President Donald Trump told an audience of Pennsylvania union workers last August that his 25% tariff on steel imports was reinvigorating the country’s steel industry, and leading companies such as U.S. Steel to expand.
That upbeat assessment is now in question following U.S. Steel Corp.’s announcement last week that it plans to give layoff notices to take effect later next year to 1,545 workers at its Great Lakes Works production plants, situated in Ecorse, Mich., and River Rouge, Mich., on the Detroit River. The plants serve the auto industry.
Steel industry insiders say the layoffs are one likely result of the dramatic drop in steel prices this year and a current supply glut in the market. Steel prices shot up in the aftermath of Trump’s announcement of tariffs in early 2018, only to collapse once older domestic steel plants restarted production and tariff-exempted foreign steel continued arriving on shore.
“Ultimately, the steel tariffs did not do what they were designed to do,” said Chris Olin, a steel analyst with Longbow Research in Independence, Ohio.
Another factor is the Downriver plants’ idling: competition from domestic “minimill” steel plants, which make steel by recycling scrap metal. Great Lakes Works is a vertically integrated steel facility, which makes virgin steel from iron ore and coke.
The minimill process is cheaper and less labor intensive, although the steel it produces is typically not as high a grade. A handful of new minimill plants are expected to open early next decade in Texas
Pittsburgh-based U.S. Steel said it expects to start idling Great Lakes Works’ iron and steel-making facilities around April 1, and its hot strip mill rolling facility before the end of 2020. The following areas of Great Lakes Works will continue operating: the pickle line, cold mill, sheet temper mill, continuous galvanizing line, annealing and warehouses.
U.S. Steel said it plans to shift some of the Downriver steel work to its vertically integrated plant in Gary, Indiana. The newly announced layoffs are in addition to the temporarily layoffs of nearly 200 workers announced in August because of “market conditions and recent reductions in customer demand.”
‘Thriving again’
During an Aug. 13 speech near Monaca, at a Royal Dutch Shell petrochemical plant, Mr. Trump said that his steel and aluminum tariffs were a big success. The president had the authority to enact the 25% steel and 10% aluminum tariffs on his own, without congressional approval, by citing national security.
“The steel companies are thriving again,” Mr. Trump said. “Those steel mills — U.S. Steel and all of them, all of them — they’re expanding all over the place.”
A spokeswoman declined to comment Friday about the layoffs or effect of the Trump tariffs beyond the company’s official announcements.
Higher prices, more production
Higher steel prices in the wake of Mr. Trump’s tariff announcement in March 2018 soon led to more steel production in the U.S.
“Some of the older steel mills that were basically offline restarted,” Mr. Olin said.
However, some tariff-exempt steel imports continued to make it into the country, he said, “and demand was not very strong, particularly in the Midwestern markets” for steel.
Those factors led to an oversupplied steel market and collapsing prices through 2019. The price for hot-rolled coil steel, a common benchmark, jumped from about $650 per ton in early 2018 to over $900 per ton in summer 2018, then began free-falling to as low as $500 per ton this fall, according to Longbow Research.
“It was basically an upswing, downswing in pricing,” Mr. Olin said. “It feels like now we are entering what would be almost like a recession in terms of industrial market demand. That is really forcing [steel] companies that are high-cost producers to make decisions.”
On the same day U.S. Steel announced the coming layoffs, the company said it was cutting its dividend and expects to report its second consecutive quarterly loss.
“We must make deliberate but difficult operational decisions,” U.S. Steel CEO David Burritt said in a statement.
A White House representative did not respond to a request for comment about the U.S. Steel layoffs.
In an interview with CNN, Peter Navarro, the White House’s director of the office of trade and manufacturing policy, said the planned idling of Great Lakes Works is a sign of troubles at U.S. Steel — not the fault of tariffs.
“I think the bet [on tariffs] is paying off beautifully,” he told CNN. “We are very bullish on the steel and aluminum industries because of the tariffs. If they weren’t in place, those industries would be in very bad shape right now.”
Many of the affected workers are members of the United Steelworkers. Michael Bolton, the union’s District 2 director, said they are still determining how many workers will be left at the Downriver plants after the layoffs.
“Everyone is surprised when you get a notice like this,” he said.
A DTE Energy subsidiary has two facilities of its own that could be affected by the coming idling of Great Lakes Works: a Zug Island coke plant and a coke battery. Coke is used in blast furnaces for steel production.
A DTE representative said the firm is working with U.S. Steel to understand what the idling will mean for its two plants.
First Published: December 24, 2019, 1:00 p.m.
