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Steel industry returns to profitability under Section 232 tariffs

The ArcelorMittal Indiana Harbor complex in East Chicago is pictured above. 

The year 2018 has proven to be a good one for the domestic steel industry, which had appeared to on be the ropes after a barrage of cheap and often illegally subsidized imports.

In January, a U.S. Department of Commerce investigation found that foreign steel dumping posed a potential threat to national security. Foreign competitors, often propped up with massive subsidies domestic steelmakers don't enjoy, had been dumping steel below cost in the United States for years, threatening to put U.S. steel mills out of business, which would leave America entirely dependent on the whims of foreign countries if it ever needed to ramp up wartime production of tanks, ships and armaments.

In March, the administration used its then-obscure Section 232 authority to impose tariffs of 25 percent on most foreign steel, and later expanded it to include allies like Canada, Brazil, the European Union, Mexico, South Korea, Australia and Argentina, which supply most of the imported steel and aluminum to the United States.

Imports have since plunged. Through the third quarter, steel imports were down 12 percent and imports of finished steel products that require no further processing in the United States declined by 12 percent, according to the American Iron and Steel Institute. U.S. steel production rose by 4.9 percent year-over-year over the same period.

Steel prices soared, climbing over $900 a ton for hot-rolled steel band, according to the steel pricing website SteelBenchmarker.com.

U.S. Steel made $232 million in profit during the first two quarters of the year, and the much larger global steelmaker ArcelorMittal pulled in $3.1 billion, up 31.5 percent from the previous year.

Steelworkers hoped to share in some of the prosperity as the United Steelworkers union returned to the bargaining table with the steelmakers in the summer. But the Sept. 1 expiration of the current three-year contract came and went without agreement on a new contract, as the steel companies pushed for steelworkers to take on thousands of dollars of out-of-pocket health care costs and asked for reduced benefits for both active workers and retirees. Steelmakers requested a number of concessions they said were necessary to be competitive on cost and to be sustainable in the long term, such as scrapping guaranteed 40-hour work weeks and current profit-sharing formulas.

The steelworkers resisted and overwhelmingly voted for strike authorizations that would allow the unions to walk off the job in 48 hours if they couldn't reach a deal at the bargaining table, threatening the largest work stoppage since 1986. Many expressed frustration that they agreed to forgo any raises during the downturn while executives still got handsome bonuses.

USW and U.S. Steel eventually reached a four-year deal that includes 14 percent in raises, a $4,000 signing bonus, and preservation of existing health care benefits, with a second health care plan option. ArcelorMittal later made a similar offer.

"I imagine ArcelorMittal will end up with pretty much the same deal," said Charles Bradford, a New York City-based steel analyst with Bradford Research.

Bradford said the domestic steel industry was generally doing well, especially the large integrated mills that ring the Lake Michigan shore. Prices peaked and had started to soften, but appears to be ticking up again, according to CRU Steel Indices.

"The price went from $925 a ton for hot-rolled coil to $850 a ton," he said. "Generally speaking, volumes are good. The operating rate is good. Flat-rolled has been operating at 90 percent of capacity for the past years. It's the mini-mills that are pulling it down."

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The exception is U.S. Steel, which has been operating at only around 65 percent of capacity because it deferred maintenance projects during its Carnegie Way cost-cutting initiative, Bradford said. But the Pittsburgh-based steelmaker has pledged to spend $2 billion over the next few years, including $750 million at Gary Works, in order to get its equipment back to greater efficiency.

In a rare appearance at U.S. Steel's largest mill, U.S. Steel CEO David Burritt said the investment would help spark a renaissance.

“Through the skill and determination of our employees, support from the state and city, without which this project would not be possible, and favorable trade policies with the strong Section 232 national security action on steel imports, we are experiencing a renaissance at U.S. Steel,” he said at a press conference in August.

U.S. Steel said it would revitalize assets like the mill's four blast furnaces, the steel shop, the casters, and the hot strip mill.

"Their operating rate is beginning to recover," Bradford said. "It was almost shocking when they said revitalize and not expand or modernize. It was an admission they've got to fix a lot of things that haven't been maintained." 

Steelmakers face some higher costs, including labor, iron ore and coking coal, which just hit a six month high, Bradford said. 

But business has been steady. The automobile industry for instance expects car sales to remain flat next year, just below the historic highs of recent years.

"What I'm hearing is not terribly good nor terribly band," Bradford said. "But I've been saying for a few years now the advanced high-strength steels that steelmakers have touted to make the cars lighter will have an impact. If the car is lighter they will buy less steel, and you have to offset that with pricing."

Steel made in China remains significantly cheaper, and how well the U.S. steel industry does will depend on how long the trade protections remain in place, as well as if the administration and Congress can ever agree on an infrastructure plan, Bradford said.

"A lot will depend on the election and what happens then," he said.

Though not as large an employer as it was in its heyday, the steel industry remains a central pillar of the Region's economy. A study by the research firm of John Dunham & Associates commissioned by the American Iron and Steel Institute concluded that the steel industry contributes $16.6 billion in economic activity a year, employs 18,300 workers and pays more $2.15 billion in wages in Northwest Indiana.

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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.