United States Steel Corp. (X) is restarting its blast furnace at its Hamilton, Ontario plant as steel demand edges higher after a nine-month shutdown.
Demand for U.S. Steel’s flat-rolled steel has improved after bottoming in April and May, this year and is likely to improve going forward. The largest steel producer in the U.S. expects mill-operating rates to exceed 50% in the current quarter, up from 32% in the prior period.
U.S. Steel acquired the Hamilton and Nanticoke plants in Ontario from Canadian peer Stelco Inc. for about $1.1 billion in 2007. The Hamilton operation has an annual production capacity of about 2 million tons. The facility also consists of galvanizing lines and a cold mill. However, the company does not plan to restart these for now.
U.S. Steel had closed the Hamilton blast furnace in November 2008. It suspended the remaining operations at Hamilton and the Nanticoke operation in March 2009 due to a drop in demand. Both the facilities were running below half of their capacity. The shutdown resulted in lay offs of about 1500 workers. However, the company recalled about 800 to 950 employees at the Hamilton plant in July.
A day before, workers of U.S. Steel approved Lakeside’s bid to acquire the Ontario production unit. Lakeside Steel is a steel pipe and tubing manufacturer in Welland, Ontario.
The Canadian government has alleged U.S. Steel of failing to meet commitments on production and employment. While acquiring Stelco in 2007, U.S. had agreed to produce 3.95 million tons of steel per year and employ about 3,100 workers through Nov. 1, 2007 to Oct. 31, 2010. A federal court in the U.S. will evaluate these charges today.
We maintain our Neutral recommendation on the stock.
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