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U.S. Steel CEO expects rebound

| Wednesday, July 29, 2015, 11:00 p.m.

U.S. Steel Corp. CEO Mario Longhi saw reason for optimism Wednesday despite a substantial financial hit in the second quarter and headwinds threatening the struggling steelmaker.

Cost-cuts and efforts to fight steel imports the industry says are being dumped in the U.S. market at unfairly low prices will lead to an improvement in the second half, he said.

“We are attacking every aspect of our cost structure and exercising every opportunity that we have to eliminate, reduce and defer costs,” Longhi told analysts on a conference call.

The positive outlook from the chief executive pleased investors, who ignored the $261 million net loss and bid the Downtown-based steelmaker's stock up 13 percent.

But challenges remain across its operations, especially in its pipe business, as oil and gas producers continue to slash drilling activity. The company is pushing for concessions from its union and on Tuesday filed another dumping case against foreign steel producers.

U.S. Steel has idled mills across the country and laid off thousands of workers in response to the downturn. Analysts were impressed with the company's ongoing efforts to trim expenses and its encouraging earnings forecast despite the industry's struggles.

U.S. Steel said it expects to achieve a prediction of full-year adjusted earnings before interest, income taxes, depreciation and amortization of $700 million to $900 million. Its shares closed up $2.37 to $20.10.

“They sent a powerful message to the market that they're really confident their cost-cutting initiatives are going to take hold in the second half of the year,” said Andrew Lane, an analyst with Morningstar Inc. in Chicago.

The company said Wednesday it will turn off a blast furnace at Fairfield Works in Alabama next month, which it recently restarted after a temporary shutdown this year. About 1,500 people work at Fairfield.

Those short-term cost-cutting actions are expected to generate $175 million in savings during the second half, Longhi said. Long-term improvements under the company's Carnegie Way initiative have generated $590 million in annual savings this year.

In a written statement, the company said it will look to make some temporary cuts permanent.

“Consistent with our Carnegie Way transformation process, we are focused on converting as much of the short-term cost reductions as possible into permanent improvements in our cost structure,” the statement said. Officials declined further explanation.

The cuts are necessary as cheap imports and a prolonged downturn in the oil and gas industry, which isn't showing signs of abating, hurt sales. Oil and gas drillers are cutting back on pipeline purchases as low prices for those commodities eat into their profits.

The company's tubular steel business, which includes oil and gas pipes, lost $66 million in the second quarter compared to a $47 million profit a year earlier. Flat-rolled steel performed better, even though it lost $64 million after making a profit of $30 million the previous year. But Longhi said flat-rolled steel may begin to rise in coming months because inventories at steel distributors across the country are low and will need to be replenished. And analysts said the trade case filed Tuesday with four other producers may slow a surge of low-cost imports.

The companies alleged in a complaint to the International Trade Commission and Commerce Department that producers in eight countries, including China, Russia and India, are unfairly exporting cheap steel to the United States. They are asking the government to impose duties on imports.

“I don't think companies or nations that have been involved with this want to be still flooding the market when duties are put upon them,” said Matt Miller, an analyst with S&P Capital IQ.

John Tumazos, of Tumazos Very Independent Research in Holmdel, N.J., said he expects U.S. Steel to achieve long-term savings through renegotiating benefits for union-represented employees. The company is in talks with the United Steelworkers union, which represents about 17,000 U.S. Steel employees, on a contract to replace a three-year agreement that expires Sept. 1.

“From their projections, the company must be very optimistic in their negotiating for a new contract and the changes they're going to make in benefits,” Tumazos said.

The union said the company has proposed major cuts to health care benefits for workers, including implementing annual deductibles of $4,000 for family coverage, a 10 percent premium contribution that could total $182 a month and 20 percent co-insurance with an annual limit of $7,000 for families.

Union workers' health plan includes 10 percent co-insurance, with an annual limit of $2,000 for a family — and no deductible or premium contribution.

“Each of these proposals is regressive and prohibitively expensive,” the union said in a statement. “As a whole, they represent a direct attack on the benefits we have built over decades of struggle.”

U.S. Steel officials declined to comment on the negotiations.

Alex Nixon is a staff writer for Trib Total Media.

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