AK Steel to cut salaries by 5 percent next year

Steel producer AK Steel Holding Corp. said Wednesday it will cut pay for salaried employees by 5 percent starting next year and implement other cost-cutting measures, including offering retirement incentives, to save on costs.

The company said the moves, presented to employees in a letter on Monday, are in response to the slumping economy, which has lessened demand for its products.

The 5 percent pay reduction will start Jan. 1 and last indefinitely. It will affect AK Steel's chief executive officer and all executives. The company has 1,500 salaried employees, who are located at the company's headquarters, a research center in Middletown, field sales offices and at seven steel operations in four states.

AK Steel said it also plans to freeze the defined benefit plan for salaried employees and replace it with a defined contribution retirement benefit. It also plans to offer temporary incentives for voluntary retirements through Feb. 6. AK Steel said there are about 350 salaried employees currently eligible for a company-provided retirement benefit.

It said that it may have to implement involuntary cut to salaried jobs if the pay reduction and voluntary retirements do not yield enough savings.

On Tuesday U.S. Steel Corp., the largest U.S.-based steelmaker, said it will temporarily idle three plants and lay off 3,500 union and nonunion workers in its latest bid to cut production amid falling demand for steel products.

Last month, the company said it was laying off 675 workers in the U.S. and Canada because of lower demand. U.S. Steel has 26,840 employees in North America.

AK Steel has about 6,500 employees.

Prices of steel have dropped sharply this year and demand is slumping as the global economy slumps. Analysts have called the steel industry bleak and regions that were once sources of strong demand for steel are pulling back on their spending.

RBC Capital Markets analyst H. Fraser Phillips wrote in a note to clients Wednesday that weaker-than-expected demand growth from China "adds up to a tough year for metals and bulk commodities in 2009."

ArcelorMittal to cut 1,000 jobs in Poland

In what seems to be a deviation from its stated policy to cut only non-production jobs and also an indication of demand contraction worldwide, the world's largest steel maker, the ArcelorMittal Group, has decided to cut 1,000 production employees from its plants in Poland, which have the lowest production costs among all group plants.

'The job cuts have become necessary as demand has fallen sharply,' ArcelorMittal Poland president Gregor Muenstermanna said.

The company has submitted a request to the Labour Office here to cut jobs in its Dobrowa Gornicza plant, Muenstermanna said.

“The demand for steel from this plant has gone down by 10 percent in October alone,” he said.

Last week, however, the company had announced that it would slash up to 9,000 jobs across the globe, approximately three percent of its total workforce, but they would be all non-production jobs.

“The focus is primarily on non-production employees, in particular those in SG&A (selling, general and administrative) functions across the globe,” a company statement announcing the job cuts had said.

The job cuts would help achieve the company's stated aim of reducing SG&A expenditure by USD 1 billion in response to the current economic situation, the statement had said.

The Polish job cuts are, however, those of production employees as the company is cutting production in the face of falling demand.

Moreover, the company is preparing itself for even tougher times to come when more jobs may have to go, Muenstermanna said.

“December is, as a rule, a very poor month; so we should be prepared for a further decrease in orders,” he added.

The job cuts are being seen as a worrying move also for another reason.

A Solidarity trade union leader Jerzy Goinski, told the Puls Biznesu financial daily here that the cuts were a worrying sign, considering that production costs in Poland were the lowest in the entire ArcelorMittal group.

That means global demand is so badly affected that ArcelorMittal is being forced to cut production jobs even in its lowest cost plants, a steel industry observer said.

ArcelorMittal Poland controls four plants in the country - Krakow, Dobrowa Gornicza, Sosnowiec and Swietochowiec. It has already shut down its two large furnaces in Krakow and Dabrowa Gornicza.

The Mittal group entered Poland in 2003 and has since then come to control some 70 percent of steel production in this country. It has invested more than four billion euros (USD 5.05 billion) in Poland and till June this year it was making handsome profits from its operations.

ArcelorMittal is the world's largest steel maker with over 326,000 employees in more than 60 countries and has an industrial presence in over 20 countries spanning four continents. The company covers all of the key steel markets, from emerging to mature ones.

Incidentally, company chairman Lakshmi Mittal has reportedly lost more than 50 billion pounds (USD 73.7 billion) in the current financial meltdown although the loss is notional as it refers to the market value of the shares and other assets he owns.

