U.S. Steel Portends More Blue-Collar Pain With 2,700 Layoffs

(Bloomberg) -- One of the biggest U.S. steelmakers is signaling how the coronavirus pandemic is set to inflict pain on blue-collar America.

U.S. Steel Corp. expects to lay off about 2,700 employees as the virus forces the company to idle most of its blast furnaces. Even before lockdowns hit the economy, producers were facing slowing demand in the manufacturing sector.

Now, U.S. Steel's moves further illustrate how the virus is turning President Donald Trump's much-touted “blue-collar boom” into a bust as he heads into November's election. Economists see an historic economic contraction in the offing and millions of jobs at risk in coming months.

Pittsburgh-based U.S. Steel said in a filing Thursday that it sent out notices of plans for layoffs to 6,500 employees, but that it expects the actual number affected to be about 2,700. As of Dec. 31, the company had 27,500 people on the rolls. Meghan Cox, a company spokeswoman, said separately that the producer will lay off an additional 1,000 in Europe, accelerating the time line of previously announced reductions due to the coronavirus crisis.

“It's all about minimizing or preserving cash in a difficult environment,” said Phil Gibbs, an analyst at KeyBanc Capital Markets. “They're a heavy fixed-cost business, and volume right now is reasonably limited and they have to take actions.”

Shares of U.S. Steel lost about 33% this year through Thursday, when they closed at $7.68.

Unemployment Surges

As companies across the U.S. shut or curb operations due to government efforts to contain the spread of the virus, the total number of Americans that have filed for unemployment benefits has soared to above 30 million.

While the pace of unemployment-benefits filings have decelerated in recent weeks, job losses remain far from over and employment is expected to take years to eventually recover. Plus, more layoffs could be in store as states and municipalities face severe budget crunches.

U.S. Steel has now idled seven out of its 10 blast furnaces in the U.S. The facilities affected are three at the Gary Works site in Indiana, one at Granite City in Illinois, two at Great Lakes in Michigan and another at Mon Valley Works in Pennsylvania.

It's also indefinitely idling its Lone Star Tubular Operations as well as its Hughes Springs coupling production facility in Texas.

Spending Cuts

U.S. Steel has also cut spending and increased its borrowings under a revolving credit facility. The company reported an adjusted loss of 73 cents in the first quarter, better than the 85-cent loss that analysts on average estimated.

In January, the steelmaker said it “expects the first quarter of 2020 to be the trough for the year due to the normal seasonality of our mining operations and lower first quarter shipments in flat-rolled” products. That was before the pandemic upended the economy. On Friday's quarterly earnings call with analysts, Chief Executive Officer David Burritt said the market is “in search of bottom” in the second quarter.

“If this was a normal business climate, I'd say this is a death sentence, but it's not a normal business climate,” said Dan DeMare, a regional sales manager for Heidtman Steel, a service center customer of U.S. Steel. The capacity shutdown signals that the company is “willing to give up market share to preserve their business,” he said.