Canada warns U.S. Steel about temporary shutdown

By Julian Beltrame, The Canadian Press

OTTAWA - The Canadian government is telling U.S. Steel Corp. to restart operations at two former Stelco Inc. plants in southern Ontario or face possible fines or even an "unwinding" of the $1.1 billion purchase of the Canadian steel company by the big American steelmaker two years ago.

Industry Minister Tony Clement said Wednesday he has sent a "demand letter" to the U.S. steel company (NYSE: X) that its temporary shutdown at plants in Hamilton and Nanticoke, Ont., is in violation of commitments the Pittsburgh company made when it bought Stelco.

'When U.S. Steel acquired Stelco Inc. in 2007, it committed to a series of undertakings regarding, among others, capital expenditures, research and development and production," the minister said. "U.S. Steel has recently cut production and laid off employees at its Canadian operations."

'While I recognize that these are challenging economic times, we expect the company to live up to its commitments."

In a news scrum after the announcement, Clement said U.S. Steel had 10 days to respond.

'Yeah, I'm playing hard ball. But it's important that every company recognize they have to live up to their obligations," he said.

'They are still producing steel, they are just not producing steel in Canada.

He said U.S. Steel was required to incorporate the acquired Canadian plants into their international operations and noted that the government has budgeted for an extra $12 billion in infrastructure spending as part of its stimulus package and that many of those projects will need steel.

Clement said there are a number of options available to the government under the Investment Canada Act, including "unwinding the deal," seeking court penalties of $10,000 per day, or seeking a court ruling that would settle the issue.

A spokesman for the Pennsylvania-based company said she had received the letter.

'We are reviewing the demand and will respond in due course," said Courtney Boone.

U.S. Steel announced the temporary, but indefinite, shutdowns of steel operations in March, idling 1,500 workers. Union leaders said Tuesday that they're also bracing for a temporary closure of the coke ovens at Lake Erie Works in Nanticoke.

The company has also cut jobs in the United States and curtailed expansion plans as it deals with a huge slump in steel demand caused by the recession and huge production cuts by auto customers such as General Motors, Ford and Chrysler.

Clement described the demand letter as the first step in the enforcement process under the Investment Canada Act.

United Steelworkers economist Erin Weir welcomed the minister's announcement.

'It's really good they are trying to enforce the commitments," he said. "But this is uncharted territory. I don't know if the government of Canada has tried to do this before."

Under the act, a court can order a foreign company to divest itself of its Canadian operations if it is found to be in violation, or face penalties of up to $10,000 a day.

In a related matter, workers at Xstrata Mine Mill and Smelter in Sudbury were seeking a meeting with the minister over the company's decision to lay off 686 workers in what they said was a violation of a 2006 takeover agreement.

That deal cleared the way for Swiss mining giant Xstrata to take over the former Falconbridge Inc., the Toronto-based nickel miner with operations in Canada and abroad.

Canadian Auto Workers local president Dwight Harper said the Swiss-based firm had committed to no layoffs for three years, a period that expires this July.

Clement said the government had reached an understanding with Xstrata on future investments "that they are willing to put in writing."

In trading on the New York Stock Exchange on Wednesday, U.S. Steel shares rose 49 cents to $31.30, a gain of 1.6 per cent.