This past week United Steelworkers Union Local 1005 – which is the union affected by the lockout of the U.S. Steel Hamilton facility – voted to support the union negotiating committee. Local 1005 has taken the position their mill will be the only USS facility in North America to have indexed pensions for their retirees (something won from past employers previous to USS taking ownership of the former Stelco facilities). The second issue is USS is requiring any new hire at the Hamilton mill not be part of the existing retirement program.

U.S. Steel locked out the workers on November 7, 2010 and there has essentially been no contact between the two parties ever since. On Sunday the lockout will enter its 10th month and counting.

On August 2nd – just prior to the August 3rd Local 1005 union meeting – the union put out a position paper which essentially spelled out their logic for continuing to hold out and not given in to the U.S. Steel demands.. Steel Market Update read the update and notice a number of questionable statements.

Since the position paper – which is entitled “Time to Restart Production at Hamilton Works” – was written on August 2, 2011 let’s take a look at a few items the union members may want to consider amongst themselves:

Hot Rolled spot pricing as of this week ranges from $640-$700 per ton with an average of $670 per ton based on Steel Market Update price indexing. Our research is telling us flat rolled steel prices will continue to fall over the coming weeks. At the same time steel mills are getting very close to their cost of production according to steel analyst, Timna Tanners of Bank of America Merrill Lynch Research. She put the mill cost at $600-$620 according to a recent note to her clients.

As you can see in the graph below prices have been falling for some time now after having peaked back in March 2011. The time to have been negotiating with USS was January – March 2011 as prices skyrocketed.

Due to prices in today’s market the idea of U.S. Steel even wanting to start the Hamilton blast furnace doesn’t make much sense right now. Even with a new union agreement.

The finishing end might make sense if the mill were able to commit to more automotive tons off the “Z” Line at Hamilton. But, automotive contracts are annual deals and the longer the lockout continues the less likely there will be any automotive tons which can be moved to the Hamilton mill.

U.S. Steel ran at less than 90% of capacity without Hamilton Works during second quarter 2011. The company has already told investors the 3rd Quarter will not be as good as the one just finished. Prices are down and the U.S. economy appears poised to move back into recessionary mode which means demand is questionable as we move through the balance 2011 and into the 1st Half 2012. USS will not be at 90% of capacity (not counting Hamilton) when 3rd Quarter results are revealed (in our opinion).

In the Local 1005 note they speak about the ThyssenKrupp mill in Calvert, Alabama as having to buy slabs from Brazil. Actually, the mill in Brazil (CSA) is owned by ThyssenKrupp and was built to service the needs of the Alabama mill. This is not to say U.S. Steel can’t sell slabs to TKS USA but it is doubtful there would be any large tons associated with such a deal.

Also, that same ThyssenKrupp mill is in the process of becoming automotive certified. Once this brand new steel mill with state of the art rolling mills is able to produce and sell direct to automotive end customers the size of the automotive pie will be reduced – and it does not help to be a mill sitting on the sidelines and not producing.

These are a couple of the issues we found with the union's most recent note which we thought we should shed more light upon. We recommend those who are interested visit the union website www.uswa1005.ca to learn more about the union position and to read their latest update.