US Steel Industry Labor Changes

Impact on Competitiveness

Thomas A. Danjczek, PresidentSteel Manufacturers AssociationOctober 11, 2004

CUE, Fall 2004 Conference

US Steel Industry Labor Changes

Impact on CompetitivenessCUE, Fall 2004 Conference

7. Changing LaborContracts

2. Growth of Minimills

5. Labor’sFree Fall

4. Bankruptcies

9.Conclusions3. Organized Labor

In Steel

8. Other Factors

6. Draining thePBGC

1. SMA

CUE, Fall 2004 Conference

•The Steel Manufacturers Association (SMA)

–36 North American companies:

30 U.S., 4 Canadian, and 2 Mexican

–107 Associate members:

Suppliers of goods and services to the steel industry

•SMA member companies

–Operate 120 Steel plants in North America

–Employ about 40,000 people

–Mini-mill Electric Arc Furnace (EAF) producers

CUE, Fall 2004 Conference

•Production capability

–SMA represents over half of U.S. steel production

•Recycling

–SMA members are the largest recyclers in the U.S.

–Last year, the U.S. recycled over 70 million tons of ferrous scrap

•Growth of SMA members

–Efficiency and quality due to low cost

–Flexible organizations

–EAF growth surpassed 50% in 2002 & 2003, and anticipated to be 60% by 2010

Mills started upafter 1980Mills started upafter 1980

Mills started up1970-1980Mills started up1970-1980

Mills operating prior to 1970Mills operating prior to 1970

( Flat roll)( Flat roll)

( No longeroperating)( No longeroperating)

Growth of the U.S. Mini-mill Industry 1970-Present

1975 1980 1985 1990 1995 20001970

Estimated Mini-mill Share of US Steel Industry Shipments

Estimated Mini-mill Share of US Steel Industry Shipments

10.00 14.005.51 21.92 25.88 32.50 49.76

CUE, Fall 2004 Conference

CUE, Fall 2004 Conference Organized Labor In Steel, %

Rough Estimates – US Only

Minimills Only US Steel Industry

% Production 50% 100%

Number of Employees (Union + Non-Union)

40,000 120,000

% Union, by employees 50% 75%

% Union, by company 56% (20/36) 52% (22/42)

% Union, Capacity 36% (21/58.5) 67% (76/113)

CompanyBankruptcy

FilingCapacity

mnt EmploysStates

w/Facilities Status

Stelco 1/29/04 1.05 780 Canadian Chapter 11 – ceased operations

WCI 9/16/03 2.04 1,800 OH Chapter 11 – reorganization plan

Georgetown Steel, LLC 10/20/03 1.0 615 SC Chapter 11 – ceased operations

Weirton Steel Corp. 5/12/03 3.0 3,000 WV Chapter 11 -

Bayou Steel Corporation 1/03 .62 425 LA, TN Chapter 11 -

Calumet Steel Co. 3/18/02 .15 225 IL Filed Chapter 7 – Ceased Operations

Sheffield Steel Corp. 1/1/02 .58 375 OK, MO, IL Operating

Geneva Steel LLC 1/25/02 2.6 2600 UT Ceased Operations.

Bethlehem Steel Corp. 10/15/01 6.1 13,000IN, MD, PA,

NY  Operating.

Republic Technologies International LLC 4/2/01 2.9 3500

OH,MD,PA,ALIN,CT,NY

Operating. Closing CT plant. Idled one BF at Lorain, OH plant.

Trico Steel Co. 3/23/01 2.2 319 AL Ceased operations.

GS Industries, Inc. 2/7/01 1.4 3,000MO,SC,MN,

AZ

Operating at SC, MN and AZ facilities. Closed GST Steel facility in Kansas City (capacity: 750,000 nt).

Heartland Steel, Inc. 1/26/01 1.1 175 IN Operating.

CSC Ltd. 1/12/01 0.4 1,225 OH Ceased operations.

Bankruptcies in Steel – (1 of 2 Slides)

CUE, Fall 2004 Conference

CompanyBankruptcy

FilingCapacity

mnt EmploysStates

w/Facilities Status

LTV Corp. 12/29/00 7.6 18,000OH,IN,IL,PA,

MI,TN,GA Operating.

Erie Forge & Steel Dec. 2000 0.1 300 PA Operating.

Northwestern Steel & Wire 12/20/00 2.4 1,600 IL Ceased operations 5/20/01.

Wheeling-Pittsburgh Steel Corp. 11/16/00 2.2 4,800 WV,PA,OH Operating.

Vision Metals Inc. 11/13/00 - 610 MI,TX Operating.

J&L Structural Steel Inc. 6/30/00 n.a. 275 PA Operating.

Gulf States Steel 7/1/99 1.1 1,906 AL Ceased operations.

Qualitech Steel SBQ LLC 3/24/99 0.6 350 IN,TX

Sold August 1999. Ceased operations. 1/26/01. Being purchased by SDI, 7/02

Worldclass Processing, Inc. 3/24/99 0.4 80 PA Sold and emerged from bankruptcy 5/26/00.

Geneva Steel Co. 2/1/99 2.6 2,600 UT Emerged from bankruptcy 11/21/00.

