U.S. Steel to close Canadian plant, Gary coke facilities to cut costs

| Tuesday, Oct. 29, 2013, 4:09 p.m.

U.S. Steel Corp. on Tuesday announced its first actions under an initiative to reduce costs, including closing a steelmaking plant in Canada, two older coke batteries in Gary, Ind., along with others that will save $75 million annually.

“This is just the beginning of our Project Carnegie efforts,” CEO Mario Longhi said during a conference call with analysts, referring to the initiative announced in April to improve and maximize results.

The moves followed the Pittsburgh-based company's third-quarter results — a loss of $1.79 billion that included a previously announced accounting charge to reflect the falling value of its fall-rolled and Texas tubular operations. The loss was the sixth in the past eight quarters.

Longhi replaced longtime CEO John P. Surma on Sept. 1 and is challenged with turning around the nation's second-largest steelmaker, whose earnings and stock price have been in a slump. U.S. Steel has lost money each year since 2008. Its stock jumped 8.8 percent, closing at $25.47, up $2.05.

Closing steelmaking capacity at U.S. Steel Canada's Hamilton Works in Hamilton, Ontario, by the end of the year will bring a writedown of $225 million in the fourth quarter, Longhi said. Finishing operations and a coke battery that's used in steel making will remain at the plant, which employs about 875. It is one of two U.S. Steel plants in Canada. The Lake Erie Works in Nanticoke, Ontario, employs 1,183.

U.S. Steel acquired the two plants in the 2007 purchase of Canadian steelmaker Stelco Inc. for $1.1 billion.

“Decisions like this are always difficult, but they are necessary to improve the cost structure of our Canadian operations,” Longhi said. Asked whether the Canadisan government has reacted negatively, he said, “we have been very open and engaged with the Canadian government,” and nothing has been said.

Spokeswoman Courtney Boone said 47 nonunion employees at the Hamilton plant will be affected, and the company plans to reassign them.

Employees at the Gary coke batteries 5 and 7, built in the 1950s, have been reassigned. The batteries are among company's oldest and highest-cost coke plants.

Longhi said U.S. Steel will close an electro-galvanized steel plant in Dearborn, Mich., that is no longer economically feasible to operate. Double Eagle Steel Coating Co., the largest producer of electro-galvanized steel in the world, is co-owned with Severstal North America Inc. and makes rolled products used mainly by auto makers for doors and body panels. Four U.S. Steel employees there will be reassigned.

In addition, U.S. Steel will end two contracts to purchase iron ore at the end of this year and 2014. It bought about 1 million tons a year under each pact. The company will now rely on its own iron ore supplies. “Our assets provide significant opportunities, and we are working to convert these to our advantage,” Longhi said.

He also disclosed actions to improve the company's Minntac iron ore operations in Minnesota, and progress in its plan to use direct reduced iron, known as DRI, in steelmaking operations. DRI reduces the need for iron from a blast furnace and reduces costs.

Several analysts praised Longhi and new Chief Financial Officer David B. Burritt, who joined the company on Sept. 1.

“Congratulations on all the announcements,” said Luke Folta of Jefferies LLC in New York. “It's what we've wanted to see.”

Other analysts said such moves are a start toward fixing the struggling steelmaker, and Longhi has more to do.

John Tumazos of Tumazos Very Independent Research of Holmdel, N.J., said the company faces a decision on its Fairfield, Ala., Works, which faces intense competition from at least six mills built in the South in recent years, amid a declining market for steel.

In the last six years, steel shipments in the United States have declined from 109.5 million tons in 2006 to a projected 95.7 million tons this year, a decline of 14 million. In addition, steel imports have declined by an additional 14 million tons over the same period. “The steel market is 28 million tons less,” he said. Fairfield is an issue because “16 million to 17 million tons of capacity have been built in their lap as the market has gotten smaller,” Tumazos said, referring to the new mills.

Closing the Hamilton Works steelmaking plant will reduce by one the seven melting locations U.S. Steel maintains in the United States and Canada. Competition and decline in demand means not all of those were needed.

Hamilton was one of the four steelmaking plants U.S. Steel operates in the traditional automaking region centered on Detroit. The others are the Gary Works, Lake Erie Works and the Great Lakes Works in Detroit. “You don't keep a blast furnace open for a finishing line,” Tumazos said.

John D. Oravecz is a staff writer for Trib Total Media. He can be reached at 412-320-7882 or joravecz@tribweb.com.

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