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Longhi warns of more job losses as layoff notices rise to 9,000

Pictured is East Chicago Tin. U.S. Steel has issued layoff warnings to 9,000 workers nationwide, including nearly 400 at the now-idled East Chicago Tin mill.

GARY | U.S. Steel has idled a blast furnace at Gary Works and now issued layoff warnings to about 9,000 workers nationwide.

The company employs about 35,000 workers globally under normal operating conditions.

So far this year, the Pittsburgh-based steelmaker has laid off 2,800 workers across the county, including at Gary Works and the idled East Chicago Tin. Production has been cut at all its North American plants because the demand for steel is so low.

CEO Mario Longhi warned more layoffs could be coming amid a record glut of foreign imports and after a worse-than-expected first-quarter loss analysts called "ugly."

He blamed cheap oil and imports.

"Our order rates have been significantly impacted by high levels of imports into the North America market that have continued unabated, resulting in operating levels that have caused us to lay off a significant number of our employees and will likely result in the number of layoffs increasing going forward," Longhi said. "We are attacking every aspect of our cost structure and exercising every opportunity that we have to eliminate, reduce and defer costs. We have many cost levers that we can pull in response to a downturn in market conditions and we are pulling them as quickly and as hard as we can."

U.S. Steel has cut back operations at eight plants, resulting in an estimated $200 million of annualized cost savings. Blast furnaces have been idled at Gary Works, Fairfield in Alabama and Granite Works in Illinois. East Chicago Tin sits idled. The coke plant at Gary Works has been shut down for good.

"We've taken aggressive and decisive actions to address the extremely challenging conditions we are currently facing in North America," Longhi said. "Some of these are very difficult decisions that have a significant impact on our employees and their families, and we do not take these lightly. But these are some of the actions that are necessary for us to remain well positioned to respond when the market conditions improve."

Over the first three months of the year, the steelmaker lost $75 million, or 52 cents a share, after net sales plummeted by 26 percent. U.S. Steel had turned a profit of $52 million in the first quarter of 2014, which was its first profitable year in a half decade.

"We faced extremely difficult conditions in the first quarter with high levels of imports and supply chain inventories and rapidly falling spot prices and rig count significantly impacting volumes at both our flat rolled and tubular segments," Chief Financial Officer David Burritt said.

The company expects to cut operating expenses by at least $340 million this year, through projects such as reducing inventory and freight costs that are part of the ongoing Carnegie Way initiative to make U.S. Steel profitable in good times and bad. That figure does not include the $200 million U.S. Steel expects to save from layoffs and idlings, which Longhi said would be temporary.

"I would like to emphasize that these are the result of short-term actions that will reverse eventually as we return to normal operating levels and bring our people back to work," Longhi said. "These cost reductions are in addition to the sustainable improvements to our business model resulting from our Carnegie Way transformation."

After taking a beating in the first quarter, U.S. Steel lowered its guidance for 2015 adjusted earnings before interest and taxes down from $550 million to $850 million to a much lower range of $115 million to $315 million. U.S. Steel executives cited increased headwinds, including much lower prices for flat-rolled products than anticipated, historically high imports and a steep plunge in the demand for steel for drilling rigs. 

The steelmaker expects market conditions will improve in the second half of the year, but continues to suffer from a glut of imports that have captured a record 34 percent market share.

"Our flat-rolled segment results continue to be adversely impacted by the mass of steel imports that accelerated during the first quarter, many of which we believe are unfairly traded," General Manager of Investor Relations Dan Lesnak said.

Future layoffs will depend on market conditions, Longhi said.

"Unfortunately, we have also had to resort to issuing WARN notices over the last few months which will help us with the flexibility we need to continue to adjust our operating levels to match our customers' needs," he said. "While these WARN notices cover a large number of employees and facilities the actual number of employees laid off and the operating levels at our facilities will be determined by market conditions. We are also taking actions to reduce our corporate and support function cost."

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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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