LDN - Business

U.S. Steel delivers unwelcome Christmas surprise to Michigan town

[December 21, 2019] By Rajesh Kumar Singh

CHICAGO (Reuters) - The mayor of a Michigan steel town was attending his grandchildren's Christmas play Thursday evening when he got an unwelcome voicemail from an official of the town's top employer: United States Steel Corp <X.N>.

U.S. Steel was about to send out a press release announcing layoffs for 1,545 workers and the idling of a significant portion of operations at the Great Lakes Works facility, according to the voicemail received by Michael Bowdler, mayor of River Rouge, a city of 7,500 that sits on the Detroit River roughly 10 miles south of Detroit.

In the voicemail to Bowdler, heard by Reuters, the U.S. Steel official called the layoffs "terrible news" and attributed the decision to weak demand, lower steel prices and new corporate strategy.

Domestic steel prices, after rising in the immediate aftermath of tariffs imposed by President Donald Trump on steel imports, have fallen amid weakening demand from the auto and other manufacturing sectors.

In the 2016 presidential election, Trump won Michigan by less than 11,000 votes. But with its factories shedding thousands of jobs, the state is seen as up for grabs in the 2020 election.

Steel production at Great Lakes Works will stop around April 1 and the hot-strip mill rolling facility will cease operations before the end of next year, U.S. Steel said in its statement released on Thursday. Production will be shifted to Gary Works in Indiana, the statement added.

The latest layoffs, which would impact 94% of the Michigan facility's workforce, come months after U.S. Steel decided to temporarily lay off 48 employees at Great Lakes Works and warned of up to 200 more layoffs.

The Great Lakes plant primarily serves the automotive industry. It is the lifeline of the cities of Ecorse and River Rouge, which house the plant.

Local officials had worked out a deal to give tax breaks to the company for a $600 million investment to carry out upgrades at Great Lakes Works. They thought the investment was the company's commitment to stay invested in the towns.

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An entrance to the U.S. Steel Great Lakes Works plant is seen in Ecorse, Michigan, U.S., September 24, 2019. REUTERS/Rebecca Cook/File Photo

In September, a U.S. Steel spokeswoman told Reuters that the incentives would help preserve jobs in the region.

After Thursday's developments, Bowdler did not know whether the tax deal would be put before the city council for approval.

U.S. Steel told Reuters on Friday that its discussions with the two cities about the tax deal were "paused" earlier this year.

Bowdler said the company's move will result in a $1 million hit on the city's finances and could also dampen the business of its retailers.

U.S. Steel's new strategy to ramp up investments at three mills in North America - Mon Valley plant in Pennsylvania, Gary Works in Indiana and Big River Steel in Arkansas, which the company expects to fully acquire within the next four years - had thrown into doubt the future of the Michigan plant.

Martin Englert, a steel industry analyst for brokerage firm Jefferies LLC, called the idling of Great Lakes an "incremental positive" for the company.

U.S. Steel's stock closed down Friday about 11% at $11.91 as the company announced a dividend cut and forecast a wider-than-expected loss in the fourth quarter. The company's shares have plunged 75% since March 1, 2018, when Trump announced his decision to crack down on foreign steel imports.

Prices of hot-rolled coil are down 41% from their 2018 peak, hurting the profits of American steel companies. U.S. Steel, which saw a record profit in 2018 on soaring steel prices, reported a loss in the latest quarter on slowing demand.

(Reporting by Rajesh Kumar Singh; Editing by Caroline Stauffer and Leslie Adler)

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