The old furnaces will be replaced because they are inefficient and expensive to maintain, the company said.
By DON SHILLING
VINDICATOR BUSINESS EDITOR
MCDONALD -- McDonald Steel said it will lose money for the second straight year but intends to replace its two 76-year-old furnaces now that it has a new labor contract.
Thomas Kantor, company president, said the five-year contract will allow the company to make plans and apply for loans for a new furnace while prices and interest rates are favorable.
Kantor commented on company plans today after the workers, who are represented by United Steelworkers of America and Teamsters Local 377, ratified the contract Saturday.
Kantor called the two old furnaces "inefficient gas hogs" that require expensive maintenance. They are to be replaced with one furnace, which will be used to reheat steel for rolling operations.
The expected purchase comes as the company says it lost money for the second straight year. The amount of the loss for fiscal year 2002, which ended Sunday, hasn't been reported.
McDonald Steel reported an $899,000 loss in the previous fiscal year, its first loss since the company's founding in the former U.S. Steel McDonald Works in 1981.
The company is struggling because the demand for the kind of hot-rolled steel shapes it makes is shrinking, Kantor said.
The downturn comes because of the worldwide economic slump and technological changes in manufacturing, he said.
Although there are mills making these products in the United States, Europe and Asia, McDonald Steel's main competitors are Corus, a British-owned company with mills in England and Germany, and Gautier Steel in Johnstown, Pa.
"But this new labor contract gives us an opportunity to succeed despite back-to-back losses, a tightening marketplace and the general economic slowdown," Kantor said.
The contract, which is the plant's first union agreement, continues a gain-sharing plan, which pays employees extra for increased productivity.
Lowering operating costs with the new furnace and improved productivity will help the company's bottom line, Kantor said.
McDonald Steel said the contract for its 130 hourly employees will cost it $2 million over the next five years, including guaranteed wage increases costing $1.5 million.
A lump-sum payment to cover the period since employees last received a raise will be $300,000. Improvements in the company's contribution to the 401(k) savings plan will be $200,000. Vacation improvements will cost $70,000.
Kantor said the five-year deal will assure customers of deliveries and lenders of the company's financial stability.
The contract ends years of attempts by area unions to organize workers and ratify a labor agreement.
Workers had voted down attempts to form a union in 1991, 1993 and 1997, but in 2000 workers approved joint representation by the Steelworkers and Teamsters.
The three previous attempts were by the Steelworkers.
McDonald Steel is controlled by Torent, a local investment company, but 38 percent of its stock is owned by an employee-stock ownership program. The company employs 162 hourly and salaried workers.