STEEL PRICE DOWNTURN EXTENDING INTO ALL DEVELOPING COUNTRIES

Turkish long product producers are now seeking a higher price for reinforcing bar and merchant bar to reflect rising production costs. Smaller re-rollers have opted to stop producing altogether and have brought forward maintenance work. On the flat products side, heavy discounting of unsold material has failed to invigorate buyer interest. Some end-users have started purchasing material on a cash-basis but volumes are low and fall short of what is required to deplete stockpiles.

The outlook for the long and flat products markets in the Russian Federation and the Ukraine remains ominous. Demand in these CIS states has been adversely affected by the deteriorating trading conditions. Order intake from the manufacturing and construction industries remain soft. Structurals' production has been reduced again owing to the downturn in construction activity, and producers are now rationalising their product mix to correspond with the new market conditions.

Construction activity continues to support the South African steel industry. The outlook for the flat products segment is less positive. Bookings have temporally risen this month owing to ArcelorMittal’s new offers which are on average 10 percent lower than those in October. Softening downstream consumption remains a concern. Orders from the automotive and household appliance sectors continue to be depressed.

The UAE has not entirely escaped unscathed by the downturn in the global economy. The real estate building activity has been checked by the credit crunch. There are genuine fears of the US style property crash in the region. Pressure is also mounting on distributors to liquidate their holdings of quayside material. Sellers have yet to disclose their response to the Dubai Port Authority's decision to raise its storage fees. Some market participants assert that this could hasten further price corrections.

Local shipments to the Indian market have shown signs of wilting in the back drop of a global recession. Poor order books have left producers with stockpiles of unsold material. The mills have announced various measures to counter the slowdown in demand. So far none of them have revised their output. Steel Authority of India Ltd (SAIL) has reduced steel prices in the range of Rs4,000 to Rs6,000 a tonne across all product categories, and is offering concessions. Other private sector steel companies lowered prices of their products in phases during October but SAIL held their values steady.

The Mexican steel market is still depressed. Domestic orders remain soft and are not expected to improve in the interim. The steel consuming industries have reduced their steel requirements and are looking at ways to cut their costs. Traditionally, these manufacturers would have benefited from a weak Mexican peso but US consumer spending is down to levels not seen since the 1990s.

U.S. Steel to close three plants, consolidate

U. S. Steel is consolidating its operations and idling three plants in the Midwest, but Gary Works remains unaffected -- for now.

Fewer orders have forced the steelmaker to get its operations in line with softened customer demand. About 3,500 steelworkers will be laid off as U.S. Steel idles Keetac, an iron ore mining and pelletizing facility in Keewatin, Minn.; Great Lakes Works near Detroit, Mich.; and Granite City Works near St. Louis, Mo.

U.S. Steel plans to temporarily concentrate production at Gary Works; Mon Valley Works near Pittsburgh, Pa.; Fairfield Works near Birmingham, Ala.; and Lake Erie Works in Nanticoke, Ontario.

U.S. Steel spokesman John Armstrong said there will be no change in the workforce at Gary Works.

"The market has affected our order book. We continue to monitor the market. What we've had to do (is) adjust production throughout to match customer demand," Armstrong said.

Armstrong said the company would need to see an uptick in orders before restoring its workforce to previous levels.

U.S. Steel laid off 100 workers in Northwest Indiana in mid-November. At least 800 contract workers were laid off in October.

ArcelorMittal plans on laying off 490 employees at the Burns Harbor mill in January.

The steel industry has gone from record-high steel prices in early 2008 to a sharp decline in orders as the economy slowed in North America and Europe. Fewer automotive purchases mean less steel is ordered.

Jim Robinson, district director of United Steelworkers, said the outlook across the industry isn't good.

"Obviously, if you look only at Gary Works, it's probably good news for them," Robinson said. "The numbers are just starting to get incredible in terms of economic activity. This is centralizing job security in the very short term; who knows for the long term.

"The problem is that there are no orders. Something needs to happen to us to get us moving again."

Robinson said a stimulus package that would update infrastructure across the country could jump-start the industry and all of the other areas linked to steelmaking -- from equipment manufacturers to construction workers.

"I think that a big stimulus package in infrastructure projects targeted at things that are already being done or can get up and running quickly would be the way to go," Robinson said.

"You need steel to build things."