U.S. Steel Corp. said it plans to idle plants in Illinois and Indiana, laying off 545 workers.
The company blamed the latest move on low-cost imports and its own restructuring efforts.
The cuts would take place in March and come on top of the planned layoff of 756 workers and possible closure of two plants in Ohio and Texas announced earlier this month. The company said those cuts had reflected lower oil prices and the resulting drop in demand for its steel pipe and tubular products used by the oil and gas sector.
On Wednesday, U.S. Steel said it would close the two coke ovens at its Granite City Works in Granite City, Illinois, affecting 176 workers. The units transform coal into coke, a form of carbon needed to make steel out of iron ore. The units are old, and will be eliminated as part of Chief Executive Mario Longhi ’s plan to cut around $500 million in costs annually, a company spokeswoman said.
U.S. Steel also plans to build more electric arc furnaces, which make steel out of scrap instead of iron ore and don’t require huge quantities of coke.
Another 369 workers will be laid off as a result of U.S. Steel’s plan to close, temporarily, a tin mill which is part of its Gary Works facility in Indiana, near Chicago. The mill produces steel used in food and drink containers, aerosol cans and paint buckets—all low-cost products especially vulnerable to imports.
U.S. iron and steel imports were up 34% during the first 11 months of 2014 from a year earlier to 41.5 million tons. The U.S. market had been considered a jewel by the global steel industry, because of its vibrant energy and automotive sectors. Not so much anymore.
U.S. Steel’s share price has fallen by around 45% since October, although it received a boost from Wednesday’s announcement, rising 2.2% to $22.06
The benchmark price for hot-rolled coil this month fell below $600 per ton for the first time since 2010 and is now at $583 per ton, down 9.7% from three months ago.
The lower oil price has cast a gloom over the industry, and the hopes of Mr. Longhi, who assumed control of the steelmaker 15 months ago and is trying to turn around a company that is been unprofitable for five straight years, including a $1.7 billion loss in 2013.
Last year, Mr. Longhi closed plants in Pennsylvania and Texas, pulled the plug on an iron ore project in Minnesota and cut ties with its money-losing Canadian unit.
Steel companies in the U.S. are suffering from a combination of lower oil prices, oversupply and excessive imports, said John Packard of Steel Market Update. “The collapse of the energy market has really surprised everybody,” he said.
One solution, he said, “is for somebody to announce more capacity cuts.”
How U.S. Steel and other American steelmakers will react to the new business environment will become clearer next week.
U.S. Steel will report fourth quarter earnings next Tuesday after the market close. Steelmakers AK Steel Holding Corp., Steel Dynamics, Inc. and Nucor Corp. also report their financial results next week.
Source: The Wall Street Journal
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