BY ANDREA HOLECEK, Times of Northwest Indiana
holecek@nwitimes.com
Deteriorating steel production levels and recent announcements of plant closings by ArcelorMittal and U.S. Steel Corp. are tangible symbols of the industry's distress, according to industry insiders.
Last week, U.S. raw steel production fell to the lowest level in at least 24 years last week, dropping to 1.182 million tons compared to 2.101 million tons a year ago. U.S. steel mills operated on an average of 49.5 percent of capacity.
On Dec. 1, U.S. Steel announced it was temporarily idling its Keetac iron ore mining and pelletizing facility in Keewatin, Minn., and two steel plants, Great Lakes Works near Detroit and Granite City Works near St. Louis. The action also lays off the three facilities' 3,500 workers.
On Tuesday, ArcelorMittal cited "the extraordinary economic decisions we face today," as it announced the permanent shuttering of its Hennepin, Ill., and Lackawanna, N.Y., steel facilities. The closing will eliminate the jobs of about 285 steelworkers at the Illinois steel finishing plant and 260 at the New York galvanizing plant.
"I don't think anyone has ever seen this level of deterioration this fast or steel demand this low since the early 1980s," said Jim Robinson, United Steelworkers District 7 director. "It's obviously an indication we're in a very serious economic crisis. I don't know, and don't know if anyone knows, how deep or how long this recession will go on."
Christopher Plummer, managing director with West Chester, Pa.-based Metal Strategies, said there have been only three times since 1900 that domestic mills have had lower than current operating rates: the recession of 1906, the Great Depression and the recession of 1982-83.
During the early 1980s, 60,000 tons of capacity were taken out of the steel market and tens of thousands of steelworkers lost their jobs.
"But we're not equating it (current production levels) with those other times," Plummer said. "In 1982-83 there was stagflation, the oil embargo and a very, very strong U.S dollar that made the U.S. very uncompetitive."
The recent capacity cuts are an indication of how high the domestic and global steel markets have been during the past five years, Plummer said.
"Now all the bubbles are bursting," he said. "The U.S. and Chinese economies, the mortgage and housing crisis and credit crunch all are hitting at a time when the (steel) market was the strongest in modern history. There was a lot of distance to fall and when all the negative things converged, we have the result we are seeing."
There are lot of very positive things that will occur there once the severe correction bottoms out, Plummer said.
"It will be a slow recovery starting in the late first or early second quarter 2009," he said. "Consumer markets will be first as consumers buy houses, cars and appliances. The best things would be is a large economic infrastructure stimulus package that has a component for state and municipal governments."
Steel analyst Charles Bradford has said that industry conditions are close to a bottom as customer inventory liquidation "is maybe only a couple of months from ending."
"Real improvement in steel demand is further away, and 2009 is likely to be a weak year for steel shipments, down more than 10 percent with decreased exports a problem," he said. "Nonresidential construction, the biggest market for steel, may not recover until 2011."