U.S. Steel CEO says Tariffs Could be Needed on Chinese Imports
7 May 2015
U.S. Steel Corp. and the ailing American steel industry might need tariffs on Chinese-made steel in order to survive, Chief Executive Mario Longhi said in an interview.
“Assume nothing happens, it could put at risk the existence of this industry” in the U.S., he said.
Mr. Longhi isn't idling at the company he took over in 2013. Since Jan. 1, as steel prices have declined 25%, U.S. Steel has laid off 2,800 workers, issued layoff warnings to 6,200 others, and cut back operations at nine plants. The company says it generated $575 million in better productivity and cost cuts last year, thanks to changes made by Mr. Longhi.
More shake up is likely after the 114-year-old Pittsburgh-based firm negotiates a new three-year labor deal this summer with the United Steelworkers union, which represents most of its 35,000 workers. The company has $2.1 billion in pension liabilities. Mr. Longhi said he expects to have “a conversation” with the union about pensions and health care, including possibly moving workers to health exchanges.
U.S. Steel last year turned a profit after five straight years of losses. But last month it posted a first-quarter loss of $75 million, or 52 cents a share, compared with a profit of $52 million, or 34 cents a share. Overall, net sales fell 26.4% to $3.27 billion in the first quarter.
Mr. Longhi blames the bulk of his latest woes on imports, especially from China. The U.S. imported 615,171 tons of steel from China during that time, up 25% from the same period a year before. Mr. Longhi said a failure to impose more tariffs on Chinese imports was an American political “weakness.”
China holds roughly half the world’s 2.3 billion tons of annual steel capacity. With global consumption at 1.6 billion tons annually, China is “going to try to sell it everywhere,” Mr. Longhi said. “Most of it” is dumped, or sold at unfair prices, he said.
He added that China is cutting back capacity but not enough.
Executives for U.S. Steel and other steelmakers are lobbying Congress for a change in legislation that would make it easier for domestic companies to obtain protective import tariffs. Mr. Longhi said he believes the legislation has a “50-50 chance” of passing. U.S. Steel has begun to make the argument that a domestic steel industry is essential to U.S. national security, which is starting to gain traction with politicians in Washington, said Suzanne Rich Folsom, the company’s vice president for government affairs.
Imports have been especially hurtful to the company’s business of making steel pipe and tubs for the oil and gas industries. That has also been rocked by oil prices falling almost in half from a year ago. “The oil stuff completely stalled,” said Mr. Longhi. “People are not investing, the number of rigs has been cut down by a half.” Mr. Longhi expects oil prices to recover “on the midterm.” The best guess, he said, is that this year is going to very slow and difficult and they might start to recover next year.”
Production of steel pipe and tube won’t recover until next year “because right now there are nine to 10 months of inventory because of these imports,” he said.
Mr. Longhi sought to temper expectations about U.S. Steel’s current red ink. Turning around a company takes “three or four years,” he said. “Steel was very slow in understanding how reality was changing.” The CEO is still cleaning out cobwebs at the longtime steelmaker, he said, such as getting the firm to stop using Fortran, a kind of software first developed in the 1950s. “We’re almost done with it,” he said, adding the company is now finally running more sophisticated analytics.
U.S. has begun running simulations on what activist shareholders might want to do with the company. Mr. Longhi said he is confident there aren’t any opportunities for change he hasn’t pursued himself.
Investors have cheered Mr. Longhi’s aggressive approach. U.S. Steel’s share price is up more than 30% since he took over. And this year, his pay increased more than 50% to $13.2 million, thanks to stock awards and incentives, according to securities filings.
Mr. Longhi said he expects union negotiators to “certainly bring it up, and there’s nothing to hide.” He said his raise had generated “a lot of noise” because it was announced around the time of layoffs. “The union gets their profit-sharing every quarter,” he said. “The executives get their profit-sharing in the first quarter.”