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martynchase@wvgazette.com

West Virginia's two integrated steel producers in the Northern Panhandle face a grim future, according to industry analysts.

Weirton Steel Corp., which filed for bankruptcy Monday, and Wheeling-Pittsburgh Steel Corp. may need to cut their workforce by 25 percent over the next year or so, the analysts said.

That would translate into job losses of more than 1,500 in the Northern Panhandle and intensify a steady erosion of manufacturing jobs in the state. Weirton employs about 3,500 and Wheeling-Pitt employs 3,800. The state already has lost one of every nine manufacturing jobs since July 2000.

Harsh new competitive realities in the domestic steel industry now will force additional down-sizings at both of its integrated steel producers.

The biggest factor is the wholesale shedding of legacy costs, including pensions and health-care benefits by International Steel Group and other big producers. That has established a new cost structure for the industry.

An unexpected collapse of steel prices and global over-capacity play a role, too. Hot-rolled steel prices have fallen sharply to below $250 a ton from the peak levels of $380 per ton hit in July last year after President Bush imposed temporary tariffs on many grades of imported steel.

"The two companies in your area are operating under very difficult conditions," said Christopher Plummer, managing director at Metal Strategies Inc., a steel consulting firm in West Chester, Pa.

He described Weirton and Wheeling-Pitt as "orphan companies" left out in the cold in domestic steel's consolidation. The industry will be dominated by three big players: ISG, which recently acquired Bethlehem Steel, U.S. Steel, in the process of acquiring National Steel and Nucor Corp., the leading mini-mill producer, he said.

"They [Weirton] came to the conclusion that the only way they were able to get competitive long-term is to get rid of their legacy cost liabilities," said analyst Michael Locker, president of Locker Associates in New York. The quickest way to do that is via bankruptcy.

"It's tough news for the work force and retirees there, but it's a realistic assessment," he added.

Locker also noted Wheeling-Pitt is "back in negotiations" with the United Steelworkers of America following approval in Washington in March of a $250 million federal emergency loan for the Wheeling-based company, a unit of WHX Corp.

Wheeling-Pitt, which filed for bankruptcy protection in November 2000, hopes to emerge from Chapter 11 by the end of June, a company spokesman said.

But one of the conditions imposed by the Emergency Steel Loan Guarantee Board in Washington requires Wheeling-Pitt to get a new labor agreement with the United Steelworkers of America that would put the company on a more competitive footing with ISG. That's certain to bring significant job cuts at Wheeling-Pitt, analysts said.

"They will probably negotiate a contract that will be very competitive with ISG in terms of manning and work rules," Locker said.

Based on what's happening elsewhere, Plummer and Locker see job cuts of 25 percent ahead for both West Virginia-based producers.

Locker said that ISG, the former LTV Corp., slashed 30 percent of its hourly workers and 40 percent of its salaried staff after going through a Chapter 7 liquidation. Weirton and Wheeling-Pitt are "leaner" than LTV so the reductions probably won't be that sharp but heavy cuts are unavoidable, he said.

"This is what will apply across the industry," Locker said. "There is no way around it."

"They also want the work rule and manning changes that ISG already has obtained and that U.S. Steel-National are in the process of getting," he added.

At Weirton, the company got close to $80 million in concessions from the Independent Steelworkers Union and in negotiations with salaried workers and company vendors. "For a company making 2.5 million tons of steel, those are good savings," Plummer said.

But rising costs for natural gas, iron ore, scrap steel and other "inputs" to production negated some of those savings, analysts said.

"The problem is the industry around them is changing," Plummer said of the West Virginia steelmakers. "The mini-mills already are moving into the sheet market and with the restructuring of big companies like ISG-Bethlehem the pressures are intense."

On top of that, the economy and the end market for steel products has been "pretty dismal" over the last 24 to 36 months, he added.

Plummer described Weirton, Wheeling-Pitt, WCI in Ohio and Rouge Steel in Michigan as the "orphans" in the reshaping of the industry.

Locker held out the prospect that Wheeling-Pitt "might be acquired" by another domestic or foreign firm, possibly fairly soon.

Don Barnett, president of Economic Associates, Great Falls, Va., expressed surprise at Weirton's bankruptcy filing. He thought the firm's strong position in tinplate isolated it to some extent from wider problems in an industry, which has seen 36 bankruptcies since 1998.

"Weirton's a great company," Barnett said. "I hate to see this happen." He said the company is "fairly well-managed" and had been overtaken by events beyond its control.

"We are being driven by circumstances in China and elsewhere around the world," said Barnett, formerly the World Bank's top steel expert. He noted that the Chinese suddenly cut back sharply on imports of steel products as its economy tanked due to the spread of the SARS virus and other factors.

"China's import numbers are way down and that means [world] steel prices are way down, too," he said.

Longer term, he said, the dollar's 20 percent decline against foreign currencies would help steel and other manufacturing industries. But there's a lag of about a year in terms of the export-import impact of a weaker dollar, he noted.

To contact business editor Martyn Chase, use e-mail or call 348-5156.

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