US Steel announced late Friday a series of “aggressive and meaningful actions” in response to impacts from the coronavirus (COVID-19) and the sudden, significant changes in global oil and gas markets. The company said that by prioritizing cash and liquidity, US Steel will maintain “strategic flexibility” in order to be well prepared for when the global economy ultimately recovers from the current situation. The actions are as follows:
1. 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. Additionally, 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.
2.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.
3.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.
4.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.
5.The investment in a new non-grain oriented electrical steel line at USSE remains delayed.
Additionally, US Steel said it 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.
The company said it does not expect the actions outlined above to meaningfully impact the first quarter adjusted EBITDA, adjusted net loss or adjusted diluted net loss per share included in the recent Q1 guidance. However, given the rapid pace of change in market dynamics in the current environment, the company said it 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.