Laclede Steel Co. 11/30/98 1 1,475 MO,IL,PAEmerged from bankruptcy 1/2/01. Ceased operations, 2001

Acme Metals 9/29/98 1.2 1,700 IL Operating.

Al Tech Specialty Steel 12/31/97 0.1 790 NY Emerged from bankruptcy 11/5/99.

Total  27 firms

     

Bankruptcies in Steel – (2 of 2 Slides)

CUE, Fall 2004 Conference

RECENT U.S. STEEL ASSET TRANSACTION VALUESAcquisition range has been $60 to $90/ton shipped for shuttered operations and $160 to $260/ton for ongoing businesses.

0

50

100

150

200

250

300

$/Ton 20 $60 $68 $70 $79 $90 92 $102 $167 $175 $180 $194 $225 $230 $255 $265

G'twn LTV Acme Kingm. Trico Qual. Rouge Weir Beth Nat'lCo-Steel

Heartl REPAubur

nBirmin

g.LTV HDG

Liquidated Companies

Ongoing Businesses

CSN disclosed in October 2003 that its acquisition price for Heartland was actually $175 million instead of the previously-report $69 million.Acquisition prices include all assumed liabilities.

Courtesy – Metal Strategies

CUE, Fall 2004 Conference Labor’s Free Fall

From BusinessWeek (9/13/04) Cover Story –

Labor’s Free Fall

Labor’s Share of the Workforce continues to slide…

Union Members as a share of the U.S. Workforce

1973 24%

1983 20%

1993 16%

2003 13%

CUE, Fall 2004 Conference Labor’s Free FallCont.

…and other Union-Resistance Tactics.

% of Employers that Used Union-Avoidance Tactics in Representation Elections in 1998-1999

Tactic % of Employers

Hold mandatory antiunion meetings for employees 92%

Have supervisors meet individually with employees to disparage the union

78%

Hire antiunion management consultants 75%

Distribute antiunion leaflets to employees 70%

Mail antiunion letters to employees’ homes 70%

Show antiunion videos to employees 55%

Data: BusinessWeek, 9/13/04 UNION AVOIDANCE OR POSITIVE EMPLOYEE RELATIONS?

CUE, Fall 2004 Conference Draining the PBGC

The five largest claims on the government-sponsored pension insurance pool:

Data: PBGC

Company Total Plan Underfunding

(billions)

Cost to the PBGC

(billions)

Year of Termination

Number of Participants

Bethlehem Steel

$4.300 $3.650 2002 95,000

LTV Steel 2.200 1.849 2002 82,950

National Steel 1.500 1.216 2002 35,000

Pan American Airlines

.914 .841 1991 37,500

US Airways Pilots Plan

2.500 .754 2003 7,100

CUE, Fall 2004 Conference Draining the PBGCCont.

“These companies have been pummelled by cheaper international competition as well as lower cost U.S. mini-mills…”

“…ISG predecessor companies shed $12 billion of legacy health care costs and another $9 billion of pension obligations.”

Source: BusinessWeek, 7/19/04

CUE, Fall 2004 Conference Top 10 LaborContract Changes(ISG Restructuring)

1. Shed Pension Legacy Costs

2. Shed Health Care & Medical Retiree Costs

3. Eliminated Significant Number Hourly Jobs (i.e. 35%)

4. Eliminated Greater Number of Salaried Jobs (i.e. 40 to 50%) with Reduction in Management Layers

[ ISG (LTV; Bethlehem; Acme; Weirton; and Georgetown) reduced from approximately 29,000 to 15,000 employees with same output ]

5. Negotiated Huge Job Combinations, Down to FIVE

CUE, Fall 2004 Conference Top 10 LaborContract ChangesISG Restructuring

Cont.

6. Negotiated Simplified Incentive Plans ( i.e. entire mill daily).

7. Adjusted Future Medical Benefits.

8. Altered Work Rules ( i.e. Maintenance Assistance).

9. Allowed Scheduling Flexibility in Workforce & Vacations.

10. Partnered with Union to Build Morale & Change Culture on Premise of Open Communications.

CUE, Fall 2004 Conference Other Factors

Labor Represents Approximately 10% of Minimill Cost and 30% of Integrated.

Other Pressing Factors:

CHINA, CHINA, CHINA (Growth, Currency, and Customer Base Loss)

Scrap & Coke Costs – Double Since Last Year

Iron Ore – Up Significantly

Freight & Energy – Up, Up, and Away!

CUE, Fall 2004 Conference Conclusion

•Uncertainty – Cycle has Changed (Shorter Term & Greater Peaks & Valleys)

•Uncertainty for Other Major Integrated Unionized Companies (USS & Ispat & AK) - $40/ton

•Uncertainty – Health Care.

•Uncertainty with Insolvency of the PBGC – Airlines, Autos, etc.

•Revenue vs. Costs – Not the Same Business Model Due to Consolidations.

•China, Scrap, Raw Materials, Coke, Freight, Energy Impacts.

•Bankruptcy Laws Unfair to Competitors

•Will the Steel/Labor “Honeymoon” last???

•Mini-Mills Must Compete in the World, as it is, and We Can!

•Meaningful Optimism with Good Long Term Consumption, Relative Value, and Excellent Recyclability for Steel