Oil Slump Leads to U.S. Steel Layoffs
U.S. Steel, the largest American integrated steel producer, has said it will temporarily idle two of its plants and lay off 750 of workers in the coming weeks.
The affected facilities are in the Pittsburgh, PA-based company’s tubular division, which supplies product to the oil and gas exploration and transmission industry, the Pittsburgh Post-Gazette reported Friday (March 18).
The company points to weak conditions in the energy market as the reason for the measures.
"These actions are part of an ongoing adjustment in operations due to challenging market conditions, including fluctuating oil prices, reduced rig counts, depressed steel prices and unfairly traded imports," the company said in its statement, as reported by the Pittsburgh Business Times.
"All of these factors continue to reduce demand for tubular goods," it added.
Workers at the affected locations were reported to have been notified of the potential layoffs in January, according to reports.
Affected Facilities
Four U.S. Steel sites have been targeted for the layoffs: 450 union-represented workers will be released at the Lone Star, TX, location, as well as 200 union workers at its Fairfield, AL, site, the company announced via email Friday.
Another 120 salaried, non-union employees in the tubular business were laid off because of the lower production levels in Lorain, OH, and Houston. The company did not provide a specific breakdown of staffing impacts for these locations, the Houston Chronicle said.
The Lone Star operations are reported to be preparing to be idled by Friday (March 25), and the Fairfield plant is scheduled to be idled in April.
Weak Business Environment
According to financial news site TheStreet, the energy sector accounts for more than 10 percent of U.S. steel consumption.
"Oil country tubular goods" (OCTG) are the steel products used by crude oil companies in the construction of pipelines and rigs. Because OCTG products cost more than other steel goods, they tend to account for a large margin in steel companies' businesses, the site explained.
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"Oil country tubular goods" (OCTG) are the steel products used by crude oil companies in the construction of pipelines and rigs; OCTGs are U.S. Steel's most valuable segment. |
For U.S. Steel in particular, OCTG has been its most valuable segment, and it was the largest supplier of OCTG on the market.
However, fluctuations in energy production ultimately affect the steel companies' bottom lines, and for U.S. Steel, demand for its primary product fell as energy companies cut their budgets in response to the oil glut and purchased fewer tubular goods.
Company sales in the tubular division, “typically the most profitable,” posted an operating loss of $179 million in 2015 as sales plunged by 68 percent, the Chronicle reported.
Ongoing Adjustments
The company has had to make a number of adjustments to its workforce and operations over the past year, the Post-Gazette pointed out.
In addition to falling oil prices, the company also looks to depressed pricing in the steel industry for its current situation. In particular, the glut in global steelmaking, especially China, has resulted in sharp increases in steel imports, the paper added.
Just one year ago, Bloomberg Business reported, the company had announced it would be temporarily idling a factory making flat-rolled steel in Granite City, IL, pointing to the market effects of cheap imports and lower oil prices. At that time, 2,080 workers were informed of the risk of layoffs.
American steel companies have joined together to file trade cases against foreign producers, the Post-Gazette noted.
As reported previously, for instance, the United States International Trade Commission (USITC) has undertaken investigations into corrosion-resistant steel products from China, India, Italy, Korea and Taiwan.
The six commissioners unanimously agreed to continue the investigation after determining there was reasonable indication that these imports, alleged to be subsidized and sold in the U.S. at less than fair value, threaten the U.S. industry with material injury.
Preliminary rulings in some of those cases, the Post-Gazette wrote, suggest import relief may be in sight, which would make it easier for U.S. producers to raise prices.
