After years of financial and labour turmoil, U.S. Steel Canada is filing for creditor protection, the company confirmed Tuesday.
“Yes, there is a process underway to receive creditor protection,” said U.S. Steel Canada spokesman Trevor Harris.
In a press release, U.S. Steel said they would seek relief for their Canadian branch under the Companies’ Creditors Arrangement Act, which allows corporations in financial distress to restructure.
In the release, the company said U.S. Steel Canada had lost money on operations for the last five years, to the tune of $2.4 billion since December 2009.
Meanwhile, union leader Rolf Gerstenberger, president of United Steelworkers Local 1005, said the move to restructure amounted to “fraud” and that the company had been deliberately winding down production to the detriment of workers.
“A planned restructuring will allow U.S. Steel Canada to operate and compete more effectively. We know this was not an easy decision for U.S. Steel Canada’s independent directors,” said U.S. Steel president and CEO Mario Longhi in a release. “U.S. Steel Canada has asked the court for an order allowing it to continue to operate while exploring restructuring alternatives — to pay its suppliers and employees and to continue to service its customers. We believe these actions will provide longer term stability for U.S. Steel’s employees, suppliers and customers.”
'Nobody saw this coming'
Marvin Ryder, assistant professor of entrepreneurship at the DeGroote School of Business at McMaster University, called the decision to restructure a “surprise.”
“Nobody saw this coming, or at least I didn’t,” he said.
Still, the company had been buffeted by a turbulent economy since being forged in U.S. Steel’s 2007 purchase of Hamilton-based Stelco.
The timing of the move was bad: the global recession weakened demand for steel, and between November 2008 to March 2009, U.S. Steel laid off over 700 Hamilton workers and slashed production in half.
The steel market still hasn’t fully bounced back from the traumatic recession years, Ryder said. “Generally, demand for steel has not come back to pre-recession levels,” he noted.
“It’s not so much the recession, it’s the recovery after the recession. We are in the longest recovery of any recession or depression in American economic history or Canadian economic history.”
In 2010, U.S. Steel shut down its Hamilton blast furnace, and locked out 900 Hamilton workers over pensions. The operation there now consists of a “zinc line,” where steel is coated with zinc, and a coke-making operation, Ryder said.
“From the time U.S. Steel purchased us, they’ve basically been doing different things here in Hamilton to shut down production,” union chief Gerstenberger said. “We could produce two million pounds of slabs and they’re saying, ‘No that’s useless.’ ”
Remaining viable in Canada
For its part, the company has argued that creditor protection is necessary to remain viable in Canada.
“Despite substantial efforts over the past several years to make U.S. Steel Canada profitable, it is clear that restructuring U.S. Steel Canada is critical to improving our long-term business outlook,” said company president Michael McQuade in a statement Tuesday. “Operational changes, cost reduction initiatives and streamlining of operations cannot on their own make it competitive in the current environment.”
Employment in the Hamilton steel industry has been dwindling for years. Local 1005 has fewer than 600 active members, but represents over 8,000 pensioners, Gerstenberger said.
U.S. Steel Canada also has operations in Nanticoke, Ont.
The company has feuded with the Canadian government over steadily declining output since its arrival north of the border. In 2009, the federal government sued U.S. Steel for failing to meet promises around production and spending.
The parties settled in 2011, with the company agreeing to invest at least $50 million in its Nanticoke and Hamilton operations by December 2015.