The Ontario Superior Court has reserved judgement on a plan that proposes to split U.S. Steel Canada Inc. from its parent company and allow the steel maker to carry on independently.
The Canadian company, possessing, possessing the youngest integrated steel mill in North America and an idle steel-making mill in Hamilton, would proceed on its own or be sold after U.S. Steel and its stakeholders failed to reach a deal on the future of the Canadian unit within its troubled Pittsburgh-based parent company.
U.S. Steel will not bid for the Canadian assets, but will maintain all services and arrangements that the Canadian unit requires for up to 24 months under a transition agreement the parent company put forth Wednesday at an Ontario Superior Court hearing.
"Absent a consensual restructuring or a [sales and restructuring process] transaction at this time, U.S. Steel Canada needs to bring stability to its operations while it starts the process to disengage itself from U.S. Steel as well as to work toward developing new markets and customers for its steel products," court-appointed monitor Alex Morrison said in a report.
If the court approves the transition agreement, the move would end 13 months of negotiations between U.S. Steel, the United Steelworkers union, active and retired salaried personnel, and the government of Ontario after the Canadian unit was placed into protection under the Companies' Creditors Arrangement Act in September, 2014.
It also brings the former Stelco full circle after its $1.1-billion purchase by U.S. Steel in 2007, a move seen as largely a defensive tactic aimed at keeping the company out of the hands of Russian giant OAO Severstal, which appeared intent at the time on becoming a major North American steel producer. Severstal has since exited North America.
Essar Steel Algoma Inc. made a bid to buy U.S. Steel Canada under the sales process set up as part of the CCAA. There were no acceptable bids for the company, Mr. Morrison said in earlier reports.
The restructuring talks culminated last month when U.S. Steel began to shift production of automotive steel out of its Canadian operations to mills in the United States.
That led to a motion by the union seeking to halt the transfer and, ultimately, to a mediation process overseen by Douglas Cunningham, a former associate chief justice of the Ontario Superior Court. The mediation failed.
U.S. Steel Canada has debtor-in-possession financing to carry it through the remainder of 2015.
The future of U.S. Steel Canada as an independent is cloudy at best. It has pension liabilities in excess of $800-million, an unknown environmental liability in Hamilton and unknown costs in trying to re-establish itself amid a wretched North American steel market.
The market in North America is "catastrophic," independent steel analyst Chuck Bradford said Wednesday, pointing to prices on the spot steel market that have fallen by one-third to $400 (U.S.) a ton since U.S. Steel Canada was granted CCAA protection last September.
Steel shipments in the United States fell 12 per cent in August, Mr. Bradford said.
"That's a huge number," he said, and it comes even though auto makers in North America are running full throttle amid a surging U.S. new vehicle market.
As part of the transition, U.S. Steel will provide funds for U.S. Steel Canada to make pension contributions for the rest of the year.
Steel produced for auto steel makers is critical to U.S. Steel Canada's Lake Erie works in Nanticoke, Ont., and a galvanizing mill in Hamilton called the Z-line.
U.S. Steel will retain the automotive contracts, but has agreed as part of the transition plan to inform auto makers that they can contact U.S. Steel Canada if they want to continue to buy steel made at the Lake Erie works.