U.S. Steel praises tariffs on Chinese imports, doesn't rule out plant closures
The Commerce Department's decision to slap preliminary duties on some Chinese steel is “a good first step” to addressing what domestic steel makers believe are unfair trade practices, but U.S. Steel Corp. still may close more plants in the months ahead amid mounting losses, CEO Mario Longhi said Wednesday.
“Closing facilities that are not competitive is troubling, but if we can't be competitive in such a difficult environment and also deal with unfair foreign competition, for whatever reasons, additional plant closures may be necessary, ” Longhi told analysts in a conference call Wednesday.
Longhi did not say where or when those closures might occur, but his warning highlighted the challenges that the Downtown-based steel maker is confronting as it struggles to compete with a flood of cheap imports.
Sales plummeted in the third quarter and contributed to a $173 million loss, U.S. Steel's third consecutive quarterly loss and its eighth since the beginning of 2013. Executives said steps to cut costs and streamline operations as part of the company's Carnegie Way initiative are exceeding their expectations, with a $715 million impact this year from improved operations and cost savings, but they still need help from the federal government to counter what they believe to be dumping of low-cost steel by foreign competitors.
U.S. Steel was one of six American steel makers that filed three trade complaints against foreign countries, including China, that subsidize the steel imported to the United States. The Commerce Department's decision Tuesday was a positive sign that the government would protect domestic producers, Longhi said. The Commerce Department established preliminary duties of up to 236 percent on imports of corrosion-resistant steel from China, and decisions on the other cases are expected in December and January. Those decisions must get final approval by the Commerce Department and the U.S. International Trade Commission, and the tariffs could be challenged in the World Trade Organization.
It remains to be seen whether those cases will have an impact on foreign competition and help U.S. Steel's efforts to turn around the business, said Philip Gibbs, an analyst at KeyBanc Capital Markets. The company is under other pressures, including a strong dollar that has hurt exports and declining demand for its tubular products sold to energy producers, which have cut back capital projects because of low oil prices.
“You don't know what the impacts (of the duties) are going to be,” Gibbs said. “You also don't know if the market's going to improve. I don't know why it would.”
Even if steel demand does rebound, U.S. Steel may be unable to capture much of that business, Gibbs said. The company permanently closed an Alabama blast furnace and is considering whether to temporarily idle its Granite City, Ill., mill. Those steps could damage relationships with customers served by those plants.
“The only way you really get those back is through price,” Gibbs said. “They've also shrunk their sales staff, so how can you be as accommodating to your steel customers?”
U.S. Steel's Dan Lesnak dismissed concerns that the company's restructuring efforts would hurt its ability to meet customer needs, saying it is able to fill all current orders and could respond to a ramp-up in demand.
“There are no Carnegie Way projects that limit our upside or our access to markets,” said Lesnak, manager of investor relations. “These are all really fundamental structural improvement in the cost structure. There's nothing that we're doing that limits in any way our ability to respond to better market conditions.”
U.S. Steel must get its labor costs down, analysts said. The company is negotiating a new contract with the United Steelworkers. Longhi said he hopes to reach an agreement “that recognized the structural challenges in our industry” and would avoid a work stoppage. The union did not respond to requests for comment.
“What's most important is that they do not sign a contract where they cannot make a profit,” said John Tumazos, an independent steel industry analyst in Holmdel, N.J. “The union bargaining position that says all this is temporary and they can just go on like before is really not realistic. It's a bargaining position, but it's not realistic.”
U.S. Steel shares fell $1.88, or 14.53 percent, to $11.06.
Chris Fleisher is a staff writer for Trib Total Media. He can be reached at 412-320-7854 or email@example.com.