U.S. Steel to Idle Plant, Lay Off 412 More Workers

13 March 2015

Idling of Minnesota iron ore operation is company’s latest move to become more nimble

U.S. Steel Corp. on Thursday announced more layoffs as it struggles to contend with surging imports and declining demand in the energy sector, saying it will temporarily idle one of its iron-ore operations in Minnesota, affecting 412 workers.

The move is the latest in a series of retrenchments by the 114-year-old steelmaker as it attempts to navigate rough waters for the industry in the U.S. and pursue a longer-term strategy of repositioning itself as a smaller, more nimble steel company.

U.S. Steel last year posted its first annual profit since 2008, but like other steelmakers is having to cope with the triple whammy of a strong dollar that makes imports cheaper, weak oil prices that are killing the market for energy-related steel and a surge in exports from China.

The idling of the plant in Keewatin, Minn., which directly ships to U.S. Steel mills, will take place on May 13 and affects six million tons of iron-ore production capacity, or 27% of U.S. Steel’s overall iron-ore output last year. “The temporary idling is due to the company’s current inventory levels and ongoing adjustment of its steelmaking operations throughout North America to match customer demand,” U.S. Steel said in a statement.

Chief Executive Mario Longhi, who took over in 2013, has said he is looking to make more steel from scrap metal at lower cost, instead of using iron ore and coal. “Everything is on the table,” Mr. Longhi said in an interview last year.

First, the company must ride out what has become a nasty phase for the steel industry in the U.S.

Benchmark hot-rolled coil prices have fallen 18% since the start of the year to about $490 a ton. Overall U.S. steel imports were 25% higher in January than a year earlier, at 4.4 million tons in January, with imports from China jumping 40% during that period to 260,373 tons.

Orders, especially from energy companies coping with lower oil prices, are drying up. “In the short term, they’re catering to the fact that the order book is just not there right now,” said Phil Gibbs, a Keybanc analyst in Cleveland. “There’s too much iron ore in North America right now, and it doesn’t make sense to produce the iron ore if they don’t need it.”

Tom Conway, a vice president for the United Steelworkers union, said the idling was “tied to the extremely high level of unfairly traded imports across all steel products flowing into the country and the resulting closure of blast furnaces.”

The company in January announced impending layoffs at three plants totaling more than 2,500 workers. This week, it began laying off workers at a plant in Lorain, Ohio, that makes steel pipe and tube for the oil and gas industry.

Since taking over in 2013, Mr. Longhi has aggressively cut costs and restructured operations. His turnaround plan generated $575 million in cost savings and enabled the company to swing to a profit in 2014 from a year-earlier loss. In addition, U.S. Steel benefited from the resurgent U.S. auto industry, and from high energy prices before they collapsed.