Last Christmas Eve, a sprinkler pipe at a United States Steel Corp. X -3.65% plant south of Pittsburgh fell from the ceiling in a building at the 120-year-old complex. Within minutes, an area the size of a football field was engulfed in flame.
The falling pipe severed another delivering oil to a compressor, a machine sucking highly combustible gas through the plant. The leaking oil caught fire, the compressor began to vibrate violently and a flood of gas from coking-coal ovens was ignited, according to a 59-page report on the accident conducted for U.S. Steel by an engineering firm and reviewed by The Wall Street Journal.
Caught between the need to overhaul its existing plants and invest in new mills, the company that rolled the steel for the skyscrapers and cars that made the U.S. an industrial power is breaking down.
Current employees, former executives, hourly workers and investors said the fire at the Clairton coke plant at the company’s Mon Valley Works fits a pattern of failures that have made many of U.S. Steel’s largest plants unreliable, inefficient and, in some cases, dangerous for workers and the surrounding community.
Chief Executive David Burritt has rolled out ambitious strategies in the past 2½ years to spend billions of dollars on renovating or replacing equipment that has been in service for decades. “We are investing in our core assets,” a spokesman said, “to continue to ensure that we are aligned with our core values of safety and environmental performance, while positively contributing to the communities where we operate.”
The first American company to reach a $1 billion market valuation in 1901, U.S. Steel has been one of the country’s least profitable steelmakers over the past decade, recalling the struggles of other manufacturing stalwarts such as General Electric Co. So far this year, shares are down about 25%, at a time when steel sector stocks as a group have risen nearly 20%.
Tariffs on foreign-made steel imposed by President Trump have curbed imports and for a short time drove up U.S. prices, giving U.S. Steel a window to repair its plants and improve its competitiveness.
But several of the company’s domestic rivals, known in the steel industry as minimills, stepped up with major investments in new production capacity that will add several million tons of additional steel to the U.S. market over the next three years. With steel prices already weakening again, the industry’s building spree is raising questions about whether the U.S. is facing a glut that could drag down prices and profits.
In October, Mr. Burritt thrust U.S. Steel into the capacity build out with the purchase of a 49.9% stake in two-year-old minimill Big River Steel LLC for $700 million and a pledge to buy the remaining share within four years. Arkansas-based Big River, whose investors included a unit of Koch Industries, makes steel from melting scrap in an electric furnace. It has fewer than 600 employees.
“For us to build this, it would take many years and we have a need for speed,” Mr. Burritt told analysts in October.
U.S. Steel needs to raise hundreds of millions of dollars in additional debt to buy the remaining share of Big River and remains committed to spending about $2 billion for repairs and new equipment at Mon Valley Works and its Gary, Ind., mill, where the company is spending $750 million.
The company is trimming or delaying spending at other legacy mills whose future has grown more uncertain recently. Standard & Poor’s Global Ratings recently lowered its outlook on the company’s credit rating to acknowledge the risks.
Mr. Burritt was an outspoken advocate for the 25% tariff the Trump administration applied in March 2018 to foreign steel even from favored trading partners in Europe and Canada. The tariff pushed domestic steel prices to their highest point in a decade that summer. U.S. Steel posted one of its biggest quarterly profits in a decade and restarted idle blast furnaces to ramp up production.
The boost was short-lived. U.S. manufacturers facing slower global trade, less domestic drilling for oil and natural gas and tariff costs are buying less steel to make machinery, auto parts and other durable items. The spot-market price for sheet steel—U.S. Steel’s primary product—has fallen back below the roughly $600-a-ton threshold at which analysts say U.S. Steel can make a profit. In October, the company posted a loss for its latest quarter.
Mr. Burritt joined U.S. Steel from Caterpillar Inc. in 2013 to help reinvigorate the company under then-CEO Mario Longhi. Their plan, called the “Carnegie Way” after U.S. Steel co-founder Andrew Carnegie, pared debt and cut unfunded pension obligations by about 40% each over five years.
They required managers to come up with ideas for lowering expenses and strengthening workplace safety, and hired McKinsey & Co. to measure improvement.
Some employees welcomed the change from what they said had been lax expense monitoring. “It looked good on the chart on the wall,” said a former manager at a mill outside Detroit.
But after steel prices dropped in 2014 along with oil prices and manufacturing demand, past and present employees said the Carnegie Way turned mostly into a cost-cutting crusade. It reduced U.S. Steel’s salaried workforce by a quarter—about 750 workers—and slashed spending on maintenance and repairs.
McKinsey consultants urged managers to consider reducing any expense that could be isolated and measured. The consultants advised the company to buy heat-resistant brick from a supplier in China. Those bricks were less expensive than what the company had been using but also wore out more quickly. A giant ladle that moved molten metal from one furnace to another at the mill in Gary, needed to be relined after the cheaper bricks failed sooner than expected, former employees say.
A spokesman for McKinsey declined to comment to the firm’s work for the company. U.S. Steel declined to comment on the episode.
