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Steel woes may spur gain
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June 12, 2001: 4:29 p.m. ET
Some analysts say closings, import limits could raise prices, share value
By Staff Writer Chris Isidore
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NEW YORK (CNNfn) - There may be help on the horizon for U.S. steelmakers, but it won't get here soon enough for LTV Steel Corp.'s Cleveland West plant.
The mill in the bankrupt steelmaker's hometown is set to be closed, very likely for good, by noon Saturday, idling about 900 employees and taking about two million tons of steelmaking capacity out of the market.
The problem for the plant is a one-third drop in steel prices during the last year due to the weakening demand for steel from major customers, such as the automakers, coupled with rising competition from both imports and non-union "mini-mills." The minimills make coils of steel sheet from scrap rather than the raw materials that integrated plants, such as Cleveland West plant use.
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U.S. steel prices have fallen by about a third in the last year, but import limits and plant closures could help turn that around. | |
But the shutdown comes just more than a week after the Bush administration announced it would take the first step in trade cases that could erect barriers to steel imports due to allegations that overseas producers are dumping product here. The Commerce Department's International Trade Commission, which is investigating the dumping complaints, had already imposed new duties on steel from 11 nations in early May.
The closing of the Cleveland plant also comes on the heels of the motion by LTV on Monday asking a bankruptcy court to void its contract with the United Steelworkers union. That request, if accepted, would allow it to shift some of its health care costs to its employees and retirees, and save more than $250 million a year.
The union has voted to fight the move. A crippling if not fatal strike is possible if the contract is voided, although union officials insist they can reach an agreement that will help the company find the savings it needs without hurting members and retirees.
Union leadership is concerned about granting concessions because other unionized steelmakers have put the USW on notice they expect to be given any relief won by LTV. But they say that LTV should be able to get the help it needs from the trade cases and from legislation it says it expects to get through Congress later this year.
"It defies reason to abandon a cooperative effort at exactly the time when we have secured the administration's cooperation in
getting the kind of government action it's going to take to save LTV," said Leo Gerard, the USW president, in a statement Monday. The two sides confirmed Tuesday they'll meet at the negotiating table again Thursday.
LTV executives said that any help they could see from the trade cases or legislation being pushed by the USW in Congress will come too late to help them meet a $100 million payment due in September, another payment due in December, or stem the ongoing losses estimated at more than $1 million a day.
"If government help comes, it'd be wonderful, it'd be long overdue," said Mark Tomasch, spokesman for LTV. "But the cavalry is not just over the hill. We have neither the time or money to wait."
Mill closings could help spur profits
But LTV's woes, and the problem of some of the nation's other steelmakers, gives some analysts hope that there will be good times ahead for those that can weather the current storm.
"I think steel's going to recover to robust profitability for surviving companies for the most part due to reduction in supply," said John Tumazos, analyst with Bernstein.
Chris Olin, an analyst for Cleveland-based Midwest Research, said that if LTV does close, and takes its total 8.4 million tons of annual capacity out of the market, it should be the lift needed by a number of troubled steelmakers, and that healthy profits could quickly return at the more efficient integrated steelmakers, such as the US Steel Group, a unit of USX Corp. (X: down $0.13 to $21.01, Research, Estimates)
Olin said the price of a ton of "hot-rolled" steel, the most basic form of sheet steel, is down to the $230 to $240 range today from a $340 in April 2000. He believes it could be back up to nearly $300 by the end of the year.
"We've already seen a lot of capacity come out of market," said Olin. "I think clearly we're near a noticeable bottom. We've been recommending these stocks even without the (Bush administration move) on imports. Should we see even some upturn in demand, we should get much higher prices in the fourth quarter."
But some other analysts don't see as strong a prospect for the industry, even if LTV closes and the administration does win some barriers on imports.
Click here for a look at metals stocks
"The outlook for steel is still extremely difficult," said Daniel Roling, the metals analyst for Merrill Lynch.
He said that worldwide and domestic steel production has dropped far less than production of other metals such as aluminum and copper, and that, along with the strong value of the dollar, will make it very tough for U.S. steelmakers to gain ground in the foreseeable future.
"All those factors (import limits, closure of LTV) would help, but I don't know if they're enough to get the industry back on its feet," he said. 
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