United States Steel Corporation is planning a series of "aggressive" actions in response to impacts from the coronavirus (COVID-19) and the sudden, significant changes in global oil and gas markets.
The actions are said to "strengthen the company’s ability to serve customers, partner with suppliers, create long-term value for investors and ensure a more secure future for employees and the communities where we work and live." Prioritizing cash and liquidity, the company will maintain strategic flexibility in order to be well prepared for when the global economy ultimately recovers from the current situation.
“In this unprecedented and rapidly changing situation, our first priority remains the safety and well-being of our employees. As an essential part of our critical infrastructure, our employees have embraced the special responsibility to continue making the steel society needs, including the packaging for our food supply during the COVID-19 pandemic response. To ensure a more secure future for all our stakeholders, the time has come for us to take aggressive actions to reposition the company,” says President and Chief Executive Officer David B. Burritt. “U. S. Steel has been a cornerstone of manufacturing for over a century and our products are vital to national and economic security. I am confident in the resilience of our employees, the strength of our customer relationships, and the reliability of our regional supply chain. The actions we are announcing today make us stronger and enable us to weather the current situation to emerge as a leader in sustainable steel solutions for generations to come.”
According to US Steel, the following actions will provide greater certainty that short-term actions will provide longer-term success:
- North American Flat-rolled Footprint Actions: The company will idle the #4 blast furnace at Gary Works immediately to begin a planned outage. This outage was originally planned to begin in April and last for 48-days. The scope of the current outage has been reduced and the remainder of the Gary #4 blast furnace outage is being delayed. The company expects the Gary #4 blast furnace to remain idled until market conditions improve. In addition, the company will temporarily idle blast furnace “A” at Granite City Works, effective immediately. As previously communicated, the company will also complete the indefinite idling of the iron and steelmaking facilities at Great Lakes Works. The company will continue to monitor the impacts of the coronavirus on its orderbook and will regularly assess the footprint required to support its customers’ needs.
- Tubular Footprint Actions: Beginning in late-May, the company plans to idle all or most of Lone Star Tubular Operations and Lorain Tubular Operations for an indefinite period of time in response to weak tubular market conditions, including continued high levels of imports and decreased demand driven by a sudden, significant drop in oil prices. The company has issued Worker Adjustment and Retraining Notification (WARN) Act notices to employees at both facilities.
- Revised Capital Spending for 2020: The company is aligning its strategic projects with today’s market realities by reducing capital spending in 2020 by $125 million. The company now expects 2020 capital spending to be approximately $750 million.
Impacts to strategic projects include:
Endless Casting and Rolling and Cogeneration Investments at Mon Valley: The company plans to delay construction of the endless casting and rolling line and cogeneration facility at its Mon Valley Works. On March 23, the Allegheny County Health Department (ACHD) announced, after consultation with the company, that a temporary pause in the permitting process is appropriate given the challenges posed to the public comment process while COVID-19 public health orders are in effect in Allegheny County. The company agrees with a pause during this time of social distancing precautions implemented by the county. In addition to the regulatory delay, in order to preserve cash and liquidity, the company currently expects groundbreaking for this project to be delayed for an indeterminate period of time until market conditions become more certain. The company now expects 2020 capital spending for the project to be approximately $85 million. The company will continue to assess the project timeline and remaining budget.
Electric Arc Furnace (EAF) at Tubular: The company currently expects to complete the EAF at Tubular as planned, with first arc anticipated in the second half of 2020. The expected 2020 capital spending budget for the EAF project is unchanged at $150 million. The investment in the EAF has been prefunded with environmental revenue bonds issued in the fourth quarter of 2019.
Gary Hot Strip Mill (HSM) Investments: The company currently has paused planned upgrades and will continue to evaluate the pace and timeline for completing the remaining investments in the HSM.
Dynamo Line at USSE: The investment in a new non-grain oriented electrical steel line at USSE remains delayed.
Revolving Credit Facility: As a precautionary measure, the company increased its borrowings under its Revolving Credit Facility by $800 million in order to increase its cash position and preserve financial flexibility. This action safeguards the business, as well as the company’s customers, suppliers, workforce and investors and ensures that the company will maintain the cash and balance sheet strength required to navigate the current environment. The draw-down proceeds from the Revolving Credit Facility are being held as cash on the company’s balance sheet and may be used for general corporate purposes.
US Steel does not expect the actions announced to meaningfully impact the first quarter adjusted EBITDA, adjusted net loss or adjusted diluted net loss per share included in our guidance that was provided last week. However, given the rapid pace of change in market dynamics in the current environment, the company is regularly monitoring and updating impacts to first quarter shipments.
The company expects a meaningful reduction in demand for the full fiscal year, though an updated full-year estimate of third-party shipments for each of its operating segments cannot be determined at this time. The company is continuing to monitor the financial and operational impacts of the coronavirus on the business and plans to provide more information in its first quarter disclosures and on its first quarter earnings call.
Burritt concluded, “Our world-competitive, ‘best of both’ integrated and mini mill strategy is our future. The short-term actions announced today are difficult but necessary. Our focus on cash and liquidity will ultimately position us to achieve our longer-term goals as a stronger organization.”
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