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After rough 2015, steel faces more headwinds
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After rough 2015, steel faces more headwinds

Last year was a tough year for the steel industry, as an estimated 12,000 steelworkers lost their jobs nationally, according to the Alliance for American Manufacturing. 

Locally, workers were laid off at major mills, including Gary Works, East Chicago Tin, Indiana Harbor Long Carbon and ArcelorMittal Indiana Harbor.

Major domestic steelmakers lost market share, as cheap imports — including Chinese steel sold for an average loss of $75 per ton with the help of government subsidies — gobbled up a recent 29 percent of the U.S. market, according to the American Iron and Steel Institute. That's worse than the late 1990s and the early 2000s, when a similar import crisis led century-old steelmakers to declare bankruptcy.

When the dust cleared then, all of the big steel mills around the shore of Lake Michigan ended up in the hands of U.S. Steel or ArcelorMittal. Both are now consolidating operations.

Tough, uphill slog

And both continue to struggle. U.S. Steel lost $1.5 billion last year despite making $815 million in cuts and being turned around enough to record its first annual profit in a half decade in 2014. ArcelorMittal lost $1.3 billion through the first three quarters, including $711 million in the third quarter. 

The imports take away sales volume and depress prices, which fell $30 a ton for flat-rolled steel in the fourth quarter.

"The already challenging operating conditions have further deteriorated during recent months, largely due to additional declines in steel prices caused by exceptionally low Chinese export prices," ArcelorMittal Chairman and CEO Lakshmi Mittal explained to analysts and investors during the third quarter conference call. "Our focus is on ensuring we take all the necessary steps to strengthen our competitiveness in this difficult environment. Measures we have taken so far are yielding results; costs in our mining division have reduced by 17 percent so far in 2015 versus an initial target of 15 percent, and net debt is $1 billion lower than a year ago."

Both Mittal and U.S. Steel CEO Mario Longhi said they expected market conditions to remain challenging in 2016. U.S. Steel is saying it hopes to merely break even this year, but analysts have said that's unrealistic. 

"We are facing significant headwinds and uncertainty in many of the markets we serve, but remain focused on continuing to improve our cost structure, developing differentiated solutions for our customers and creating more reliable and agile operating capabilities," Longhi said.

Imports batter U.S. steelmakers

U.S. Steel recently idled plants in Texas and southern Illinois. ArcelorMittal is looking at closing finishing lines in North America, possibly including one at Indiana Harbor, to address the industry's serious overcapacity problem. Analysts say the industry isn't really healthy unless capacity utilization is at 90 percent, but it fell as low as 60 percent last year as China exported a record 120 million tons, a 20 percent increase over the previous record. 

"With the rising tide of cheap imports flooding the market, capacity utilization lingered in the low 70s for most of 2015," American Iron and Steel Institute President Thomas Gibson said. "Then in October it fell to the 60s. This is a crisis for us."

Making adjustments

But progress is being made. China, blamed for having half the world's 700 million tons of steelmaking overcapacity, has agreed to enter into bilateral steel talks with the United States in Washington, D.C., Gibson said. 

A lift on a ban on exporting oil out of the United States is expected to drive up demand for new oil exploration, which has fallen off as the price of crude oil plunged to around $30 a barrel. 

"This was a positive development for the domestic steel industry, given that steel is essential for oil exploration, production, refining, and distribution," Gibson said. "Lifting the ban is expected to increase demand for steel products and increase opportunities through the supply chain." 

Congress improved trade laws for the first time in 20 years and increased funding for customs enforcement, Gibson said. Lawmakers also passed a highway funding bill, which is expected to further drive demand for steel.

The U.S. Department of Commerce also has started to impose tariffs, as high as 255 percent, on Chinese-made steel. U.S. steel production increased over the first four weeks of the year.


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Business Reporter

Joseph S. Pete is a Lisagor Award-winning business reporter who covers steel, industry, unions, the ports, retail, banking and more. The Indiana University grad has been with The Times since 2013 and blogs about craft beer, culture and the military.

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