High closure costs keep obsolete steel plants open

Although the average cost of closing a steel plant in the United States is down substantially from a few years ago, it is still high enough to keep several non-competitive plants in operation.

And, the average per-employee cost of closing a plant is currently $75,000(US). As that figure declines, more steel plants will be closed.

The above are major conclusions of a new forecast, New Uncertainties in the U.S. Steel Market, released by Chase Econometrics.

“Given an average of 4,000 employees per plant, we estimate that a typical integrated plant closure today would cost over $300 million dollars,” one of the two authors of the forecast said. “That represents a sharp deline in closing costs from 1980, when the figure would have been twice as high.”

Major factors in bringing the closure costs down since then have been the massive layoffs, the additional eight years of plant and equipment depreciation, and the restructuring of supplier relationships, he said.

“All of these factors are still operant, and bringing closure costs down with each passing year. And as closure cost barriers continue to fall, more plants will close,” he said.

“Our analyses indicate that the American steel industry has at least 25 million tons of excess capacity, given the outlook for steel markets. Unfortunately, that means that industry layoffs and closures will continue, and that nearly 25% of today’s steel jobs are in danger.”