Few details in United States Steel Corp.'s plan to idle plants

GRANITE CITY, Ill. -- Mayor Ed Hagnauer has seen this St. Louis suburb weather layoffs at steel mills that account for much of its identity and a thick, pungent smell. But new layoffs in coming weeks by a steelmaker planning to idle its 2,200-worker foundry here has him a bit unnerved.

Last week's announcement that United States Steel Corp. -- the nation's biggest steelmaker -- soon will "temporarily" suspend production at its Granite City Works "is a little different" in this city more accustomed to short, seasonal layoffs -- not open-ended ones, Hagnauer says.

Announcement of an idling "automatically raises a flag up on, `Hey, what's going on here?"' Hagnauer said Monday, when the shutdown's possible length remained elusive -- and analysts offered less than a rosy near-term outlook for the industry.

Courtney Boone, a U.S. Steel spokeswoman, declined to speculate about the possible length of the announced production stoppages of the Granite City Works, the Pittsburgh-based company's Keetac iron ore mining and pelletizing site in Keewatin, Minn., and its Great Lakes Works near Detroit.

The stoppages altogether would affect 3,500 workers, though it was not made public how those numbers break down at the three sites.

Resuming production at the idled plants "depends on market conditions and the strengthening of our customer orders," Boone said.

Russ Saltsgaver, the president of the plant's United Steelworkers Local 1899 representing workers at the plant, did not return telephone messages left Monday at his office.

Other U.S. steelmakers have made similar cutbacks, each blaming softening demand.

Last week, West Chester, Ohio-based AK Steel Holding Corp., with roughly 6,500 employees, announced it indefinitely will cut pay for its 1,500 salaried workers by 5 percent starting next year and undertake other cost-cutting, including offering retirement incentives. Last month, Alton Steel Inc., just north of Granite City, laid off 41 union production workers from its work force of about 335 people.

Prices of steel have dropped sharply this year and demand is slumping as the global economy struggles. Analysts have called the steel industry bleak and regions that were once sources of strong demand for steel are pulling back on spending.

On Monday, Goldman Sachs analyst Sal Tharani upgraded U.S. Steel's stock to "Buy" from "Sell," saying recent steel industry production cuts are expected to overshadow weak demand. Tharani, in a note to investors, also wrote that steel prices were nearing a bottom and that the balance between supply and demand was becoming more favorable.

"We believe that unprecedented supply cuts from steel producers around the world will exceed an also unprecedented weak demand, setting the stage for prices to rise in not so distant future," he wrote.

Last week, RBC Capital Markets analyst H. Fraser Phillips wrote in a note to clients that weaker-than-expected demand growth from China "adds up to a tough year for metals and bulk commodities in 2009."

"Production cuts are a positive but not enough to stop the slide: The industry appears to have responded with production cuts more quickly than in previous cycles," he wrote. "However, the announced reductions will take some time to take effect."

A significant rebound in commodity prices is unlikely before the second half of 2010, Phillips said.

Dave Katz, a J.P. Morgan analyst, wrote in a separate investor note that the steel business environment has become "increasingly bleak" over the past month and-a-half and prices continue to plunge.

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On the Net:

United States Steel Corp.: http://www.ussteel.com

United Steelworkers Local 1899, http://www.local1899.org