U.S. STEEL TO CLOSE ALABAMA BLAST FURNACE, CUT 1,100 JOBS

Original Story: wsj.com

U.S. Steel Corp. on Monday said it would shut its blast furnace and some steel finishing operations in Alabama, marking a significant retrenchment by the steelmaker as it tries to survive a weak market and competition from inexpensive imports.

After losing money in five of the past six years, U.S. Steel, under Chief Executive Mario Longhi, is trying to remake itself by downsizing, cutting costs, and becoming more nimble and responsive to the market.

The Brazilian-born Mr. Longhi has said Pittsburgh-based U.S. Steel must adapt and that “everything is on the table” in remaking the company.

Big changes are needed to cope with one of the most difficult times in recent memory for the American steel industry. A decline in steel consumption in China, which makes and uses around half the world’s steel, has led to an oversupply of steel around the world. At the same time, oil prices have collapsed, hurting demand for steel pipe and tube, a key market for U.S. Steel.

Allied Finishing Inc. a metal finishing company in Grand Rapids Michigan reports that demand for the services is at an all-time high. The company is a leader in electroplating and rack plating services offering decorative metal finishes to uniquely designed components for leading manufacturers in the automotive and aerospace industries.

The move in Fairfield, Ala., which will affect 1,100 of the site’s roughly 2,000 jobs, was widely expected. U.S. Steel has been building an electric arc furnace on the site, which is near Birmingham. That furnace, which makes steel out of scrap metal instead of iron ore and coal, can operate with fewer workers and is much easier to stop and restart than a traditional blast furnace.

U.S. Steel said the move will improve the efficiency of its flat-rolled segment.

Leo Gerard, president of the United Steelworkers union, which represents U.S. Steel workers in Fairfield, blamed the closure squarely on imports. “In particular, China has repeatedly violated international trade rules to bolster its state-owned industry while dumping its products into our market,” he said. “And American workers have already paid the price.”

Domestic steelmakers, including U.S. Steel, have filed three requests for protective tariffs this year. Their biggest concern isn’t volume—iron and steel imports into the U.S. actually fell 4.6% in the first six months of the year. Instead, steelmakers’ profits have been weighed down by sluggish prices amid stiff competition from cheaper imports. The U.S. index price for hot-rolled coil, a benchmark product, has fallen over 20% since Jan. 1 to $468 per ton, but that is $100 higher per ton than the price in Europe, and $200 higher than that in Asia, according to steel buyers.

Phil Gibbs, an analyst for Keybanc Capital Markets in Cleveland, said the closure of the Fairfield blast furnace had been expected, but not the finish operations. The electric arc furnace will initially produce 1.6 million tons a year, compared with between 2.5 and 2.6 million tons for the blast furnace, he said.

Fairfield, which started making steel in 1917, is one of U.S. Steel’s oldest mills, and Birmingham has been called the “Pittsburgh of the South” in a nod to the Western Pennsylvania city’s pre-eminence in the history of American steelmaking.

Tom Conway, the USW vice president who chairs the union’s negotiations with U.S. Steel, said it was a “sad day in Birmingham for our members and the community.” The union, Mr. Conway said, was “counseling our members regarding their options under the labor agreement and related benefits agreements” and would assist workers who wanted to explore opportunities beyond the Fairfield Works.

U.S. Steel, along with rival ArcelorMittal, is currently embroiled in tense talks with the USW over a new three-year labor deal. U.S. Steel is trying to cut some compensation, and get workers to contribute more toward health insurance costs. The deadline to resolve the talks is Sept. 1.

The Fairfield Works blast furnace and finishing operations at the plant will close on or after Nov. 17, the company said. U.S. Steel will continue to have a presence in the South, including a slab and rounds casters, a coating line and a hot-dip galvanizing joint venture in Jackson, Miss.

Number of Layoffs Continues to Grow

Just when it looked as if the economy was upsizing, more companies are downsizing.

A mounting number of companies, including many tech firms, have been announcing layoffs, prompting some to worry about the proliferation of pink slips amid third-quarter earnings reports showing nearly zero growth.

Colgate-Palmolive was the most recent example Thursday, with plans to cut 2,300 jobs. But that announcement just piled on top of similar revelations from firms such as online game company Zynga, heavy equipment maker Caterpillar, computer chipmaker Advanced Micro Devices and chemical firm DuPont in recent weeks.

