US Steel Industry Labor Changes

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CUE, Fall 2004 Conference
US Steel Industry Labor Changes Impact on
Competitiveness
Thomas A. Danjczek, President Steel Manufacturers
Association October 11, 2004
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US Steel Industry Labor Changes Impact on
Competitiveness
CUE, Fall 2004 Conference
1. SMA
2. Growth of Minimills
8. Other Factors
7. Changing Labor Contracts
3. Organized Labor In Steel
9.Conclusions
4. Bankruptcies
6. Draining the PBGC
5. Labors Free Fall
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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

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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

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Growth of the U.S. Mini-mill Industry
1970-Present
CUE, Fall 2004 Conference
Estimated Mini-mill Share of US Steel Industry
Shipments
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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)
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CUE, Fall 2004 Conference
Bankruptcies in Steel (1 of 2 Slides)
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Bankruptcies in Steel (2 of 2 Slides)
CUE, Fall 2004 Conference

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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.
Ongoing Businesses
Liquidated Companies
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
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CUE, Fall 2004 Conference
Labors Free Fall
From BusinessWeek (9/13/04) Cover Story
Labors Free Fall Labors 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
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CUE, Fall 2004 Conference
Labors Free Fall Cont.
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
UNION AVOIDANCE OR POSITIVE EMPLOYEE RELATIONS?
Data BusinessWeek, 9/13/04
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CUE, Fall 2004 Conference
Draining the PBGC
The five largest claims on the government-sponsore
d pension insurance pool
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
Data PBGC
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CUE, Fall 2004 Conference
Draining the PBGC Cont.
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
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CUE, Fall 2004 Conference
Top 10 Labor Contract Changes (ISG Restructuring)

• Shed Pension Legacy Costs
• Shed Health Care Medical Retiree Costs
• Eliminated Significant Number Hourly Jobs (i.e.
  35)
• 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

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CUE, Fall 2004 Conference
Top 10 Labor Contract Changes ISG
Restructuring Cont.

1. Negotiated Simplified Incentive Plans ( i.e.
   entire mill daily).
2. Adjusted Future Medical Benefits.
3. Altered Work Rules ( i.e. Maintenance
   Assistance).
4. Allowed Scheduling Flexibility in Workforce
   Vacations.
5. Partnered with Union to Build Morale Change
   Culture on Premise of Open Communications.

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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!

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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