WRAPUP 1-Stelco loses contract to supply steel to GM


(Adds comments from GM, Stelco)

By Rachelle Younglai

TORONTO, Nov 22 (Reuters) - Stelco Inc. has lost a contract to supply steel to its biggest customer General Motors Corp. , the company said on Monday, after the insolvent Canadian steelmaker failed to strike a deal with its workers.

"GM said the contract is no longer available," Michael Barrack, one of Stelco's lawyers, told the Ontario Superior Court. "We worked hard to get there but we couldn't."

Stelco is looking to get court approval on Monday for a C$900 million ($756 million) bailout from Deutsche Bank AG , even though the union has rejected the plan, saying it offers no long-term commitment to Stelco's future.

A deal with GM is critical to the refinancing plan Stelco has worked out with Deutsche Bank, which requires the steelmaker to supply GM with steel from April to December next year and in 2006.

Stelco blamed its unionized workers for the collapse of the GM steel supply contract, saying the United Steelworkers of America had set "unrealistic" demands.

"The union made it clear that it wanted to tie a large number of unrelated issues to the simple provision of security of supply General Motors required by this morning," Stelco Chief Executive Officer Courtney Pratt said in a release.

He gave no details of the impact losing the contract would have on Stelco or the Deutsche Bank plan, but said the company and its stakeholders were in "a very difficult situation."

But the steelworkers union blamed the failure of a deal on Stelco, saying that workers had given Canada's biggest steelmaker the labor-stability assurances it needed to secure the deal.

"Last week we delivered Chrysler and Ford. Early Monday morning we did exactly what the company wanted with GM, yet Stelco is still unwilling to accept our role in this restructuring process," Bill Ferguson, president of union local 8782, said in a statement.

The union last week agreed not to go on strike without first giving 90 days' notice on Dec. 31.

But even with these assurances, GM said the uncertainty of a strike was deemed too risky and said on Monday that it will be moving to another supplier.

"It just came down to a point where we could not take a risk for our steel supply for 2005," a spokesman with GM said.

Stelco, which entered bankruptcy protection in January, ships about 10 percent, or 400,000 tons, of its steel to GM each year.

GM had given Stelco, which entered bankruptcy protection in January, a deadline extension to reach a deal with its workers at its Lake Erie Works that would assure the giant U.S. automaker of a supply of steel. The latest deadline of 8 a.m. on Monday was extended from last Thursday at midnight.

"GM is gone, this is a de facto exit strategy of the company," a lawyer for the Steelworker's union told the court.

The refinancing is seen as key to the future ownership of Stelco, which is being courted by several suitors including OAO Severstal , Russia's No. 2 steelmaker.

Stelco's shares were 13 Canadian cents, or 9.6 percent, firmer at C$1.48 on the Toronto Stock Exchange on Monday afternoon.

Analysts cautioned against reading too much into the share price rise given that Stelco has said there's a risk its shares will be worthless once a restructuring plan is completed.

($1=$1.19 Canadian)



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