PITTSBURGH U.S. Steel prepares to shop

U.S. Steel is expected to go shopping for other steel mills.
PITTSBURGH (AP) -- Strong earnings and a pending $500 million sale of businesses should give U.S. Steel, the nation's largest integrated steelmaker, the cash to ensure its future. But it's unclear where that future will be.
Analysts and union representatives say U.S. Steel is poised to take advantage of opportunities in the nation's beleaguered steel industry, which has seen 34 companies go into bankruptcy and 17 shut down in the past five years.
But it's uncertain if the Pittsburgh-based company will use the money to press forward with stalled consolidation of the U.S. industry or use the money abroad, where it could avoid crippling costs.
High demand, prices
Higher prices driven by tariffs on foreign steel and higher demand from fewer competitors has put U.S. Steel on pace for its first profitable year since 1999.
The steelmaker has posted two consecutive quarterly profits, exceeding Wall Street's expectations, and reported earnings of $50 million in the first nine months of the year, compared with a $44 million loss last year.
And U.S. Steel would get money to burn with the proposed sale of its coke mills, iron mines and transportation company for $500 million.
Thomas Usher, U.S. Steel's chairman and president, said the company has not dedicated the money for any purpose, but he has indicated the steelmaker favors using the cash to buy operations.
"There is consolidation on the horizon, but it is consolidation by Darwinism. [Usher] has positioned the company well against the weaker companies," said Chris Olin, an analyst with Midwest Research. "I would think that U.S. Steel is going to pick up the pieces."
Possible purchases
Potential targets include bankrupt companies Bethlehem Steel of Bethlehem, Pa.; National Steel of Mishawaka, Ind.; employee-owned Wheeling-Pitt of Wheeling, W.Va.; and struggling steelmakers Rouge Steel in Michigan and Weirton Steel of Weirton, W.Va.
Olin said a large acquisition by U.S. Steel could set off a wave of domestic consolidation, which has been limited since the Bush administration placed tariffs on imported steel in March.
But analysts caution that U.S. Steel, no matter how much money it has, would be unlikely to buy the assets of another U.S. steelmaker until there is an answer for so-called "legacy" costs -- pension and health-care costs for former employees at bankrupt steel companies.
Foreign investors also have been wary of the estimated $13 billion in unfunded pension and health-benefit obligations for current and retired steel workers.
"The National Steels and Bethlehems have been looked at by foreign mills. Brazilians and Europeans came to the same conclusions, the legacy cost issue was too much of an albatross," said Michael Locker, president of Locker Associates, a New York-based consulting firm that works with the United Steelworkers union.
U.S. Steel could avoid the costs by waiting for steel companies to enter liquidation, which would eliminate legacy costs as International Steel Group did when it bought LTV's steel mills.