The push by U.S. manufacturers to cut labor costs, especially for health care, is deepening the divide between three of the biggest U.S. steel companies and their main union. Contract talks, which are usually resolved by November, have dragged on months after their summer deadlines.
Premium-free health-care packages are one of the last big perks awarded by the top tier of American manufacturers, including auto and steelmakers. But now, slowing demand for base materials, along with the rising cost of health care, is weeding out these packages for all but a few companies.
Autoworkers in negotiations that concluded last month successfully held on to their labor-friendly deals. But steelworkers, whose industry is suffering as demand from China slows, are negotiating from a weaker position.
The U.S. steel belt, stretching from Northern Indiana to Pittsburgh, is suffering through its worst market since 2009, brought on by rising Asian imports and the collapse of oil and gas markets, which has damped demand for pipes and tubes. Steel prices are down by more than 40% this year, causing around a billion dollars in losses at U.S. Steel Corp.,Allegheny Technologies Inc., and the U.S. operations of global giant ArcelorMittal.
U.S. Steel on Saturday night announced a tentative agreement with workers. However, it won’t be finalized until late January, at the earliest. At the other two firms, negotiations—which were all supposed to end this summer—are now certain to go on even longer, the first time in memory that this has happened, according to company and union officials involved in the talks.
“These companies see that steel prices could be low for the next 10 years, and they’re saying they have to do whatever it takes to survive,” said Phil Gibbs, an analyst for Keybanc Capital Markets in Cleveland. “And they’re willing to wait.”
The bargaining will “go on as long as it has to go on,” Rich Harshman, CEO of Pittsburgh-based specialty steel producer ATI, said.
Pittsburgh-based ATI, which locked out its employees during the summer, is running some of its plants with replacement workers, contractors, and white-collar staff, and has idled others. Steelworkers at ArcelorMittal and U.S. Steel are still laboring, temporarily, under their previous contracts. All three firms have idled plants to cope with the sluggish market.
At all three, the talks have stalled over health care. The three companies currently award their 33,000 unionized employees, represented by the United Steelworkers union, packages that involve paying little or no premium, as part of deals cut during rosier times. With health costs going up and the market down, companies say they now want workers to contribute more than $125 a month, to survive low prices and competition from steel imported into the U.S.
The Pittsburgh-based United Steelworkers union, which represents workers at the three firms, has promised to fight as hard as it can for its members. “We know that our industry is in the midst of a serious crisis brought on by unfair trade and global overcapacity, but we do not believe that workers and their families should be forced to bear the brunt of these problems,” the USW said in a recent letter to its members.
But privately, some officials said in interviews that there’s a risk steelworkers will have to make greater contributions to their health-care packages. They say they fear that means these talks could set a precedent and lead to workers bearing the brunt of health-care cost inflation.
The talks are particularly contentious at ATI. Its labor contract ran out on July 1, two months before that of the other two companies.
When ATI first sat down with the union this summer, it demanded that workers contribute to health-care costs, that it be allowed to replace retiring workers with contractors instead of blue-collar unionized workers, and that new hires open 401(k) plans instead of receiving pensions.
Workers at ATI, which makes titanium and nickel alloys for the aerospace industry and metallic powders for 3-D printing, are among the best paid in the metals industry, making over $94,000 a year, including overtime, and receive full pension and health-care benefits. ATI lost $144.6 million on revenue of $832.7 million in the third quarter.
Health-care costs, which have been consistently rising around 5% a year, faster than inflation, are the biggest issue in the stalled talks, say ATI executives. “Health-care costs are too expensive and we have to deal with that,” said Mr. Harshman.
ATI’s workers refused the company’s demands, and the union organized raucous rallies. On Aug. 15, Mr. Harshman locked out 2,200 workers at 12 plants in six states. They’re still locked out.
Analysts expect all three companies to prevail in this go-round. Companies have more leverage in a down market, because they have much less to lose in shutting down plants than when times are good. And they have the cash to weather a lockout—and most of the workers’ unemployment pay, currently around $2,000 a month, will start being phased out over the first few months of next year.
Source: http://www.wsj.com/