Company's problems arose abroad, at home

Imports, soft economy complicated by high cost of labor, retiree benefits

October 16, 2001|By Kristine Henry | Kristine Henry,SUN STAFF

When Bethlehem Steel Corp. filed for Chapter 11 bankruptcy protection yesterday, it blamed low-priced imports, falling sales and a slowing economy.

Those issues clearly played a part in Bethlehem's problems, but experts say high labor and benefits costs and competition from other domestic producers were also strong factors in its decline.

The country's third-largest steel maker has for the past several years been struggling with declining prices for its products as imports flooded the market.

About 31 million tons of steel were imported into the United States in 1997. That number jumped 33 percent the next year to 41.5 million tons as the Asian economic crisis drove steel-makers overseas to look for new markets. Since then, imports have declined but are still far above 1997 levels.

With so much product available, prices have tumbled. Hot-rolled steel that sold for more than $350 a ton four years ago is now going for less than $250, and cold-rolled has dropped from $500 a ton to slightly more than $300.

"The entire domestic steel industry is suffering from the onslaught of record steel imports since 1998," the company said in a statement yesterday. "The [Sept. 11 terrorist attacks] have contributed to a further weakening in demand for consumer products that rely on steel."

The company has taken the lead on pressing Congress and the White House to limit the amount of steel imported into the United States, and in June President Bush ordered the International Trade Commission to study whether the steel industry has been severely harmed by imports.

The ITC is to release its findings next week. If harm has been found, it will recommend remedies such as trade restrictions.

Steel analyst Charles Bradford of Bradford Research in New York agreed that imports are part of the problem, but he said many other factors are also to blame.

For one, the strong dollar is making those imports even more attractive than they ordinarily would be, he said, because it makes foreign goods even cheaper.

Additionally, U.S. mini-mills - which make steel from scrap metal instead of from scratch like integrated mills such as Bethlehem - use nonunion labor and have done more innovating, allowing them to match imports' prices - and putting more pressure on Bethlehem. At 1,400 tons per worker, output at mini-mill Nucor Corp., now the nation's largest steel producer, is more than double Bethlehem's 581 tons.

Bethlehem said yesterday that its revenue during the first three quarters of this year fell 19 percent from last year - the result of lower shipments and lower prices, squeezing its liquidity. As of Sept. 30, Bethlehem said it had $50 million in cash and equivalents on hand, down from $112 million a year ago. Total current assets were listed at $989 million, total current liabilities $1.1 billion.

Another factor is the cost of retirees' health care benefits.

Although Bethlehem's payroll has shrunk sharply - it employed 130,000 in 1965 but only 13,000 today - it is paying the pensions and health care for 130,000 retirees and their spouses. The company said in its filing that it has a nearly $3 billion health care obligation for retirees.

Technically, Bethlehem could wipe the slate clean and dump its health care obligations now that it's filed Chapter 11, Bradford said.

"Legally, yes they can," he said. "Practically, no."

To do that would be to risk a strike that could further weaken the company, he said.

"The biggest factors that caused their bankruptcy [are] not going to be fixed by filing for bankruptcy," Bradford said.

John Strohmeyer, editor of The Globe-Times in the steel maker's hometown of Bethlehem, Pa., for 28 years before he retired in 1984 to write a book about Bethlehem Steel, says the writing has been on the wall for quite some time.

In his book, Crisis in Bethlehem, he says imports really began to take hold in 1959 when the union went on a 116-day strike and foreign companies swooped in to fill the gap. Imports went from 2 million tons in 1958 to 5 million the next year and have never again fallen below the 2 million mark.

He said in an interview yesterday that the lack of innovation in manufacturing and the generous union contracts that followed are partly to blame for Bethlehem's troubles today.

"The domestic steel industry was late in adopting [more efficient manufacturing processes] and cutting man hours and [in the 1980s] it was about time for management and labor to tango if they were going to rescue the company, but they haven't," he said. "The pensions steel paid were horrendously liberal."

He noted that one of the most telling signs that the domestic industry was in trouble came in 1970 when Bethlehem lost a bid to provide the steel for the soon-to-be constructed World Trade Center twin towers. Instead, the New York Port authority hired contractors who mainly used foreign steel.

"Some of the steel came in to San Francisco, went through the Panama Canal to New York and it was still cheaper than what Bethlehem was doing," said Strohmeyer, who is now a writer-in-residence at the University of Alaska in Anchorage.

For its part, the American Iron and Steel Institute, a lobbying group representing domestic steel-makers, blames only external forces for the industry's woes.

"We have had wave after wave of imports in the past four years - many of them traded unfairly - with no chance to recover in between," said the group's president, Andrew G. Sharkey III.

"Instead of making money during the economic boom of that same period, our companies had to struggle just to stay afloat. Now, with the after-effects of the terrorist attacks, the economy is teetering on a recession and our members are going to suffer all the more."

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