4 Sep

US Steel Companies Face Combatant Labor Unions

WRITTEN BY Mohit Oberoi, CFA

Labor unions

Steel companies including U.S. Steel (X) and ArcelorMittal (MT) are negotiating labor contracts. The previous three-year contract extension came up for negotiation in 2015. Back then, US steel prices were plunging and the benchmark HRC (hot roll coil) prices fell below $400 per ton levels, prompting companies like U.S. Steel and AK Steel (AKS) to announce plant shutdowns.

US Steel Companies Face Combatant Labor Unions

Now, life has come full circle for the steel industry. US steel prices have more than doubled since 2015 and companies like Nucor (NUE) and Steel Dynamics (STLD) are churning record profits. Meanwhile, U.S. Steel seems to be facing a combative labor union amid higher steel prices.

Variable structure

According to Nwitimes, “After three months of negotiations with U.S. Steel that went right up to the deadline, the United Steelworkers union bargaining committee is returning home from Pittsburgh to ask members for a strike authorization vote.” According to the report, “The company has proposed signing bonuses of $1,500 and pay raises of 3.25 percent, 2 percent and 1 percent over the next three years, but then would phase out traditional wage increases that would be replaced with variable profit-sharing bonuses that may or may not materialize.” Variable bonuses and higher health care costs seem to be the two contentious points between U.S. Steel and labor unions.

Companies like Nucor already have a variable pay structure. The mini-mills, which have lower operating leverage, have taken away market share from integrated steel mills like U.S. Steel. U.S. Steel has been trying to address its legacy issues of higher pension and healthcare obligations.

In the next and final article, we’ll look at the recent trend in steel scrap prices.

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