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U.S. Steel planning use of electric furnace

| Wednesday, Jan. 29, 2014, 12:01 a.m.

U.S. Steel Corp. intends to use an electric furnace and scrap metal to produce steel for the first time in decades, a process that would be more efficient and less costly than the company's more traditional methods for steelmaking.

Executives on a conference call with Wall Street analysts Tuesday said they have identified $175 million in cost reductions as part of the company's Carnegie Way initiative to improve results.

The electric furnace would replace an aging blast furnace at a plant in Fairfield, Ala., that would require at least $100 million in upgrades, CEO Mario Longhi and other U.S. Steel executives told analysts.

Once engineering and other studies are completed and the project is approved by the company's board of directors, construction could start later in 2015 and be completed by mid-2017, Longhi said.

“The business case for this project as we see it today is strong … and I will be prepared to move forward in the fastest possible manner,” Longhi said.

U.S. Steel's comments were made a day after the Pittsburgh-based steelmaker reported its fifth consecutive year of losses. Longhi, who was promoted to CEO last year, has been examining ways to improve the company's performance.

“Putting in the electric furnace for the pipe mill will make them a lot of money,” said analyst Charles Bradford of Bradford Research Inc. in New York. “It comes down to the price of scrap, which I feel is headed lower. This is a move they had to make.”

Traditionally an integrated producer, U.S. Steel uses a blast furnace, iron ore and coke in the steelmaking process. Making steel in an electric furnace is usually cheaper than using a blast furnace, Bradford said.

Longhi said using an electric furnace would improve U.S. Steel's ability to use other mills more fully. “It would improve our raw materials position for iron ore and coal ... reduce capital spending and maintenance costs ... and cut transportation costs.”

U.S. Steel has not operated an electric furnace in at least 20 years, at a former plant in Baytown, Texas, Bradford said. A U.S. Steel spokeswoman did not know when the company used one.

The electric furnace would be used to feed a seamless tubular pipe mill that the company operates at Fairfield, and allow it to move flat-rolled production to other mills. Flat-rolled is used in automobiles and appliances.

The company is under pressure to improve its stock and financial performance. The savings executives mentioned include $100 million from new, unidentified projects and $75 million that was announced in October, mainly related to the shutdown of a steelmaking plant at its Hamilton Works in Hamilton, Ontario, closing two aging coke plants at its Gary, Ind., works and other moves.

Of that total, $150 million in cost reductions will be realized in 2014, said Chief Financial Officer David B. Burritt, who wouldn't identify specific sources of the new cost cuts for competitive reasons.

“We are examining all aspects of our business,” Burritt said of the Carnegie Way initiative, previously called Project Carnegie. “We are going to make struggling businesses profitable or admit we can't and exit them.”

During the conference call, an analyst asked Longhi if upgrades to the aging flat-rolled mill at the Irvin Works in West Mifflin might be considered. Longhi said the company is studying such things, which may make it a “very interesting operation going into the future.” He declined to say more.

U.S. Steel reported a fourth-quarter loss of $122 million on Monday, the result of one-time expenses, even though all of its steelmaking segments were profitable.

The Pittsburgh-based steelmaker's loss equaled 84 cents a share, and compared with a loss of $50 million, or 35 cents a share, in the same period a year ago. Revenue for the three months declined to $4.27 million from $4.49 million a year ago.

U.S. Steel shares closed down 11 cents at $25.34.

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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