USX cost-cutting a drop in the crucible. Analysts say plans to trim down steel plants appear to fall short

In a move to cut costs by $600 million a year, USX Corporation appears to be wielding a chisel where a jackhammer may be needed. The giant oil, steel, and financial services conglomerate announced Wednesday it would ``temporarily idle'' three plants and part of a fourth, reducing steelmaking capacity by 27 percent, to 19 million tons a year.

This move comes hard on the heels of a new four-year steel labor contract signed Jan. 17. Ratification last weekend ended the country's longest steel strike.

It also follows several attempts to take over the company by corporate raiders - although chairman David M. Roderick played down the raids as having stimulated the company into restructuring.

Still, analysts believe USX is making only a fraction of the changes that are needed to reverse the company's problems, particularly in steel - a feeling shared by Mr. Roderick. In 1986, net losses at the company reached $1.8 billion.

``We will not hesitate to make further restructuring moves,'' Roderick told reporters at the press conference in New York earlier this week.

Steel is the obvious target. Losses last year in steel were $1.4 billion on sales of $3.7 billion.

Last year was worst than most for the US Steel division of USX, because a strike (called a lockout by the union) lasted from Aug. 1 until mid-January, shutting down the country's largest steel producer. Before the strike, USX had produced 12 million tons a year, or 17 percent of domestic production.

USX and the union agreed to the contract Jan. 17, and the 33,000 voting members of the union overwhelmingly approved it in a vote counted Jan. 30.

Despite the long walkout, little was achieved in the contract that was different from the new labor pacts among other steelmakers.

Wages and benefits were cut by $2.45 in the first year, bringing costs to around $23 an hour, close to the average for the big producers. The union gave up 1,346 jobs through job classification changes while gaining more-stringent curbs on contracting-out. A profit-sharing clause was thrown in for good measure.

Most startling to industry executives familiar with USX's desire to cut costs were commitments to modernize the Monongahela Valley Works in Pittsburgh and avoid a permanent shutdown for four years of the inefficient open-hearth furnace at the Fairless Works, near Philadelphia.

Overall, in the words of Donald Barnett, an independent steel analyst, ``Clearly, they didn't get as much as they wanted.''

Roderick said lower labor costs alone will reach $240 million a year once all provisions kick in.

But just as clearly, this was not enough. USX took a $1.5 billion charge in the fourth quarter last year that was mainly to account for new mill idlings - mills that he acknowledged are unlikely to melt steel ever again.

These include the Geneva Works, in Utah, making plate and semi-finished steel; melting operations and a pipe mill at the Texas Works; and smaller raw material and finishing plants.

All told, 3,700 previously active steelworkers and 7 million tons of capacity are affected, bringing the former giant to 19 million tons of capacity from 26 million tons.

Workers at these mills will not receive severance benefits until the mills are permanently shuttered.

Roderick described as ``remote'' the chances of reopening these plants and said the 184-day work stoppage was a key factor in the decision not to restart them.

Still, analysts were expecting a bigger restructuring at USX.

``I'm surprised his list of idlings isn't a little longer,'' says Walter Carter, a steel analyst with Data Resources Inc. in Lexington, Mass.

In reality, Roderick's list is a little longer. He let slip in the press conference that the $1.5 billion earmarked for asset sales over the next two years is actually part of a long-term $2.5 billion list. This list includes some energy assets, steel plants now idled that would be sold, and various real estate, mining, and transportation holdings. USX has already sold $4.3 billion of assets since 1980.

The big question, given USX's gradual slip into the oil and financial services business, is whether the company will stay in steel. Plant closings, plant sales, and a just-announced decision to make the steel business a separate subsidiary appear to suggest a departure from one of the country's least attractive industries.

``It would not be surprising if USX sold all of its steel operations or pieces of it separately,'' analyst Carter says. ``They certainly want to isolate steel from the rest of the corporate activities.''

But Christopher Plummer of Chase Econometrics in Bala-Cynwyd, Pa., points out that the market value of Geneva Works, including labor obligations and outdated mills, is a dismally negative $50 million, that is, a liability on the books.

Saying the company would reevaluate its plans as the market changes, Roderick concluded, ``Once we give it legal substance [as a subsidiary], we can entertain other options, either a spinoff, a joint venture, or maintain it as a subsidiary.''

Immediately on the agenda is for USX to regain market share eagerly grabbed by competitors during the strike. The likely strategy is price cuts.

``I'm still expecting some price decreases for them to get back into the market,'' says Jane Belcher, a steel analyst with Duff & Phelps in Chicago. Prices crept upward by $10 to $30 a ton during the walkout.

David Samrick, president of a steel distribution company, Mill Steel in Grand Rapids, Mich., expects USX to focus on supplying steel under long-term contracts with the automakers before turning around in the summer to regain smaller customers through lower prices.

In any case, it will take the steelmaker at least a month or two to get steel through the supply chain.

Roderick claims his strategy is to sell at market prices. But during the press conference he growled, ``We're not going to have someone eat our lunch.''

He promised to regain former market share despite the 7 million-ton cut in capacity.

The issues surrounding USX's pricing policy are far more important than just quarterly jolts to competitors' profits. Lower prices could tip other producers down the treacherous slope of bankruptcy already experienced by No. 2 steelmaker LTV Corporation last year.