U.S. Steel (X) is also feeling the heat of plummeting oil prices as the steel giant said yesterday that it is temporarily shutting down a couple of tubular steel facilities, laying off more than 750 workers. The move represents another good example how the oil meltdown has affected industries and businesses beyond the energy space.
The Pittsburgh-based company said that it is idling its Lorain Tubular Operations in Lorain, OH, affecting 614 workers. It will also temporarily suspend operations in another steel tube facility in Houston, TX, resulting in a lay off of 142 employees. The Lorain plant makes steel pipes and tubes for the oil and gas industry (used in exploration and drilling applications) while the Houston facility processes and tests them. The layoffs will commence in early March.
U.S. Steel, which had around 26,000 employees in North America in 2013, cited plunging oil prices and weakening tubular market conditions as reasons for the planned actions. Crashing oil prices are affecting demand for products made in these plants and hurting the company’s business in the energy market. Several energy companies are dialing back drilling plans in the face of the oil price slump.
Shares of U.S. Steel, a Zacks Rank #3 (Hold) stock, slipped around 3% to close at $24.58 yesterday.
Oil prices have been on a freefall for some time now on supply gut, causing pain for companies across a broad spectrum of industries. Brent crude has nosedived to below $50 per barrel for the first time since May 2009 as oversupply is outweighing demand. West Texas Intermediate crude has also slumped to below the $50 threshold. Oil prices, which have hit five-and-a-half-year lows, could continue their southern march as OPEC remains firm on its decision not to cut production.
U.S. Steel, once the country’s first billion-dollar corporation, remains beset by weak steel market fundamentals. The company has posted losses for five consecutive years through 2013 on weak demand. It was ousted from the Dow Jones Industrial Average in 1991 and was also removed from the S&P 500 last year.
The U.S. steel industry continues to contend with surging steel imports. This, in addition to the oversupply in the industry, is pressurizing prices and prospects of steel producers including U.S. Steel, AK Steel (AKS), Nucor (NUE) and Steel Dynamics (STLD). U.S. steel imports have reportedly jumped 35% in the first ten months of 2014.
Oversupply in the industry has put pressure on steel prices as Chinese steel production has outpaced demand. The low costs of production in China enable the local producers to sell their product at cheaper rates, leading to an industry-wide price decline, hurting margins and earnings power of U.S. steel makers in the process.
U.S. Steel has also been rattled by surging inflow of imported oil country tubular goods (“OCTG”) products into the American market in recent years. Domestic steelmakers has suffered heavily due to a surge of cheap steel imports, reflected by declined orders, idling of mills and jobs losses.
U.S. Steel, during third-quarter 2014, indefinitely idled two tubular manufacturing facilities based in McKeesport, PA, and Bellville, TX, as unfairly traded tubular products imported into the U.S. affected business conditions.
OCTG products, which play a pivotal role in building and maintaining the nation’s energy infrastructure, are being illegally dumped at unfairly low prices in the domestic market which happens to be the most open and attractive market in the world and a hotspot for overseas steelmakers looking to capitalize on the country’s booming shale oil and gas industry.
U.S. Steel and other domestic steel producers had been actively pressing Congress to stop unfair trade practices. In a big move, the U.S. International Trade Commission (“USITC”) confirmed the imposition of anti-dumping orders in Aug 2014 against six countries accused for illegally dumping cheap steel products into the U.S. market. The ruling marked a much-needed triumph for U.S. producers struggling to defend their turf from a flood of cheap steel from foreign manufacturers, especially from South Korea.
Amid a difficult operating backdrop, U.S. Steel remains actively engaged in improving its cost structure and increasing revenues on a sustainable basis through its “Carnegie Way” program. As part of this initiative, the company is realigning its three business segments and establishing a new management structure. CEO Mario Longhi said that the move will help the company to create a closer bond with its customers by catering to their market demands, thus strengthening its position globally.
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