(Bloomberg) — U.S. Steel Corp. has now lost much of the ground it gained when President Donald Trump implemented his steel import tariffs less than two years ago.
Back then, Chief Executive Officer David Burritt hailed Trump’s tariffs and the company responded by restarting two blast furnaces and rehiring steel workers. Now, U.S. Steel is facing harsh scrutiny after delivering a barrage of bad news this week that included idling its giant plant outside Detroit and laying off as many as 1,545 workers.
U.S. steelmakers have faced slowing demand for their products, and U.S. Steel has been particularly hard hit because of aging plants that are less efficient than rivals’ with newer technology. That’s led to a spate of corporate operational initiatives under different names that have shifted multiple times since 2014.
The changing strategies “raise concerns that there’s no long-term, overriding execution capability to improve competitiveness,” Richard Bourke, a senior credit analyst at Bloomberg Intelligence, said in a note. “Cash costs from layoffs will likely exceed savings from the cuts, in our view.”
Bourke cited the “Carnegie Way,” the Asset Revitalization program, steel technology projects and Big River investment among the “ever-changing operational priorities.”
U.S. Steel stock has sunk by about a third this year, hitting the lowest since 2016 in October, even as the broader U.S. equity market hit all-time highs. The shares dropped 11% to $11.92 on Friday in New York, the biggest decline since September.
The plunge comes amid concern over how well the company will be able to supply steel for critical automotive products as it moves some production next year from the Detroit area to its operations in Gary, Indiana.
“They just idled their main automotive mill,” said Dan DeMare, a regional sales manager for Heidtman Steel, an Ohio-based steel distributor. “They have bet everything on their commercial ability to be viable and offer the cost to market that’s required, and they’re going to have facilities, equipment and a plan to execute. They’ve failed miserably at that so far.”
The company’s late-Thursday night announcement was met with a mixed reaction from Jefferies LLC, which said that while the loss was worse than analysts had expected, there would be benefits for the industry as a whole from the plant closures.
Although the loss “likely surprises most investors, its proactive move to permanently idle Great Lakes Works is laudable,” analysts including Martin Englert said in a note. “We see the shuttering of U.S. flat-rolled steelmaking capacity as a broader incremental positive for the domestic industry into 2020 and beyond given the numerous expansions planned by peers.”
The Trump administration put 25% duties on imported steel in March 2018, fulfilling a campaign promise to help the steel industry, which he said was suffering from dumping by actors like China. Michigan was narrowly won by Trump in 2016, helping pave his way to the White House.
That didn’t help the production facilities near Detroit.
“Current market conditions and the long-term outlook for Great Lakes Works made it imperative that we act now,” CEO Burritt said in a statement Thursday.
It was a change from his comments in 2018 when the company restarted two blast furnaces in Granite City, Illinois. Back then, the CEO hailed Trump’s tariffs for creating the market conditions to boost supply and re-hire workers.
U.S. Steel’s announcements don’t mean the import tariffs aren’t working, U.S. Commerce Secretary Wilbur Ross said Friday.
Many of those laid off at the U.S. Steel facility outside of Detroit will be able to find work in nearby General Motors Co. and Ford Motor Co. plants, Ross said in an interview with Bloomberg Television. The problem with U.S. Steel’s Great Lakes plant, he said, is that it was just too high-cost to run.
“What is happening is they are rationalizing a bit their production so that they will be more competitive in the future as we continue to go forward,” Ross said.
–With assistance from Steven Frank, Jake Lloyd-Smith and Reg Gale.
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