Steelmakers looking to cut costs

2013-08-11T06:00:00Z 2013-08-12T14:51:35Z Steelmakers looking to cut costsJoseph S. Pete, (219) 933-3316

ArcelorMittal and U.S. Steel have been working on streamlining operations after a prolonged economic slump has kept them from being profitable, and the Pittsburgh-based steelmaker plans to review labor costs at all its facilities.

U.S. Steel has lost money in five of the last seven quarters, while Luxembourg-based steel titan ArcelorMittal reported its fourth consecutive quarterly loss last week.

ArcelorMittal has been restructuring its operations, including by shutting down or idling plants in Europe, where demand has not recovered and the American Iron and Steel Institute estimates there are 40 million to 80 million tons of overcapacity. The world's largest steelmaker acted quickly and pragmatically to take unneeded capacity offline during the Eurozone crisis, and has realized more than a projected $1 billion in savings, said chief executive officer Lakshmi Mittal.

The global steel and mining company aims to save $3 billion by 2015, largely by cutting fuel costs and making its blast furnaces more productive.

U.S. Steel is launching Project Carnegie, an attempt to find savings and grow revenue. Teams at all U.S. Steel facilities, including at East Chicago, Gary and Portage, are looking to identify cost-cutting measures and other ways the company can improve its business operations.

"We are not content to wait for further global economic recovery to improve our results," said U.S. Steel president Mario Longhi.  "We are deepening the focus on areas that we can control, with the objective to position our company to deliver the best results possible, regardless of market conditions."

The company hopes to lower its cost structure and achieve more operational efficiency, while continuing to meet customer demand for highly engineered and advanced steel products, Longhi said.

When asked by an analyst if U.S. Steel could close or sell off any of its mills, Longhi said everything is on the table.

Longhi, who is second-in-command at U.S. Steel after chief executive officer John Surma, is leading the new strategic initiative aimed at boosting the company's bottom line even in periods where demand for steel is slack.

"We're referring to this as a profitability and value enhancement initiative, as it is much more than just a cost-cutting exercise," Longhi said. "As we have indicated, we are approaching this with the same type of total organizational effort that we have used to produce our outstanding achievement with our safety performance."

The project will critically evaluate what the company does, and how it does it, Longhi said. U.S. Steel will pursue small projects and ideas at various facilities in order to hunt for broader organizational changes, Longhi said.

Any changes will be long-term reinventions of the way that U.S. Steel does business, and not short-term adjustments that will revert back over time, Longhi said. The company is looking at the raw materials, labor and sales and administrative costs, as well as revenue.

U.S. Steel will review conversion costs – meaning the cost of labor and management – at all its facilities, Longhi said. Improvements are expected both with cost and revenue.

Teams at all of U.S. Steel's facilities, including Gary Works, East Chicago Tin and the Midwest Plant in Portage, have been tasked with coming up with site-specific ideas that could be applied more widely across the company.

"It is not a short-term cost-cutting exercise," Longhi said. "It requires everyone to think different, think big and accept change."

The company is not setting any financial targets for Project Carnegie. Both costs and revenues are in the billions of dollars annually, so any small percentage change on either side would be meaningful to the company's financial results, Longhi said.


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