Troubled steel -- II Small mills stage a comeback

Mark Reutter

April 28, 1992|By Mark Reutter

THE CORNFIELDS of central Indiana might seem an unlikely place for a steel mill, but then the gleaming oblong buildings rising near rural Crawfordsville don't look much like a steel mill, either.

But a steel mill this is, and one that has revolutionized production. The plant takes scrap iron and, in one continuous movement, melts, casts, flattens and rolls the metal into coils of steel ready for shipment. Known as thin-slab casting, the process slices the time needed to turn raw materials into the steel used in making auto parts and appliances from seven days to under two hours.

Crawfordsville is the latest triumph of F. Kenneth Iverson, chairman of Nucor Corp., a maverick steelmaker that specializes in defying the "can't do" philosophy of the Big Steel companies.

The heart of Iverson's strategy is the compact steel mill. Nucor has established seven mills in the South and Midwest that are small and very efficient. Each is equipped with state-of-the-art machinery. Each is run by local management responsible for costs, sales, research and hiring.

"Mini-mills can do the same thing a big steel mill can -- and do it quicker," says Mr. Iverson, a former mechanical engineer. "And you don't have seven layers of management above the mill supervisors, so you make decisions fast."

Under Mr. Iverson's leadership, Nucor has grown from insignificance to a $1.5 billion-a-year organization, nearly large enough to become a member of the Big Steel fraternity. But the mention of Mr. Iverson's name makes conventional steel people wince, for his company's success flies straight in the face of common wisdom about the American steel industry and its problems. For example:

* Isn't steel simply a money-losing business? Nucor has been profitable in every quarter since it began making steel in 1969 and has not closed a single plant -- or laid off a single worker -- for lack of work in 20 years.

* How can U.S. firms compete with foreign steel? Nucor drove Japan out of the bolt business not by hiring lawyers and filing unfair trade suits in Washington, but by improving manufacturing and making its bolts for less. Now the company is planning the same bargain-basement approach to strike at imports from Korea and Germany.

* Aren't labor costs to blame? At $16 to $20 an hour, cash wages at Nucor and the major producers are about the same. The difference is that Nucor employs 424 people to make 1 million tons of steel at Crawfordsville, while Bethlehem Steel employs 6,000 people at Sparrows Point to make 3.5 million tons.

The bottom line is that in the face of the recession and steep price cutting, Nucor made a solid profit of $65 million last year, while Bethlehem and USX-U.S. Steel ran up losses of $1.5 billion.

According to Mr. Iverson, the conglomerates have themselves mostly to blame for their dismal showing in 1991. Despite superior size and technical capabilities, the producers are still too opposed to risk-taking to marshal the forces necessary to stage a sustained comeback. "They got complacent and arrogant and didn't concentrate on the business," Mr. Iverson says.

He notes that Big Steel's strong profits in the late 1980s -- hailed by some as a "rebirth" -- were largely the result of plant closings and the introduction of processes already known. Technological progress, defined as new processes and products, played only a minor role.

Mr. Iverson has mapped out a different course. In 1985, he decided to expand his company into flat-rolled steel, the longtime preserve of the integrated mills. Standard technology cost over $1 billion, so Mr. Iverson looked for alternatives.

After a world-wide search, Nucor's engineers said they had found an experimental machine that might work. The machine boasted a combined melting and rolling process that eliminated the costly steps of making steel first in slabs, then rerolling it into coils.

Mr. Iverson ordered the machine from Germany and Nucor broke ground for the Crawfordsville mill in 1987. To save time, the plant was designed as it was being built, and the machine, endowed with a million parts and a roomful of computers, had to be debugged. There were explosions of scalding metal and other LTC setbacks before it began producing steel of acceptable quality in 1990.

The company is not finished yet. A second mill using the same technology will open in Arkansas later this year. And Nucor plans to bypass the blast furnace by making iron directly from iron ore.

Already experts at Big Steel have lined up to say this process won't be "practical" for another five years. Ken Iverson says he's eager to prove them wrong.

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

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