TORONTO - The closure of major steel operations in the Hamilton area will reverberate around the economy, potentially affecting everyone from iron ore producers in Quebec and Labrador to coal companies in Western Canada.

Pittsburgh-based United States Steel Corp. (NYSE:X) has said it will indefinitely idle operations at its Hamilton and Lake Erie plants, putting 1,500 people out of work. The closures are the first time the company formerly known as Stelco has shut down its Ontario steel mills in nearly a century of operations.

Patricia Mohr, commodity market specialist at Scotiabank, said the U.S. Steel Canada closures are part of a pattern that has seen global production of carbon steel drop by approximately 27 per cent in 2008.

"Global production of ordinary carbon steel is down hugely, and the shutdown of Stelco is just part of that overall pattern," Mohr said Wednesday.

She added that although U.S. Steel's Hamilton-area operations are "fairly small on the global landscape" when compared to massive steel mills in Japan, South Korea and China, it could have some impact on Canadian coal producers like Teck Cominco Ltd. (TSX:TCK.A) which are already suffering from the general downturn in demand for coking coal to produce steel.

Integrated steel companies such as U.S. Steel operate big blast furnaces, which use coking coal, iron ore pellets and other materials under extreme heat to smelt metal.

U.S. Steel spokeswoman Erin DiPietro said the company's Canadian arm receives its iron ore directly through joint ventures with the Hibbing Taconite mine in Minnesota, the Tilden mine in Michigan and the Wabush mine on the border between Quebec and Labrador.

The iron ore operation employs about 1,000 people.

All these of these mines could be affected by the U.S. Steel shutdown, particularly the Wabush mine, which is 44.6 per cent owned by U.S. Steel Canada.

U.S. Steel, which bought out Stelco for $1 billion in 2007, said Tuesday it will indefinitely idle its finishing and coking operations at the company's Hamilton Works and the steelmaking and finishing operations at its Lake Erie Works near Nanticoke, Ont., until market conditions improve. The company's Lake Erie coking operations will remain open.

U.S. Steel already shut down its Hamilton blast furnace in November, laying off an additional 700 employees.

Steel industry expert Peter Warrian said it appears the company believes demand for its products is not going to rebound any time soon, and he predicted the plants could remain closed for six months to a year.

He added that U.S. Steel's Lake Erie plant is the company's most modern one.

"The one in Lake Erie is about the most productive basic steel mill in all of North America and to see it shut down like this is troubling. If you shut down your super-competitive, most productive mill, what does that say about the rest of them?" Warrian said.

"The threat here might be that when Stelco comes back on, do they produce the basic steel down in Lake Erie and just process it in Hamilton, which could cost Hamilton half of its jobs, that's the risk," he added.

Warrian predicted it could take as long as three years for the steel industry to fully rebound.

The industry has been hit hard by the worldwide recession, which has cut demand for steel used in construction, the auto and appliance industries and the capital goods sector.

Steel production and prices, which reached all-time highs last year, have dropped to their lowest levels in a quarter century in recent months.

In Canada, steelmakers such as the former Algoma Steel, Ipsco and distributor Russel Metals (TSX:RUS) have cut jobs and streamlined operations to deal with the industry downturn.

Hamilton, known colloquially as Steeltown, has been hit particularly hard by the slump in the industry and the layoffs that have resulted at U.S. Steel and its rival, Arcelor Mittal Dofasco.

Tyler MacLeod, president of the Hamilton Chamber of Commerce, described the layoffs at the former Stelco as "a very significant impact on a great legacy."

U.S. Steel's Hamilton plant has been in operation since 1910 and has never once been idled before now.

Although the former Stelco's operations have shrunk dramatically -- at their peak, they employed 13,000 people in the Hamilton area -- MacLeod said the Chamber of Commerce is concerned about "cascading spinoff effects" as laid off workers cut back their spending and companies that did business with U.S. Steel find themselves short a customer.

Arcelor Mittal Dofasco spokesman Larry Meyer said that while his company has laid off an equivalent of 900 employees by releasing casual workers and contractors, they have so far avoided layoffs among their full-time staff through the use of a four-day work week.

The company, which produces a lot of higher value-added steels, employs about 5,000 people in Hamilton.

"Other than the vigilance around cost and turning over every stone to contain costs and find other cost-reduction strategies ... we're looking monthly, weekly, daily at any other cost-reduction activities that we could be involved with," Meyer said.

"Our principle remains to protect full-time employment."

Wayne Fraser, director for the Ontario and Atlantic regions with the United Steelworkers, said the company has given the union no sense of how long the facilities will remain idled.

"I don't think this is a two-week problem that we're facing at U.S. Steel, I think it's longer than that," Fraser said. "I wish we could make an analysis that in three months everything will be better, but quite frankly no one knows."

Ontario Premier Dalton McGuinty said Wednesday that representatives of U.S. Steel told the Ontario government they will honour all their obligations for both employee pensions and government loans.

Ontario loaned Stelco $100 million as part of its restructuring in 2005, money McGuinty said he still believes will be paid back.

The Hamilton Spectator reported that U.S. Steel promised to "maintain employment levels" at the former Stelco in exchange for Ottawa's approval of its $1.9-billion takeover in 2007.

The jobs commitment is part of the American company's formal agreement with Industry Canada under foreign-investment rules, the newspaper said.

"It's outrageous we didn't ever hear about any employment maintenance," said Rolf Gerstenberger, president of the United Steelworkers in Hamilton. "If commitments were made, they definitely should be forced to live up to them."

U.S. Steel declined to comment.

"That was part of our discussions in a private meeting with the government," U.S. Steel's Courtney Boone told the Spectator.

Economic Development Minister Michael Bryant said one of the best things the provincial government can do for the steel industry is to stimulate demand through other industries.

"One of the things that the government of Ontario can do right now to assist is to deal with the upstream issues -- perhaps the best thing for the steel industry right now is assistance to the auto industry, a major source of demand," Bryant said.

NDP critic Paul Miller called the Stelco closure a "shocking blow" and an example of what happens when a country's base industries are sold to foreign buyers.

Federal Industry Minister Tony Clement said he was caught off guard by U.S. Steel's Tuesday announcement.

"We did have discussions with that company earlier that day and the way it was conveyed to us was surprising, I'd put it that way," Clement said.