Steelmakers seek big wage, benefit concessions from union
Faced with soft demand and weak prices for steel, the largest steelmakers are seeking to reduce labor and other operating costs at contract negotiations in Pittsburgh this week, experts say.
ArcelorMittal, the world’s largest steelmaker, is asking for wage and benefit cuts totaling 36 percent, according to The Wall Street Journal. That equates to a $28 hourly cut from its average worker’s $77.40 in pay and benefits.
U.S. Steel Corp., also in a profit squeeze, is likely auguring for concessions from the same union, the United Steelworkers, analysts said on Wednesday.
The four-year contract for U.S. Steel employees, as well as for ArcelorMittal USA workers, expires on Sept. 1.
If a labor agreement with wage concessions were reached between U.S. Steel and the United Steelworkers, it would be the first with givebacks since 1986, a period that included a six-month strike.
“There’s not much the integrated steel companies can do to lower their costs unless they lower their wage costs,” said industry analyst Charles Bradford of Bradford Research Inc. in New York.
The price of hot rolled steel coil, an industry benchmark, is down $120 a ton compared with its peak in mid-January of $740 a ton, a drop of more than 16 percent.
“That puts the integrated steel companies at a substantial cost disadvantage,” Bradford said. “And that’s largely what’s behind ArcelorMittal demanding pretty substantial wage concessions.”
United Steelworkers spokesman Tony Montana said contract talks continue to take place Downtown, but he declined to elaborate. Union negotiators could not be reached.
The ArcelorMittal negotiations “continue to be frustrating,” the USW said in a statement to members on Monday.
“Management continues to demand both steep cuts to our compensation and benefits as well as radical, unnecessary changes to our contract language,” the union said.
ArcelorMittal on Wednesday reported a 37 percent drop in second-quarter earnings, which fell to $959 million from nearly $1.54 billion a year earlier.
U.S. Steel’s results are due July 31. The company lost $219 million in the first quarter after losing $211 million in the fourth quarter. In addition, with U.S. Steel shares selling at about $18, the stock is 90 percent off its peak of $180 about five years ago.
Neither company would comment directly about the labor talks or their stance in negotiations.
U.S. Steel has three major steelmaking operations in the Pittsburgh area, employing about 2,600 workers: the Edgar Thomson steelmaking plant in Braddock, the Irvin finishing plant in West Mifflin and the coke-making plant in Clairton.
ArcelorMittal USA is a unit of ArcelorMittal s.a., Luxembourg and operates a tin mill in Weirton, W.Va., that employs about 870 workers.
“To ensure that good-paying, sustainable steel jobs are here in the future, we must re-evaluate our compensation and benefits packages in a manner that is attractive, yet in line with competitor and industry benchmarks,” said an ArcelorMittal statement about negotiations on its website.
U.S. steel producers shipped about 92 million tons of steel in 2011, including 15.3 million tons produced by ArcelorMittal, according to its website. Industry output was ahead of the previous two years but still 20 percent below “pre-crisis” levels before 2008, said the company.
Analysts say integrated steel companies such as U.S. Steel and ArcelorMittal are plagued by slow economic growth around most of the world and the onset of recession in Europe, competition from mini-mills with lower cost structures, and a profit margin squeeze from high raw materials costs but far lower product prices.
“The demand side has not shown any noticeable improvement recently,” said Arun Viswanathan, senior analyst at Longbow Research in Cleveland.
North America still has overcapacity, he said, and imports will rise when and if demand recovers, which would erode prices.
“Industry competition is great, and the economy is lousy,” said James Craft, professor of business administration at the University of Pittsburgh’s Joseph Katz Graduate School of Business.
“So both companies want and need to reduce costs to be competitive, and labor costs are a focus,” said Craft. The contract talks will “probably go down to the wire.”
“I don’t think either side (union or corporate) has any interest whatsoever in having a strike or a lockout,” said analyst Bradford. “But it’s going to be a big game of ‘chicken.’”
Thomas Olson is a staff writer for Trib Total Media. He can be reached a 412-320-7854 or at [email protected].