Canadian Steel Hurting in Preference to US Plants?

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We have recently written about weighing the merits of anti dumping cases and received some comments from readers regarding the treatment of steel mills by their multi-national owners north and south of the US-Canadian border which we felt deserved further review.

No one doubts the need for producers to respond to the changes in the market place in which they operate. However there is widespread suspicion that the concentration of steel production in the hands of comparatively few major players during this decade has been with the express intention of manipulating supply and demand through good times and bad to maximize the owners returns. Just 12 short months ago, mills were eagerly exporting product overseas while putting their domestic clients on allocation and raising prices on a monthly basis. Then, as the market crashed in the fall of 2008, mills rapidly moved to idle capacity in an effort to bring supply into some semblance of balance to demand. A process that is ongoing with capacity utilization in the industry between 40 and 55% depending on whose stats you look at. In accommodating that range of course some plants have been closed completely while others have to run close to capacity. You can’t for example, run a blast furnace at half speed – its all or nothing. So is there a pattern as some suggest as to which mills are still operating and which have been first to close?

Rolf Gerstenberger, president of the Canadian United Steelworkers Local 1005, accuses US Steel owners of the former Stelco steel works at Hamilton Steel and Lake Erie Works in Nanticoke of unfairly closing Canadian operations and moving work to three US operations at Gary, IN. Pittsburgh, PA and Fairfield, AL. Arcelor Mittal have closed their Canadian Contrecoeur location with the loss of hundreds of jobs yet kept US operations going. Evraz Steel’s Regina works has been temporarily closed only to be followed by a maintenance close-down this month with doubt if it will reopen in June.

In the time available to put this together it was not possible to establish the numbers working in the steel industry north and south of the border or more importantly  get a firm handle on the lay-offs relative to the total number employed but some points did become clear. A rough estimate suggests somewhere between 3500 and 4000 Canadian workers may have been put on furlough since the fall. As this chart shows, production has collapsed in both markets to a similar extent, in fact from July to Dec production fell 51.25% in Canada and 54% in the USA.

Source: World Steel Association

Faced with such drastic drops in demand, the manufacturer’s official position has been to concentrate production at the most efficient operations but how that is applied is open to question. Quoted in Yahoo Finance steel industry expert Peter Warrian said US Steel’s Canadian Lake Erie plant is the company’s most modern and productive, and is generally accepted as one of the most efficient plants in North America, yet production has been idled in preference to plants in the south.

Looking at the total reduction in production north and south it would appear producers have been even handed and certainly there is no suggestion that furlough agreements and so on have not been honored. Workers, politicians and the communities they serve are hoping the downturn is a temporary one. Judging by the actions of the producers though, putting plants into long term  care  and maintenance,  it looks like it will be anything but.

We would welcome comments from readers.

–Stuart Burns

Comments (22)

  1. Anonymous says:

    ” US Steel’s Canadian Lake Erie plant is the company’s most modern and productive, and is generally accepted as one of the most efficient plants in North America, yet production has been idled in preference to plants in the south.”

    There is something really fishy if they are idling this plant then. Where are the morals and ethics of those who run US Steel ? Taking another nations business and shipping it south? This is an economic hihjacking of the southern Ontario economy. Can you imagine China buying US Gary Works and Clairton Works and then idling them so the Chinese factories can make the steel instead and then export it? And US Steel is complaining about steel dumping as well ?

  2. al says:

    The one in Lake Erie is about the most productive basic steel mill in all of North America and to see it shut down like this is troubling. If you shut down your super-competitive, most productive mill, what does that say about the rest of them?
    -Steel industry expert Peter Warrian

    It says you prop up the old mill that was there from the beginning no matter how much it costs you ! Shame on US Steel! t sounds like they manage the same way that Chrysler and GM does.

  3. anon says:

    If the former stelco plants are so “super-competitive” why was stelco going through a bankruptcy when US Steel bought them? If those plants couldn’t be competitive enough to be profitable then they were most likely idled for a good reason

  4. hurt says:

    anon! anon! Stelco’s holding were made up of several works and diverse plants located in BC, Alberta,Quebec and Ontario. Most were sold off while bankrupcy proceedings took place but the one plant that stayed profitable and upheld the chain during those years was Lake Erie Works.

  5. Henry says:

    There is really a shift to what plant is working. here seems to be a real scheme out there to shifht the work else were or to shut down mills completly. If you shut down mills canada and usa then you can really control the steel market. Severstal is one example he buys the plant a russian and then wants to change every thing. he then can start making more steel from his russian palnt. I guess we are just stupid for selling our plants the canadians and americans are sold out.

  6. Henry says:

    I guess we can all work at mcdonalds.

  7. ed says:

    Shutting the lake erie plant in canada was a strategic tactic made by us steel. as i understand their contract expires at the end of july this year. the management holds all the cards and are in a position to give a “take it or leave it” contract proposal. the union will have to decide if they want the plant to re open or not , stickly under u.s steels conditions. should be interesting. presently the coke making operations at the lake erie plant are continueing , this will keep the u.s. operations meeting their pollution targets within the obama stimulis stantards to maximize their stimulis winfall monies

  8. stuart says:

    I must say we are gathering some fascinating insight here, thank you all for your contributions. Naturally there are diferent shades of opinion but this last comment, from Ed, suggests there is as much politics as economics involved. Keep them coming.

