By John W. Miller
PITTSBURGH-- U.S. Steel Corp. said it will idle plants in Ohio
and Texas and lay off 756 workers, becoming one of the first big
U.S. industrial casualties of the recent collapse in global oil
prices.
The plants make steel pipe and tube for oil and gas exploration
and drilling. With oil prices more than 5 1/2 -year lows and
hovering around $50 a barrel, energy companies have far less
incentive to drill for new supply, reducing demand for the plant's
products.
The Lorain, Ohio operation, which will shed 614 workers,
produces more than 700,000 tons a year. Houston, where 142 will be
laid off, generates over 100,000 tons annually.
"The company has suddenly lost a great deal of business because
of the recent downturn in the oil industry," Tom McDermott,
president of United Steelworkers local 1104 in Lorain wrote to
workers, in a letter reviewed by The Wall Street Journal. "What
appeared just a few short weeks ago as being a productive year,
[with new hires in December and extra turns going on], has most
abruptly turned sour." The union declined further comment.
The weakness could extend beyond U.S. Steel. In the last five
years, U.S., French and Chinese companies have built up millions of
tons of new capacity from Ohio to Texas, lured by a resurgent
American auto industry and the country's booming oil and gas
sector.
A subsidiary of France's Vallourec SA, for example, built a $650
million 500,000-ton-per-year mill in Youngstown, Ohio. The company
didn't return calls seeking comment.
Other steelmakers with key U.S. operations include Nucor Corp,
Steel Dynamics Inc., ArcelorMittal and AK Steel Holding Corp.
The so-called oil country tubular goods, or OCTG, industry has
been built up massively in the past few years to provide pipe and
tube for the boom in drilling for shale gas and new oil in the Gulf
of Mexico.
U.S. Steel, which is trying to reverse five straight years of
losses, including a $1.7 billion deficit loss in 2013, has been
among those betting most heavily on OCTG. The company's tubular
division posted an operating profit of $140 million during the
first nine months of 2014, up from $23 million over the same period
in 2010.
Steel pipe and tubes have been "the company's most reliable
profit driver," said analyst Sam Dubinsky of Wells Fargo.
U.S. Steel Chief Executive Mario Longhi told analysts in October
that, while the swoon in global oil prices wouldn't affect the
fourth quarter, "the recent turmoil in the crude oil markets could
have an impact on the level of drilling activity as we move into
the new year." He added that "we are at a transitional moment that
is going to take a little bit of time for people to sort out
exactly where this is going to go."
Oversupply in the market has been exacerbated by huge flows of
steel imports into the U.S. Overall steel imports were up 35% to 38
million tons during the first 10 months of 2014, according to
Global Trade Information Services.
The round of layoffs at U.S. Steel will begin on March 8, "with
additional layoffs occurring through May 2015," a company official
wrote to the union.
Workers for U.S. Steel in Lorain said they would find out who is
being laid off at an evening meeting Wednesday.
Last summer, U.S. Steel and others won import tariffs on imports
of OCTG from South Korea and other exporting countries. But that
won't be enough to prop up the industry in the face of falling oil
prices.
Last year, as it pursued trade import tariffs, U.S. Steel
curtailed operations at plants in McKeesport, PA and Bellville, TX,
citing competition from foreign imports. They have yet to be
restarted, a spokeswoman said Tuesday.
Spending on oil exploration and production is expected to fall
20% year on year, according to Susan Murphy, publisher of the OCTG
Situation Report. She expects land oil rigs to decline by up to 500
in 2015.
Write to John W. Miller at john.miller@wsj.com
Access Investor Kit for ArcelorMittal SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=LU0323134006
Access Investor Kit for AK Steel Holding Corp.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US0015471081
Access Investor Kit for ArcelorMittal SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US03938L1044
Access Investor Kit for Steel Dynamics, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US8581191009
Access Investor Kit for United States Steel Corp.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US9129091081
Subscribe to WSJ: http://online.wsj.com?mod=djnwires