U.S. Steel Corp. said it will curtail production at pipe-making plants in Alabama and Texas and may lay off almost 2,000 workers because of “softening market conditions” in the oil and gas industries.
The announcement Monday highlights the fallout from the global collapse in oil prices and rising price competition for pipes, U.S. Steel’s most profitable product.
The Downtown-based steelmaker said it will “temporarily adjust operations” at Lone Star Tubular Operations in Texas, Fairfield Tubular Operations in Fairfield, Ala., and Fairfield Works, the primary flat-roll supplier of rounds to Fairfield Tubular Operations.
Pipe production has been key to U.S. Steel’s efforts to improve its financial health after five years without an annual profit. The company has closed mills and saved almost $1 billion under its Carnegie Way initiative to cut costs and by halting an iron ore expansion project in Keewatin, Minn.
U.S. Steel officials will be pressed to give analysts some picture of the road ahead after they report the company’s fourth-quarter earnings Tuesday, said Charles Bradford, an analyst at Bradford Research Inc. in New York City.
“The big question that they have to answer … is what’s their outlook?” Bradford said.
U.S. Steel spokeswoman Sarah Cassella declined to give details about the adjustments but said company officials would discuss the move in more detail with analysts Wednesday morning.
Several weeks ago, U.S. Steel said it will shut down two oil and natural gas pipe plants and lay off 756 workers in Ohio and Texas. Last week, the company said it plans to close two aging plants that make fuel for blast furnaces and a tin mill that makes sheet for food cans at plants, affecting 545 workers.
Companies that serve the drilling industry are preparing for a slowdown in the sector as low oil and gas prices prompt producers to reduce exploration and production spending. The three biggest oilfield services companies — Schlumberger, Halliburton and Baker Hughes — this month announced thousands of layoffs as the number of active, onshore drilling rigs fell by about 16 percent since October.
A glut of oil driven by increased domestic production, flat global demand and a refusal by OPEC to reduce exports has cut crude prices by more than 50 percent in the past year. Natural gas prices dropped to two-year lows because of an oversupply from shale producers and low demand from moderate weather.
But the challenges facing U.S. Steel go beyond a slowdown in the energy industry, Bradford said. The company is facing rising competition from overseas pipe manufacturers.
“They made a lot of money over the last few years in pipe,” he said. “They made so much money that they attracted new competitors.”
A rising dollar has not made matters easier, as it has had the effect of making U.S. Steel’s products more expensive relative to those competitors, Bradford said.
Union officials at the United Steelworkers national office in Pittsburgh and at Local 1013 in Alabama could not be reached.
Kris Evans, a member of Local 4134 in Texas, said he worked at the Lone Star plant for 11 years. He was at a doctor’s appointment Monday when he received text messages from co-workers about the layoff notice, but was unsure of whether he was affected.
“I don’t know what the heck is going on,” he said.
The company notified 1,918 employees across the three locations that are expected to be affected. The plants in Alabama stand to be affected the most. At Fairfield Works, 1,214 of the location’s 1,465 workers received notices, and more than half of the 716 people at Fairfield Tubular Operations were notified, Cassella said. In Texas, 318 out of 1,123 workers could be affected.
Chris Fleisher is a staff writer for Trib Total Media.