  9. Clayton says:

    Lake Erie Nanticoke is the most modern and prductive mill in North America,, it can produce the cheapest, highest quality steel, if I were running U.S.Steel and was starting to lose money I’d be thinking where can I get the most for my dollar ?? THE LAKE,, I’d be opening it up and running it to the max,, haveing the others fill in what the lake couldn’t make,, but yes the contract is up in July and that I believe is the biggest reason US Steel has it idle ,, makes no sense in shutting down the money maker, all these years the lake have proven thier track record, I agree with others in here SHAME ON US STEEL, and Shame on the government for not makeing US Steel honour thier commitments to the government,the Unions, and the community around here.

  10. Al says:

    You can bet that the contract expiration at Lake Erie hassomething to do with it. Just think how much more they can make after it restarts by cutting benefits, salaries and wages. They should be ashamed however for taking southern Ontario’s business and shipping it south. Hopefully things WILL pick up in the near future so we don’t all have to be in this situaton of complaining about US Steel operating and can just get back to work.decisions

  11. Anonymous says:

    US Steel is taking huge risk here of losing it’s Canadian orders to Arcelor-Dofasco. This company, which has also been seeing less steel produced could easily handle the Canadian orders that have headed south. There are companies here that prefer Canadian made steel and from what I have heard are not at all impressed by the quality of steel from the US mills. On the other hand, the quality of the steel from Lake Erie is second to none !

  12. Anonymous says:

    May 02, 2009

    President of US Steel Workers Union Local 8782, Bill Ferguson, announced today that the coke ovens at Nanticoke will be shut down as of June. It was the only remaining operation in the plant after the company announced in March that it would be temporarily idling most of its Lake Erie and Hamilton operations.

  13. wally says:

    if u.s. steel is in fact shutting down the coke ovens as stated in the previous post this is very bad news for lake erie employees. they have no intention of opening lew in the forseeable future. the best senario would be gov’t / union buyout which i can’t see happening because with lake eries superior quailty product they would be in competition with u.s. steels american based facilities and i don’t think mr surma wants that. it is time the local union explore all avenues to ensure this plant opens and not just supply their members with useless rhetoric. having said that i’m not sure and have no suggestion on exactly what they can do. they are impotent in their position but are getting well paid while their membership suffer.

  14. randis says:

    anon, former stelco management embezzeled the company into bankrupcy. how could you NOT make money with lew? take it up with alfano who took-off with the safe in the last life-boat after running the ship aground.

  15. Steve says:

    If US Steel waits too long to start this plant up, there are going to be many employees who choose to leave the industry altogether rather than return to a company that might just do this every few years. Personally, I am training for something else during this extened layoff and if it results in a job that pays somewhat decently thereis NO way I would return unless there was a change in ownership. Even having 20 years of seniority couldn’t change my mind . They will also have to deal with a mass retirement shortly after a restart which will cause many more problems. Shutting down this plant was a BIG mistake and if it’s not restarted I hope that Dofasco and Algoma pick up all the Canadian orders. US Steel is stealing southern Ontario’s steel production. Canadians are being stabbed in the back by this monstrosity of a Corporation with no regards for another nations workforce and product. Sell the plant to Severstahl……I think we’d trust the Russians quite a bit more these days.

  16. S says:

    We have to remember that steel production levels are at 40% in North America right now. They will recover just as the stock market will recover(and is recovering). Production will return to these plants and everyone will be working again. It’s simply natural to be so negative given the economy right now. US Steel seems to make major decisions at the end of each quarter( within a month of it anyways). In early December they announced the idling of US Plants and then in March ,almost 3 months to the day they announced the idling of Hamilton/Lake Erie. The next dates to watch for announcements would be first week of June, first week of September and the first week of December. I am going to predict that Lake Erie Works/Hamilton finishing mills will be up and running by the 4th quarter and at worst the start of 2010. I also believe that this “bust” in auto sales will actually result in a “boom” in auto sales in the next 2-3 years. So many are holding onto their vehicle these days that it is inevitable. Chrysler/Fiat, GM,Ford and all the auto companies will record record sales. Just don’t forget…….you heard it here first!

  17. al says:

    I agree with USWA 1005………..Nationalize the company and let the workers run it. We know that this company is a money maker and has shed all of it’s money losing ventures across the country. Let us run it and we’ll have US Steel shaking in their boots because we’ll be far more competitive than they will ever be!

  18. Hanna Ashraf says:

    Before my emegration to Canada I was a steel plant Manager in Saudia Arabia. we face the same problem but we never shut down the plant for long period. shut down steel plant for long period lead to lose expert people and even lose enthusiasm for young. also it will be losess in materials and refractories, even you lose ost of your suppliers chain, and contractors. you also lose company name in the market to restart the plants again from long stop you need a huge effort and money. so the right disction was taken to slow down the production or to have smal periods shut downs.
    the best way also that the company will has to be open for new Idias to reduce production and consuption costs and how to keep the plant run without lose money

  19. bill says:

    the new obama initative to reduce carbon emmissions should be a winfall for all overseas and canadian steel facilities own by u.s. steel. if only lake erie could get a mutually acceptable contract settled i feel they could be back to work within months.

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