Layoffs loom at U.S. Steel's Zug Island mill despite tariffs
Detroit — President Donald Trump's tariffs on imported steel didn't stand much of a chance in saving roughly 1,500 steel mill jobs in Michigan, largely because steel companies with aging blast-furnace mills need more than trade protection to survive a changing global economy.
Exhibit 1 might be U.S. Steel Corp.'s sprawling Great Lakes Works mill downriver from Detroit on Zug Island. Employees there were notified Thursday the Pittsburgh-based steelmaker — the first U.S. company to reach $1 billion market valuation more than 110 years ago — would idle most of the site spanning Ecorse and River Rouge as the steelmaker moves to "better align the company" with changing times.
U.S. Steel's move would lay off up to 1,545 workers in April when it closes iron- and steel-making facilities at the Great Lakes Works facility. Later next year, the company plans to idle the strip-mill rolling facility there.
It's the latest in a string of recent moves from the legacy steel company and CEO David Burritt, as U.S. Steel moves to invest in new technology, including electric "mini-mills." These smaller operations remelt and refine scrap steel, instead of making steel from iron ore in coal-fired blast furnaces. Mini-mills are cleaner and more flexible than the traditional steel-works that helped build America.
U.S. Commerce Secretary Wilbur Ross said Friday the closure of Great Lakes Works doesn't mean steel import tariffs don't work. The plant is closing, he said, because it is too expensive to run. “What is happening is they are rationalizing a bit their production so that they will be more competitive in the future as we continue to go forward," he told Bloomberg Television on Friday.
Alan Deardorff, professor of public policy and economics at the University of Michigan, noted that "by and large, the U.S. steel industry has been in trouble for years. They have sought protection for as long as I can remember by various means. They have in a sense been one of the most protected industries in the country, because they just don't do very well."
The planned reworking of U.S. Steel's mills in some ways mirror changes in the global auto industry that have Ford Motor Co., General Motors Co. and Fiat Chrysler Automobiles NV adjusting global footprints — and in some cases building new facilities — to replace outdated business practices and manufacturing processes.
Ford plans to invest $1.5 billion around its Michigan Assembly Plant to build the new Bronco as well as autonomous and electric vehicles as it cuts costs around the globe; GM is closing multiple U.S. plants as it invests in battery facilities; Fiat Chrysler is building a new Jeep plant in Detroit as it pursues a merger with French automaker Groupe PSA.
The adjustment for U.S. Steel is overdue, according to Deardorff. Trump's 25% tariffs on imported steel did help North Carolina-based Nucor, a mini-mill company; CEO John Ferriola said over the summer that his company had to up production after import duties went into place.
"These decisions are never easy, nor are they taken lightly," Burritt said in a statement. "However, we must responsibly manage our resources while also strengthening our company’s long-term future — a future many stakeholders depend on."
Bracing for the impact
Without sooty smokestacks, electric-arc mini-mills can co-exist in suburban areas without affecting the environment of its neighbors. In contrast, U.S. Steel's Downriver operation is negotiating settlements with the Michigan Department of Environment, Great Lakes and Energy on violations including emissions of acid rain-causing sulfur dioxide and visible emissions — in other words, smoke.
According to U.S. Steel’s quarterly financial report issued in September, EGLE assessed a penalty of about $380,000 for alleged violations. Negotiations to resolve the matter continue.
"For many years, that plant has been polluting the southwest area," said Sandra Turner-Handy, engagement director for the Michigan Environmental Council. "It’s good that the environmental impacts will lessen, but it’s a loss of jobs. It’s a relief for the residents who have suffered for so many years because of that plant."
According to River Rouge Mayor Michael Bowdler, a U.S. Steel representative from the local plant five months ago told him that business was not going well.
“Imported steel has been killing us for 30 years,” Bowdler said. “We need U.S. steel plants. Hopefully, the demand for steel returns."
Bowdler called U.S. Steel a “great corporate neighbor to the city of River Rouge.”
The company just gave the city a $5,000 check toward a program that buys Christmas gifts for 400 children in need. Bowdler is also concerned about how this closure will hit the city’s general fund. He anticipates a $1 million hit in 2021. Meanwhile, River Rouge is also bracing for the 2022 closure of the DTE Energy Co. coal-fired plant.
“We are going to have to roll up our sleeves,” Bowdler said.
Billions in updates
The U.S. Steel moves are a part of Burritt's "best of both" strategy that would have the company invest billions of dollars to update other existing facilities around the country, or to acquire new facilities.
Company spokeswoman Amanda Malkowski said, "We have the opportunity to reshape our footprint around three leading differentiated and technologically advanced assets. This will enable U.S. Steel to compete with anyone, anywhere by providing the best of both integrated and mini-mill technology."
She said tariffs and trade enforcement "continue to support the long-term recovery and strengthening of the domestic steel industry, including the many investments being made in the future of American steelmaking, some of which involve U.S. Steel."
Trump has continued to claim he saved the entire U.S. steel industry with his tariffs. "If I didn’t get elected, you wouldn’t have a steel industry, because, ultimately, every steel mill was closing," he said earlier this month.
The tariffs acted more like a temporary sugar rush for U.S. Steel's stock rather than any long-term prevention of job cuts. Shares of the company spiked in the first quarter of 2018 after tariffs were announced. Since then, share prices have fallen more than 70%.
In a Facebook note to members, United Steelworkers Local 1299 President Andrea Hunter said the company had informed the union that orders had declined and improvements weren't expected in the coming year.
"We as Steelworkers have previously survived economic and market downturns in the steel industry for decades," she wrote. "During the 2008/2009 Idle of our facility we emerged stronger better and with unity we opened with business as usual. We pray this will be no different."
Staff Writer Keith Laing contributed.