Commodities & Metals

As US Steel Idles Minn. Plant, Will More Plant Idling Follow?

The woes continue to pile on for United States Steel Corp. (NYSE: X) as it announced that it will be idling yet another plant. This might not be moving the stock lower, but the message remains clear for the metals sector. The Keetac plant in Keewatin, Minn., will be temporarily idled, effective May 13. 24/7 Wall St. is considering whether this trend will continue at other metals and steel companies.

This is not the first time that U.S. Steel has had to idle a plant. In fact, it seems obvious that more pressure has been put on the company with share prices being halved since September. The company is looking for ways to cut costs, and this seems like the easiest way to do so without causing long-term damage for when things get better again.

The plant in Keewatin will be idled due to the current inventory levels and ongoing adjustment of its steelmaking operations throughout North America, in an attempt to match customer demand. U.S. Steel routinely adjusts its production to account for the demand reflected in market fluctuations. Is it fair to ask if this is less like a fluctuation and more like a tailspin?

From this plant, 412 employees have been issued notices and have been advised of the temporary idling. Ultimately the number of employees Affected will be based on operational and maintenance needs.

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Previously, 24/7 Wall St. had reported that U.S. Steel planned to lay off roughly 750 employees between two plants in Texas and Ohio. The layoffs are taking place in a tubular testing and finishing facility in Houston, Texas, and a manufacturing facility in Lorain, Ohio. The tubular products that are produced and tested by these facilities are associated with drilling and construction in the oil-and-gas industry.

Dropping rig counts most definitely had an impact on this facility, but have they found a bottom yet? One analyst says they have, and we further detailed what they said about it and the future of rigs here.

However, steel is not the only commodity suffering.

Recently, Merrill Lynch metals strategist Michael Widmer recently cut his aluminum price forecast and premium assumptions, noting a newly expected surplus of the metal, versus a previously expected deficit. As a result of these worsening fundamentals, Merrill Lynch downgraded both Alcoa Inc. (NYSE: AA) and Century Aluminum Co. (NASDAQ: CENX). Note that aluminum is still considered more defensive than other commodities.

Shares of U.S. Steel were up 1.6% at $22.96 midday on Thursday. It is always a bit ironic that cutting production or announcing layoffs is a good thing. The stock has a consensus analyst price target of $30.13 and a 52-week trading range of $20.13 to $46.55.

Alcoa shares were up 1.3% at $13.77, in a 52-week trading range of $11.61 to $17.75. The consensus price target is $18.70.

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