U.S. Steel's Hamilton Plant Remains a Sore Spot

U.S. Steel (NYSE:X) has not been able to resolve the labor dispute issue at its Hamilton Works plant in Canada for more than 6 months now. And the situation does not seem to be getting any better. Recently, disgruntled U.S. Steel workers held-up a ship that was transporting metallurgical coal out of the Hamilton plant. This is the second instance where locked-out workers blockaded the company's ship, the previous time being in March this year. U.S. Steel is an integrated steel producer of flat-rolled and tubular products with major production operations in North America and Europe and is currently the tenth largest steel producer in the world with an annual raw steel production capability of 31.7 million tons. It competes with international steel giants like ArcelorMittal (NYSE:MT), BaoSteel, Posco (NYSE:PKX), Nippon Steel and ThyssenKrupp.

Our price estimate for U.S.Steel stands at $53.36 , implying a premium to market price.

The Dispute in Detail

Hamilton Works, located in Hamilton, Ontario, has annual raw steel production capability of 2.3 million tons. U.S. Steel announced its decision to idle its blast furnace and steel-making operations at Hamilton Works in late 2010 due to lower customer orders. (( U.S. Steel shutting Hamilton mill , The Globe and Mail, Oct 1 2010)) The labor dispute with the United Steelworkers union in Hamilton could have been a key factor prompting this decision, although the company clearly stated that it will not layoff any employee.

The dispute originated with the workers resisting U.S. Steel's demands for an elimination of their pension indexing, two weeks of vacation and other concessions. With negotiations continuing since the lock-down on November 7 2010, the most recent blockade came after the last offer by the company was unanimously turned down by the workers.

How it Can Hurt U.S. Steel

U.S. Steel is yet to recover from the effects of the global economic downturn, with the company suffering losses in the first quarter of 2011 too.

The company continues to suffer from high operating costs, with its margins being one of the lowest in the industry. We previously discussed this factor in our article titled, U.S. Steel Should Keep a Close Eye on Profit Margins .

With the American flat-rolled steel division being the biggest source of value for the company, any decrease in the division's margins adversely affect the company's stock price, and would represent a significant downside to stock value.

See our full analysis for U.S. Steel

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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