United States Steel Corp. announced it would temporarily idle its steelmaking operations at Granite City, Ill., and lay off more than 2,000 local workers as part of a plan to consolidate its North American flat-rolled operations.
The move comes as tumbling oil prices continued to hit the country’s second-largest steelmaker hard.
“Granite City is the primary flat-rolled material supplier to our Lone Star Tubular operations, which is impacted by challenges in the energy market, specifically fluctuating oil prices and a high level of imports,” U.S. Steel spokesperson Courtney Boone told the St. Louis Post-Dispatch.
Granite City is across the Mississippi River from St. Louis.
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Lone Star Tubular is the U.S. Steel’s tube and pipe making operation in Texas, with its products going to the oil and gas industry.
The company said it has issued layoff notices to 2,080 workers at local steel mill Granite City Works.
Boone said the layoffs are effective May 28. The duration of the layoffs is unknown.
“It’s based upon market conditions,” she said.
The company will continue to make steel in mills in Alabama, Indiana, Michigan and Pennsylvania.
The steelmaker has been hit by a surge in Chinese imports and tumbling demand for tubular steel as falling oil prices reduces oil and gas drilling operations. The price of Brent crude, the international benchmark, has dropped 50 percent in the past nine months.
U.S. Steel announced in early January that it would idle two pipe plants and lay off more than 750 employees due to reduced investments by energy companies.
Granite City already has been feeling the effects of tumbling oil prices.
In late January, U.S. Steel announced it was temporarily shutting one of two blast furnaces at its Granite City Works as it replaces a caster at the facility, a project expected to be done in June. Earlier that same month, the company said it would permanently close its coke-making operation in Granite City, cutting 176 jobs.
The Granite City mill was idled for six months beginning in December 2008 – the only other time it was completely idled in more than a century in operation, said Doug May, 60, a trustee of U.S. Steelworkers union Local 1899. May has worked at the Granite City steel mill for 42 years and currently is a crane operator.
“These are great, family supporting jobs,” May said. “With it being one of the biggest employers in the Metro East, I think it will have a big impact throughout the St. Louis region.”
Granite City Mayor Ed Hagnauer learned of the closing in an early-morning call from plant management, who told him the closing would be temporary.
“Temporary is pretty vague. We don’t know what that means,” said Hagnauer.
The company representative held out hope that “any time within 60 days things could change,” Hagnauer said. “It depends on their orders.”
The United Steelworkers union also noted that layoffs might be canceled.
“Hopefully the market can recover during the period of coverage of the WARN notice and these steps are then not necessary but the notice is designed to give ample notice to the workforce of an impending layoff,” said USW International Vice President Tom Conway.
Morningstar equity analyst Andrew Lane said steel imports to the U.S. rose 38 percent in 2014 versus 2013 levels. He doesn’t expect imports to moderate until the second half of 2015, making a reversal of the Granite City idling unlikely before they’re effective in late May.
“The combination of low oil prices and rising import volumes constitute significant headwinds that lead to adverse market conditions,” Lane said. “The first half of 2015 is likely to signify the low point for the U.S. steelmaking space.”
Domestic capacity utilization is currently around 70 percent, the lowest level in several years, Lane said. “We expect a more gradual recovery for steel prices and oil prices from current levels,” Lane said.
The closing will have a “domino effect” reaching beyond the laid-off workers, Mayor Hagnauer said.
“There are several other businesses tied to the steel industry,” he said. Those include truck drivers and people who help maintain the plant.
During the 2008 shutdown, the city found that 39 percent of the plant’s workers lived in the Granite City area.
“We have food banks that we need to pay attention to. The last time, there was a 10-fold increase in people in line,” the mayor said.
The retail businesses that suffered most were those who served people commuting to and from Granite City, such as the QuikTrip and Wal-Mart. Laid off workers who live in town became “very parochial” in their shopping, which cushioned the impact on other local retailers, he said.
Conway, the union’s chief contract negotiator, blamed the shutdown on “a continuing effect of a surge of unfairly traded, record-level imports.”
“These imports are landing at a time when the energy pipe and tubular business in oil and gas exploration has been cut in half and crude oil prices remain depressed,” he said in an emailed statement. “Despite a tariff placed on these imports from Korea, this material continues to ship into the United States.”