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U.S. Steel Is in Trouble, Not Due to Coronavirus

Mohit Oberoi, CFA - Author

Jul. 24 2020, Updated 10:01 a.m. ET

  • U.S. Steel Corporation (NYSE:X) has announced plant closures and layoffs. The company also idled plants and laid off employees last year.
  • The layoffs aren’t due to the coronavirus. The company has been facing troubles since last year. As a result, U.S. Steel has announced layoffs multiple times.
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US steel industry and Trump’s Section 232 tariffs

On Tuesday, U.S. Steel announced that it will idle two of its tubular facilities. The move could potentially lead to 850 layoffs. In the statement to Recycling Today, U.S. Steel blamed “challenging market conditions and high import levels” for its decision. Notably, the company was on a restart spree after President Trump imposed Section 232 tariffs in 2018. After the tariffs were imposed, the company restarted two blast furnaces at Granite City. The Lone Start facility, which is being idled now, was only restarted last year. U.S. Steel also restarted the construction of its abandoned electric arc furnace in Alabama last year. The plant’s construction halted in 2015 as US steel prices fell.

Lone Star layoffs

In 2016, U.S. Steel idled the Lone Star facility. Crude oil prices fell in 2015 as well. U.S. Steel’s Tubular segment was a key contributor to its earnings before 2015. However, the segment hasn’t returned to its glory days since then. Lower energy prices and higher imports took a toll on U.S. Steel’s Tubular operations. In the last five years, the Tubular segment has only posted a positive EBITDA in seven quarters.

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U.S. Steel resorts to plant idling and layoffs

President Trump’s Section 232 tariffs cheered the US steel industry. However, the good times ended for U.S. Steel last year. In June, the company said that it would idle two blast furnaces in the US and one in Europe. The company made the announcement on the same day that President Trump started his 2020 campaign. In December, U.S. Steel announced massive layoffs at its Michigan facility. ArcelorMittal also idled some of its US facilities last year. President Trump made saving the US steel industry a hallmark of his 2016 campaign. In 2018, he imposed a 25% tariff on US steel imports. However, the tariffs didn’t to stop the layoffs.

U.S. Steel’s layoffs aren’t due to coronavirus

Meanwhile, U.S. Steel’s current round of layoffs isn’t due to coronavirus. The company is idling its tubular facilities that produce steel for the energy industry. The sharp fall in crude oil prices has taken a toll on the US energy industry. As the US energy industry slashes its capex budget, its steel demand will fall. U.S. Steel isn’t alone in idling plants that produce steel for the energy industry. Tenaris is also idling some of its facilities that produce steel for the energy industry.

So far, there hasn’t been any news of layoffs in the US steel industry due to the coronavirus. The industry wants to be classified as an “essential” industry so that it can continue production. However, with downstream end users, including the automotive sector shutting down, it might not make economic sense for the US steel industry to continue production. Read Should US Steel Mills Halt Production amid Coronavirus? to learn more.


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