Analysis of U.S. Steel move and its history

The latest news from U.S. Steel is part of another lull in the economic cycle according to experts. And it’s affecting companies in the industry right across the globe. For the past two years, several steel companies have either restructured, or shut down. Larger companies are buying out smaller operations, or reorganizing to become more efficient in a very expensive industry.

The story of U.S. Steel’s Canadian operations isn’t standalone in an industry that’s been struggling to recover since the recession.

University of Toronto expert on the steel industry, Peter Warrian: “A big steel company is very capital intensive, lots of costs. so if you’re not operating at 81, 83 per cent of capacity, you can lose a lot of money in a hurry.”

According to Canada’s leading steel expert, quick bounce back in the automotive sector isn’t making up for lack of demand in other industries.

Peter Warrian: “The other 60 per cent is still lagging way back. That’s the problem.”

Still, some local operations have remained lucrative because of where they stack up on the corporate totem pole.

Their Hamilton plant is one of Arcelor Mittal Dofasco’s biggest and most productive, making it a valuable asset the company doesn’t want to part with.

U.S. Steel’s star plants are south of the border, and in comparison, their Hamilton plant is bringing down productivity.

But Peter Warrian says the company’s local assets still hold value. If they go up for sale, some experts are even speculating Arcelor Mittal could make a purchase.

“Those remaining facilities, some of them are pretty good. So I think there could be a buyer or buyers who appear in this process.”

The fate of U.S. Steel Canada likely won’t be decided for quite some time. But if they sell or shut down Canadian operations, it should happen within a year — because that’s when their obligation to the government expires.

Peter Warrian: “When they get this government money and loans and loan guarantees and the pension, all that sort of stuff, it went into effect in 2008.”

At the end of 2015, U.S. Steel is basically off the hook.

Warrian says that while we can’t ignore the seriousness of U.S. Steel’s latest move, the steel industry isn’t going away any time soon. He says concern for the environment is creating demand for specialized steel and that in five years we’ll be producing at least as much and it will be more valuable.

Finally, the steel industry — specifically the U.S. Steel Hamilton Works site — has been a part of Hamilton since the late 1800’s. The city’s harbour and rail system made it the prime choice to build a blast oven.

The Steel Company of Canada was founded in 1910. A booming economy after World War Two brought decades of profits, but also strikes and walkouts. Then advances in technology combined with widespread recession in the early 1980’s brought hard times to Stelco.

In 2004, the company entered bankruptcy protection. It was bought three years later by U.S. Steel. In 2010, operations in Hamilton were idled, and then halted three years later. That brings us to the latest news we’ve been reporting — U.S. Steel Canada has filed for protection from creditors.