The maintenance budget for buildings and structures at the mill near Detroit fell to $3 million in 2015 from $30 million five years earlier, said a former executive there. Managers had to wait until equipment broke down before ordering parts. Office-supply purchases were reduced, so employees brought paper and pens from home. The consultants also urged U.S. Steel to halve the number of mechanics and electricians at its mills, the former executive said, leaving overworked crews to handle only urgent repairs.
As steel demand recovered in late 2016, production at Gary Works was frequently idled by breakdowns.
“That deferred maintenance led directly to the unreliability of their blast furnaces. They weren’t able to produce consistently,” said Fred Rorick, a retired blast-furnace manager for Bethlehem Steel Corp. and a consultant to the industry.
A spokesman declined to comment on the causes of specific outages, but said, “We have learned from the past.”
“We do not intend to let it distract us from building a sustainable future,” he said.
The company declined to make Mr. Burritt available for an interview. Mr. Burritt succeeded Mr. Longhi in June 2017 and pivoted from cuts to spending on repairs, including on the plants in Gary, Detroit and Pittsburgh. The company said the renovations would add about $300 million to pretax profit annually from lowered expenses and improved operations.
But new problems keep cropping up.
At a plant in Portage, Ind., that applies galvanizing and tin coatings to steel, the company has violated its wastewater discharge limits six times this year, according to records. Elevated levels of metals, oil and other production waste drained into a canal next to the plant that connects to Lake Michigan, which provides drinking water to Chicago and other cities.
The plant has received more than 90 citations for violating its wastewater discharge permits in recent years, including the release of 400 pounds of carcinogenic chromium during two incidents in 2017 alone. The company is facing more than $1 million in fines and fees under an agreement with federal environmental regulators awaiting federal court approval.
The U.S. Environmental Protection Agency’s investigation found a lack of a preventive maintenance on pipes and structures to contain the chromium in the plant. The agency said it found inconsistent inspections and record-keeping by the staff and a lack of written procedures for cleaning and maintaining the wastewater treatment system.
At the Mon Valley Works where the fire broke out last December, U.S. Steel bakes coal into a concentrated carbon that it uses as fuel in blast-furnaces throughout the company.
Investigators of the fire found that corrosion had rendered the failed sprinkler pipe “paper thin.” They concluded that the compressor would have failed soon anyway because a shaft inside it was also corroded and cracked. The blaze would have caused less damage if a valve had limited the quantity of gas being released as it was meant to, they wrote. But that valve was corroded, too.
Rose Bezy, an electrician and union leader at the plant, said the company had told workers to rebuild compressors like the one that failed rather than seek a manufacturer to fabricate new ones.
“In our machine shop, there’s only so much they can do,” Ms. Bezy said.
Before the fire, workers knew one compressor needed to be taken offline to be inspected because it was vibrating, according to a retired employee at the plant. Managers decided to wait until after the holiday to avoid paying thousands of dollars in overtime, the employee said.
“The plant is 100 years old and things need to be replaced,” said Don Furko, president of the United Steelworkers at the plant. “It’s a 24-hour-a-day operation and you have to stay on top of things.”
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The compressor where the fire originated dates to 1964 and was last overhauled in September of 2018, investigators said, a few months before the fire. It occurred in the early morning hours and no one was injured. But the fire knocked out facilities where oils and sulfur dioxide, a respiratory irritant, are removed from gas used to fuel other equipment at Mon Valley Works.
For more than three months, the company flared noxious emissions from a nearby hilltop. County health officials urged residents in 22 municipalities to avoid being outdoors in most of January.
People in the Pittsburgh area continued to complain about noxious odors. On April 1, the company emitted a peak of 135,000 pounds of sulfur dioxide in the valley outside Pittsburgh, far above the permitted 13,600 pounds. Emissions fell to a daily average of about 3,100 pounds when repairs to fire-damaged equipment were completed days later.
The company agreed in June to pay $2.7 million in fines to the county health department for pollution violations at the Clairton plant, and recently reached an $8.5 million tentative settlement of a class-action lawsuit brought in 2017 that alleged the plant’s emissions damaged residents’ property values, among other things. That includes $6.5 million for upgrades to reduce emissions. The county has joined a lawsuit brought by environmental groups seeking damages for residents in communities near the plant affected by the fire. The company faces a separate lawsuit filed in April on behalf of residents who allege that emissions after last year’s fire caused difficulty breathing and other physical symptoms.
In June, a smaller electrical fire broke out in a nearby part of the plant. U.S. Steel’s overhaul plans include about $1.2 billion on equipment upgrades at the coke plant and the Edgar Thomson steel mill that is also part of the Mon Valley Works.
Ms. Bezy said she doesn’t believe the planned renovations will bring the plant up to snuff against competitors’ new mills. “It’s like they’re trying to keep an antiquated corporation going,” she said. “We should be looking at the next step.”
Write to Bob Tita at robert.tita@wsj.com and Kris Maher at kris.maher@wsj.com
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