Global slowdown over year hit U.S. Steel hard

What a difference a year has made for U.S. Steel Corp.

Twelve months ago, the Downtown-based steel producer's stock was near a 52-week high, the company was making solid progress in cutting expenses, and it was only a couple months away from turning a profit of $102 million for 2014 — its first profitable year since 2008.

Business finally was looking up as CEO Mario Longhi joined government officials, developers and Pittsburgh Penguins leaders on Nov. 24 to announce the company would move its headquarters from U.S. Steel Tower to an office building the hockey team was planning at the site of the former Civic arena.

But any optimism about the industry quickly faded early in 2015 as a combination of an economic slowdown in China and falling oil prices started hammering U.S. Steel and other metals companies. And the pressure isn't letting up.

U.S. Steel's stock price has fallen 68 percent in the past year, sales dropped 33 percent in the first nine months of 2015, and the company has lost $509 million, as of Oct. 30.

The steelmaker has responded by closing and idling mills across the country and laying off thousands of workers, including 1,100 employees in Alabama, where the company is shuttering a blast furnace, and 2,000 workers in Illinois, where it is considering idling a mill.

“Certainly, it's been a very rough year for U.S. Steel,” said Andrew Lane, an analyst with Morningstar Inc. in Chicago.

Slowing growth in China — a major consumer of commodities such as steel and oil — has rippled through the global economy. With less demand in their own country, Chinese steel producers are flooding the market with cheap product, which is pushing prices down, Lane said.

Overall imports of steel products were up 3 percent in the first half of the year, compared with the same period last year, according to census data. The increase included a 90 percent spike in imports of line pipes and a 48 percent jump in hot-rolled and cold-rolled strip steel.

Lower oil prices caused energy companies to cut back drilling activity and purchases of pipes, which had been a major profit center for U.S. Steel, he said. And a strong dollar makes exports from America less competitive.

While the company's cost-cutting has done a good job of reducing the financial hit, Lane said, “no amount of cost-cutting is able to offset the impact of those headwinds. ... Unfortunately, it's like swimming upstream against a strong current.”

Yet despite the negative outlook, Lane said, the company is not on the verge of collapse and is well-positioned to weather the industry's softness, which is expected to last for several years.

“The company is on stable footing in terms of their cash position, which is larger than it has been in some time,” he said.

U.S. Steel reported it was holding $1.2 billion in cash, as of Sept. 30.

The decision by U.S. Steel not to move forward with a new headquarters when it's facing significant global challenges, Lane said, “is probably less a sign of the worse-case scenario and more of a sign that management is doing a good job of managing cash flows.”

Alex Nixon is a Trib Total Media staff writer. Reach him at 412-320-7928 or anixon@tribweb.com.