Why Big Steel has a big case of the hurts

Mark Reutter

April 27, 1992|By Mark Reutter

AMERICA'S steelmakers are back in trouble. After shutting down dozens of steel mills since 1979 and throwing 250,000 people out of work, the industry was supposed to be ready for the 1990s. "We're back," a top-ranked executive declared.

They're back all right, awash in red ink. Bethlehem Steel, the nation's No. 2 producer, lost a staggering $767 million last year. That's on top of more than $400 million in losses in 1990. In all, the five companies grouped under the once-proud moniker of Big Steel (Inland, National, USX-U.S. Steel, Bethlehem and LTV) have hemorrhaged nearly $3 billion in the past 18 months.

For many workers, the current downturn has been eerily reminiscent of the last time Big Steel crashed. "Restructuring," the code name for plant closings and cutbacks, again reverberates along the shores of Lake Michigan and the Ohio River, through the mill towns of Pennsylvania, in blue-collar Cleveland and Baltimore, sending renewed economic shock waves to areas beset by job losses and unemployment.

Earlier this month, USX closed the venerable South Works plant in Chicago, and Bethlehem has announced the future sale or shutdown of important divisions at Johnstown, Pa., Buffalo, N.Y., and Sparrows Point.

With sales exceeding $40 billion a year, there's money to be made in steel. But resources need to be used wisely and well. Big Steel, to be sure, did part of the job in the 1980s. Bethlehem and USX retired grizzled equipment, some of it dating back to World War II. Inland and LTV teamed up with foreign companies and modernized their mills.

But steel executives did not take other essential steps toward renewal, and that's beginning to haunt them. In a competitive economy, it is imperative for a business to link its future to new products, expanded markets and advanced technology. Big Steel's managers seldom have faced up to this reality. They have cut back and laid off, with devastating economic and social results, but not pinpointed a strategy for growth and success.

To understand what's gone wrong, it's important to separate the short-run forces that have hurt steel from the longer-term factors that are at work. Americans aren't buying many cars now and the real estate market is in the doldrums. As a result, orders for flat-rolled steel used in cars, and beams and plate used in construction, steel's two principal markets, are down and prices very low.

The current recession masks deeper changes in the marketplace. After raising prices at nearly twice the rate of inflation between 1955 and 1979, steel opened the door to competing materials. Imports never were the primary problem; aluminum and plastics were. As late as 1970, Coke, Pepsi and other soft drinks were canned in steel. Steel lost this $3 billion-a-year market to aluminum companies through inflexible pricing and stodgy marketing.

Steelmakers couldn't imagine a world of aluminum Coke cans or plastic coffee makers or cellophane-wrapped fruits or concrete buildings. By the time they did, it was too late. What's more, as markets declined, steelmakers developed the dangerous habit of becoming dependent on a few core buyers, such as the auto industry, whose protracted downswings can menace all but the strongest firms with bankruptcy.

To counter these trends, steel must strike out in new directions. In Europe, French and German companies are preparing for the renaissance of high-speed rail travel with new alloyed steels for vTC Bullet trains, tracks and stations. They expect a rich bounty of orders, with spinoffs for consumer and industrial products.

The Japanese are equally ambitious. Nippon Steel is capitalizing on environmental worries. From waste management to recycling, steel is being targeted for various future "green" technologies.

Where does this leave U.S. producers? Few industries have appropriated less for research and development (under 2 percent of 1990 sales), few have complained louder about pollution regulations and few have been so sluggish in targeting new markets. What's especially sad is that while steel lags, America's infrastructure sags.

Big Steel has been equally timid in seizing on technology that promises to reshape the industry. In the bean-counting mentality of company headquarters, executives wait until the very last moment before authorizing new equipment. And once others get a jump on technology, it's very hard, if not impossible, to catch up.

A recent example was a piece of computer-driven machinery designed to make finished steel directly from molten metal. After spending $10 million in taxpayers' money, USX concluded that this revolutionary idea (which would eliminate several steps of production) was "not practical."

Every other firm followed USX's lead and passed on the new machinery. Only Nucor, a mini-mill company, decided to take a chance. Today Nucor can produce a ton of rolled steel in 0.8 work-hours with the new machinery, while Big Steel takes five hours or more doing it the old way.

Indeed, quick-stepping Nucor has consistently out-maneuvered the plodding conglomerates. Nucor's success punctures the myth that America can't make steel anymore and offers a prescription for how the industry can regain its prominence and profits.

Mark Reutter, a former Sun reporter, is the author of "Sparrows Point: Making Steel," a history of Baltimore's Bethlehem Steel plant, and many articles on business and labor. This is the first of three parts.

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