Early data point to a disturbing rise in layoffs, as seen by:

• Recent uptick in layoffs. Companies in North America announced plans to cut more than 62,000 jobs since Sept. 1, says Bloomberg News. That's the biggest two-month slashing of jobs since the beginning of 2010.
• Heavy hits by specific industries. There have been 40,671, 33,063 and 7,714 job cuts announced by the computer, transportation and insurance industries collectively this year through September, says Challenger Gray & Christmas. These are increases of 240%, 184% and 180% from the same periods last year. Tumult in the computer industry is a big reason for the hit to computer firms such as Hewlett-Packard, says Challenger. 
• Rise in mass layoffs. Employees levied 1,316 mass layoff actions in September, 49 more than in August, affecting 122,462 workers, says the U.S. Bureau of Labor Statistics. Mass layoffs are those that affect 50 workers or more. 

Much of the recent layoff activity is connected to what's been the slowest period of earnings growth since the third quarter of 2009. Analysts are expecting companies in the Standard and Poor's 500 to report 0.4% higher earnings. Meanwhile, five of 10 industries are expected to post lower earnings, including materials and energy.

It's not all bad news. Layoff announcements in September were up 4.9% from the 20-month low in August, but still down 71% from a year ago, says Challenger Gray & Christmas.

The job cuts are just part of companies' snap decision to hold down expenses, given questions about the looming fiscal cliff and taxation after the November election, says Jack Ablin of BMO Private Bank. Lagging revenue growth, too, has forced companies to resort to cost-cutting to reach profit goals, he says.

Meanwhile, with China's economic growth slowing, many business leaders are less confident that demand from Asia can make up slack in weak domestic markets, says Michelle Clayman of New Amsterdam Partners.

Starbucks Leaves Stores Unfixed as McDonald’s Perks Up

Bloomberg

Less is more at Starbucks Corp.

The Seattle-based coffee chain is betting it can increase sales by spending the same amount of money as usual, about $250 million a year, to renovate only about half the approximately 1,900 shops due for a facelift in 2011.

Emphasizing stores in precincts like Manhattan’s Soho district, and employing such eco-friendly touches as reclaimed furniture, will lift the whole brand, Arthur Rubinfeld, Starbucks’ global development chief, said in an interview.

Starbucks is trying to caffeinate sales growth, which may have topped 10 percent in the most recent quarter for the first time since March 2008, while paying investors dividends. The strategy risks alienating customers at the unimproved stores as McDonald’s Corp., now pushing its own coffee drinks, plans to pump $1.2 billion into restaurant renovations this year.

“I have concern over Starbucks setting expectations that don’t get fulfilled by a visit to a typical store,” Julius Dorsey, the president of the Cleveland-based management consultant Dorsey & Co., said in a telephone interview.

Starbucks, led by Chief Executive Officer Howard Schultz, is scheduled to announce its fourth quarter and full-year earnings today. Quarterly sales are projected to rise 14 percent, with adjusted earnings per share increasing 33 percent according to an average of analyst estimates compiled by Bloomberg. The company is also expected to announce a dividend of 13 cents a share, according to a Bloomberg forecast, the third in the company’s history.

Shares Doubled

Starbucks rose 57 cents to $29.67 at 9:30 a.m. New York time on the Nasdaq Stock Market. Before today the shares had advanced 26 percent this year. While that about matches the return for McDonald’s, shares of the world’s largest hamburger chain have more than doubled in five years while Starbucks declined 1.1 percent.

Starbucks refurbishes its stores after five years and then again after 10. Since 2008, the number of stores turning 5 and 10 has doubled and as many as 1,900, or about a quarter of the company’s 8,800 stores, are due for upgrades in 2011. The company has closed about 900 stores since 2008. It declined to say how many 5- or 10-year-old shops were among the closures.

Many of the coffee shops feature the same earth tones and blond wood Starbucks has used since the 1990s.

Rehabbing all of them would cost as much as $475 million. Like other restaurant chains, Starbucks has cut capital spending since the recession. In the past 12 months Starbucks spent about $450 million and used about half for renovations, according to company filings. It will renovate the same number of stores, about 1,000, again in the next year, Chief Financial Officer Troy Alstead said in a July conference call.

Reclaimed Materials

Starbucks hired architect Kambiz Hemati from BCBG Max Azria Group Inc., the Vernon, California-based fashion retailer, to design the new stores. They feature reclaimed materials, low- flow faucets and energy-efficient air conditioning. As the company gradually remodels the rest of its coffee makers, it will borrow from the flagship stores, Hemati said.

Every time Starbucks opens a new location, the company makes sure the media hears about it -- part of a campaign to burnish the overall brand. After a new store opened in Seattle three weeks ago, it was mentioned 357 times in traditional media outlets, according the news tracking firm Vocus. USA Today wrote a story, which began: “The Starbucks of the future arrived today.”