This article first appeared in the St. Louis Beacon, April 28, 2009 - Though U.S. Steel's first-quarter losses are far worse than analysts had predicted, a local union official Tuesday encouraged 2,000 laid-off steelworkers from the Granite City plant not to panic.
Russ Saltsgaver, president of United Steelworkers Local 1899, said that U.S. Steel should be able to weather the economic storm because it is the first time the corporation has lost money in the last five years.
"My reaction is they've made several billion dollars over the last five years, and they're sitting on a lot of cash,'' Saltsgaver said. "It's not a good thing for them as a company, but they've had some good times over the last five years. Steel is very cyclical; it usually goes in five-year cycles. So, this is the beginning of a nasty steel cycle."
That said, the news from Pittsburgh was grim: U.S. Steel, the nation's largest steelmaker, reported a first-quarter net loss of $439 million, and Moody's Investors Service promptly downgraded about $1.6 billion of the company's debt to junk status. The loss per share was $3.78, about double what analysts had been predicting.
The problem: The recession has cut consumer spending for cars and appliances, and the construction industry isn't building. So, demand for steel and coke, used in the production of steel, has dropped. The company reported a 47 percent drop in sales.
U.S. Steel idled the Granite City mill in December, laying off 1,600 workers. Another 390 workers were laid off in February when coke operations were shut down. Granite City Steel is the city's biggest employer -- with about 2,245 workers.
In a prepared statement, John Surma, U.S. Steel's chairman and CEO, said, "We continue to face an extremely difficult global economic environment. We expect an operating loss in the second quarter as our order book remains at low levels and idled facility carrying costs continue to be incurred. Extremely short lead times coupled with the uncertainty surrounding financial markets and key steel- consuming industries, such as automotive and construction make it difficult to forecast beyond a very short horizon."
Surma cited weakening demand, as well as foreign production.
"Weak customer demand for flat-rolled products, coupled with customers' efforts to reduce inventories, has resulted in very low order rates and further downward pressure on prices for our flat-rolled and U.S. Steel Europe segments. Our tubular operations have also experienced a severe downturn, primarily as a result of reduced drilling activity due to lower oil and gas prices, high inventory levels and unprecedented levels of unfairly traded and subsidized tubular imports from China."
Among its cost-cutting moves: The company will cut its dividend from 30 cents to 5 cents a share to save about $116 million a year and reduce capital spending by $330 million. The United Steelworkers Union has agreed to defer up to $170 million in contributions to retiree health and life insurance. And company executives will take a cut in their base salaries -- ranging from 5 to 10 percent for general managers and executives to 20 percent for Surma, the CEO.