Strikes May Drive Steel Prices Up

Strikes are being waged at several North American mines, affecting more than 25 percent of the continent's iron-ore supply, and threatening to disrupt steel production and drive prices up further.

The work stoppages, including several mines in Canada and coming as labor contracts expire at some U.S. mines, haven't yet affected steel prices greatly because most steelmakers keep extra supplies of iron ore. The United Steelworkers of America, which represents workers at both steel and mining companies, has seen prices for steel and its ingredients rise over the past year and is less inclined to grant the same kinds of concessions it gave steelmakers two years ago.

"With these guys making a lot of money, the union workers are going to set their sights pretty high," said New York-based steel analyst Chuck Bradford of Bradford Research Inc./Soleil.

Last week, about 1,400 USWA workers at Iron Ore Co. of Canada in Labrador City, Newfoundland, went on strike, stopping production. Iron Ore is a division of London-based Rio TintoPLC. Earlier this month, 575 USWA workers went on strike at two Wabush Mines operations in eastern Canada. Those facilities are owned by U.S.-based iron-ore company Cleveland-Cliffs Inc. and Canadian steelmakers Dofasco Inc., and Stelco Inc.

Prudential analyst John Tumazos said most North American steel mills have two months' inventory of iron ore, but a strike of more than 30 days could pose a problem. Analysts say protracted strikes could affect steel production at companies like Ispat International's Ispat Inland Inc. and Stelco. Both Ispat Inland and Stelco say they have other sources and don't expect to be affected.

Steel companies could deal with iron-ore supply disruptions by either curtailing steel production or buying iron ore at higher prices from abroad. Both could lead to higher prices for their customers.

In the U.S., talks resumed last week between Cleveland Cliffs and the USWA regarding 2,000 workers at four mines in Minnesota and Michigan. The company wants terms similar to competitors such as U.S. Steel Corp., which sells some of its iron ore on the open market. Cleveland Cliffs Chairman John Brinzo said issues regarding legacy costs such as pensions and health care are unresolved. He said the company already has lined up temporary workers to staff the mines if the union strikes.

The USWA cites iron-ore prices, which are at their highest level in 25 years. "Given this market, we are not going to sit down and start giving things up over the table," said Tom Conway, secretary and USWA representative to the Basic Steel Industry Conference.

The increasingly contentious labor relations come as some North American steel makers are seeking more favorable terms from their workers. Chicago-based Ispat Inland is trying to negotiate a new labor contract by Aug. 1, but talks have stalled over capital-investment issues.

USWA workers voted 96 percent in favor of a strike action at Algoma Steel Inc. in Sault Ste. Marie, Ontario, after rejecting a recent contract proposal. Local union leaders said, in a statement, that workers provided needed concessions in the past, but now "want to share in the company's good times."

Meanwhile, Stelco, currently operating under the equivalent of chapter 11 bankruptcy-court protection, says it needs concessions comparable to those given to U.S. steelmakers. It has claimed that International Steel Group Inc. and U.S. Steel, with their new labor contracts, are able to make steel $40 to $60 a ton cheaper than Stelco, which lost $563 million last year. The Canadian company, last week, said it will close a rod mill, ending 160 jobs by September.

Indeed, should the unions succeed, the real winners might be the largest U.S. steel companies such as Nucor Corp., which doesn't have unions or use iron ore, as well as Pittsburgh-based U.S. Steel and ISG, of Richfield, Ohio, which successfully negotiated lower-cost contracts. The Wall Street Journal