SHAFAQNA – Citing the collapse in global oil prices, U.S. Steel Corp. will idle its plant in Lorain, Ohio, laying off 614 workers, a company spokeswoman said Tuesday.The plant makes steel pipe and tube for oil-and-gas exploration and drilling. With oil prices currently around $50 a barrel, their lowest level since 2009, energy companies have far less incentive to drill for new supply, reducing demand for the plant’s products.
“The company has suddenly lost a great deal of business because of the recent downturn in the oil industry,” Tom McDermott, president of United Steelworkers local 1104 wrote to workers, in a letter reviewed by The Wall Street Journal. “What appeared just a few short weeks ago as being a productive year, [with new hires in December and extra turns going on], has most abruptly turned sour.”
Layoffs will begin on March 8, “with additional layoffs occurring through May 2015,” a U.S. Steel official wrote to the union.
Workers for U.S. Steel in Lorain said they would find out who is being laid off at an evening meeting Wednesday.
The so-called oil country tubular goods, or OCTG, industry has been built up massively in the past few years to provide pipe and tube for the boom in drilling for shale gas and new oil in the Gulf of Mexico.
U.S. Steel, which is trying to reverse five straight years of losses, has bet heavily on OCTG. The company’s tubular division posted an operating profit of $140 million during the first nine months of 2014, up from $23 million over the same period in 2010.
Chief Executive Mario Longhi told analysts in October that, while the swoon in global oil prices wouldn’t affect the fourth quarter, “the recent turmoil in the crude oil markets could have an impact on the level of drilling activity as we move into the new year.” He added that “we are at a transitional moment that is going to take a little bit of time for people to sort out exactly where this is going to go.”
Oversupply in the market has been exacerbated by huge flows of steel imports into the U.S. Overall steel imports rose 35% to 38 million tons during the first 10 months of 2014, according to Global Trade Information Services.
Last summer, U.S. Steel and others won import tariffs on imports of OCTG from South Korea and other exporting countries. But that won’t be enough to prop up the industry amid falling oil prices.
Spending on exploration and production is expected to fall around 20% year on year, according to Susan Murphy, publisher of the OCTG Situation Report. She expects land oil rigs to decline by up to 500 in 2015.
Write to John W. Miller at john.miller@wsj.com