U.S. Steel to Close Alabama Blast Furnace, Cut 1,100 Jobs

18 August 2015

U.S. Steel Corp. on Monday said it would shut its blast furnace and some steel finishing operations in Alabama, marking a significant retrenchment by the steelmaker as it tries to survive a weak market and competition from inexpensive imports.

After losing money in five of the past six years, U.S. Steel, under Chief Executive Mario Longhi, is trying to remake itself by downsizing, cutting costs, and becoming more nimble and responsive to the market.

The Brazilian-born Mr. Longhi has said Pittsburgh-based U.S. Steel must adapt and that “everything is on the table” in remaking the company.

Big changes are needed to cope with one of the most difficult times in recent memory for the American steel industry. A decline in steel consumption in China, which makes and uses around half the world’s steel, has led to an oversupply of steel around the world. At the same time, oil prices have collapsed, hurting demand for steel pipe and tube, a key market for U.S. Steel.

The move in Fairfield, Ala., which will affect 1,100 of the site’s roughly 2,000 jobs, was widely expected. U.S. Steel has been building an electric arc furnace on the site, which is near Birmingham. That furnace, which makes steel out of scrap metal instead of iron ore and coal, can operate with fewer workers and is much easier to stop and restart than a traditional blast furnace.

U.S. Steel said the move will improve the efficiency of its flat-rolled segment.

Leo Gerard, president of the United Steelworkers union, which represents U.S. Steel workers in Fairfield, blamed the closure squarely on imports. “In particular, China has repeatedly violated international trade rules to bolster its state-owned industry while dumping its products into our market,” he said. “And American workers have already paid the price.”

Domestic steelmakers, including U.S. Steel, have filed three requests for protective tariffs this year. Their biggest concern isn’t volume—iron and steel imports into the U.S. actually fell 4.6% in the first six months of the year. Instead, steelmakers’ profits have been weighed down by sluggish prices amid stiff competition from cheaper imports. The U.S. index price for hot-rolled coil, a benchmark product, has fallen over 20% since Jan. 1 to $468 per ton, but that is $100 higher per ton than the price in Europe, and $200 higher than that in Asia, according to steel buyers.

Phil Gibbs, an analyst for Keybanc Capital Markets in Cleveland, said the closure of the Fairfield blast furnace had been expected, but not the finish operations. The electric arc furnace will initially produce 1.6 million tons a year, compared with between 2.5 and 2.6 million tons for the blast furnace, he said.

Fairfield, which started making steel in 1917, is one of U.S. Steel’s oldest mills, and Birmingham has been called the “Pittsburgh of the South” in a nod to the Western Pennsylvania city’s pre-eminence in the history of American steelmaking.

Tom Conway, the USW vice president who chairs the union’s negotiations with U.S. Steel, said it was a “sad day in Birmingham for our members and the community.” The union, Mr. Conway said, was “counseling our members regarding their options under the labor agreement and related benefits agreements” and would assist workers who wanted to explore opportunities beyond the Fairfield Works.

U.S. Steel, along with rival ArcelorMittal, is currently embroiled in tense talks with the USW over a new three-year labor deal. U.S. Steel is trying to cut some compensation, and get workers to contribute more toward health insurance costs. The deadline to resolve the talks is Sept. 1.

The Fairfield Works blast furnace and finishing operations at the plant will close on or after Nov. 17, the company said. U.S. Steel will continue to have a presence in the South, including a slab and rounds casters, a coating line and a hot-dip galvanizing joint venture in Jackson, Miss.