days before the plant was set to begin operations a storage dome collapsed.

In 2007, Alabama landed a $5 billion ThyssenKrupp steel mill with $400 million of incentives. ThyssenKrupp AG sold the facility to ArcelorMittal and Nippon Steel and Sumitomo Metal Corp. for $1.55 billion in 2014. The sale required regulatory approvals from three countries along with the state. The plant in Calvert, Ala., near Mobile was renamed AM/NS Calvert.

Meanwhile, Big River in April received an option to lease about 800 acres on the Brownsville, Texas, ship channel for a $1.5 billion plant similar in size to the original in Osceola, which would employ about 500 workers.

Brownsville Mayor Tony Martinez and Cameron County Commissioner Sofia Benavides attended the meeting of the Brownsville Navigation District at which the option was unanimously approved.

The growing capacity in domestic steel comes after President Trump imposed tariffs on imports to protect the U.S. industry under national security provisions.

On June 1, 2018, the United States imposed a 25% tariff on imports of steel, and a 10% tariff on aluminum, applying to the European Union, Canada and Mexico. Canada and Mexico are U.S. partners in the North American Free Trade Agreement, which Trump is renegotiating and threatening to abandon.

Canada retaliated on July 1, followed by China’s selected tariffs on $34 billion of U.S. products on July 6. India plans to respond to U.S. penalties of $241 million on $1.2 billion of steel and aluminum.

An independent analysis of Arkansas’ bond proposal for the Big River Steel plant in 2013 by IHS Global Insight assumed the continuation of NAFTA.

“Import penetration has been falling for more than a decade, on account of new low cost mills being built in the United States,” the IHS report said. “We expect this trend to continue, with import penetration at or below 10% starting in 2014.”

With total imports around 2 million short tons per year, more than 30% of that came from Canada and more than 10% from Mexico, “both of which are unlikely to be entirely displaced,” the report said.

“Although the United States does maintain a cost advantage over many of the world’s major steel producers, it historically has not been well positioned to be a major exporter,” IHS noted. “Many large competitors, primarily China, offer their steel mills favorable financing agreements. This condition, coupled with the size of the Chinese steel industry, mean that American mills are often outmaneuvered in export markets.”

For reprint and licensing requests for this article, click here.
Bonds Arkansas