U.S. Steel Lays Off 756, Blaming Low Oil Prices
Steel Maker Idles Ohio Plant That Makes Pipes for Oil Exploration, Drilling
By JOHN W. MILLER
Wall Street Journal
Jan. 6, 2015 4:27 p.m. ET
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 5½-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 of pipe 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 substantially built up 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, Texas, 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% this year compared to last, 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
By JOHN W. MILLER
Wall Street Journal
Jan. 6, 2015 4:27 p.m. ET
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 5½-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 of pipe 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 substantially built up 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, Texas, 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% this year compared to last, 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
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