By Alex MacDonald 

LONDON-- ArcelorMittal, the world's biggest steelmaker, said it needs to raise health-care premiums for its U.S. workers and retirees and freeze or cut pay for some employees.

"We should not have a condition of employment worse than our competition, " ArcelorMittal Chief Executive Lakshmi Mittal said in an interview. "We should not be in an unfair position."

For instance, the current health plan doesn't require workers to pay any premiums, while at similar companies employees may pay 22% of their medical benefits package, according to the company.

With a Sept. 1 deadline to conclude a new three-year labor pact, Mr. Mittal has met four times this year with Leo Gerard, president of the United Steelworkers union, which represents most of the company's more than 20,000 American workers. The USW is also negotiating a new deal with U.S. Steel Corp.

ArcelorMittal officials say the current contract, which includes blue-collar salaries that sometimes top $100,000 a year, doesn't reflect economic realities because it is based on a deal signed in August 2008, before the global financial crisis.

The company, which makes 6% of the world's steel, on Friday posted a net profit of $179 million in the second quarter, up from $52 million a year ago, thanks in part to favorable exchange rates.

These days, Mr. Mittal said, the company is under pressure from the aluminum sector in the auto market, a global oversupply of steel, and record Chinese steel exports. He said 43% of Chinese steelmakers are unprofitable, demonstrating that the industry there receives unfair state subsidies.

ArcelorMittal has proposed freezing pay, cutting total compensation for some workers, and requiring monthly health-care premiums of $150 for individuals and $250 for families, according to a note the union leaders sent to workers.

"We are committed to negotiating a fair agreement that doesn't include drastic reductions in compensation for active and retired employees," union leaders wrote to their members. A union spokesman declined to comment on the labor talks.

The proposal to reduce compensation would affect only workers in entry-level jobs, such as cleaning, maintenance, and driving, who currently earn $20.45 an hour, plus bonus incentives, a company spokesman said.

He declined to say if the number of workers would be reduced. ArcelorMittal's U.S. operations have a higher number of older workers than in Europe, which would allow it to reduce head count without layoffs.

"Clearly people are [going to be] affected," Chief Financial Officer Aditya Mittal said

ArcelorMittal employs more than 20,000 employees at 28 operations in the U.S. with an additional 1,200 employees in research, development, sales and company offices.

Things are brighter in Europe, ArcelorMittal said, as operating profit there increased to $386 million in the quarter from $269 million a year ago. The company endured several years of losses there amid restructuring that included layoffs and the closure of unprofitable blast furnaces.

ArcelorMittal wants to implement a version of that restructuring plan in the U.S. but focused on its steel-finishing operations rather than blast furnaces. Also, the U.S.'s expensive, private health-care system is a burden it didn't face in Europe, company officials say.

The U.S. steel market hasn't suffered as badly as in Europe in, where shipments are still below 2008 levels as demand is down. "Europe required primary capacity changes," said Aditya Mittal. "In the U.S., it is more how do we further improve the productivity and cost performance of our finishing operations."

U.S. steelmakers have been hit by wave of steel imports, particularly from China as the Asian economy cools, prompting the industry to file requests for trade protection.

U.S. steel demand is forecast to grow 2.3% this year, the highest out of all the regions in which ArcelorMittal operates, due to strong demand for construction and automobiles.

In South Africa, ArcelorMittal is considering closing Vereeniging Steel, a minimill that produces around 400,000 tons of crude steel annually and employs 1,200. Aditya Mittal said a final decision will depend on whether steel import pressures abate. ArcelorMittal directly employed 8,825 people in South Africa last year.

The second half is forecast to be better than the first half because of increased steel shipments from Europe and Brazil, where weakening currencies are making it easier to export steel, and an expected rise in U.S. demand.

Write to Alex MacDonald at alex.macdonald@wsj.com

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