With Bethlehem Steel ill, don't use wrong medicine

October 17, 2001|By Jay Hancock

A MONTH ago, Bethlehem Steel boss Duane Dunham ran into New York Sen. Hillary Rodham Clinton on the train to Washington.

Dunham, who could probably work the topic of foreign steel dumping into a conversation about the Lake District poets, buttonholed the senator, talked about the need for even higher steel-import barriers and gave her a copy of the testimony he would deliver later that day before the International Trade Commission.

He's been on the Washington train a lot lately.

Pounded by a three-year import barrage, U.S. steel makers are renewing attempts to win government shields against foreign foes.

Big Steel is arguably the main U.S. victim of the financial collapse that started in 1997 in Thailand and swept through Russia and Brazil. Just when U.S. steel makers looked as though they were ready to check out of the profits hospital, the crash devalued the currencies - and hence the prices - of their overseas competitors.

Mills in South Korea, Brazil and Russia could suddenly sell steel to American buyers for less than the U.S. cost of production - never mind any U.S. profit margin.

How's this for competition:

According to a paper presented by analyst Donald Barnett at a convention last spring, Bethlehem's Sparrows Point mill in Baltimore County spends about $450 per metric ton to make cold-rolled steel, used for everything from car bodies to furniture.

Mills in South Korea, meanwhile, manufacture and ship the same product to the U.S. East Coast for about $365 per metric ton, Barnett said.

As chairman of the American Iron and Steel Institute, the main lobby for companies that make steel from scratch with iron ore, Dunham has been the industry's kvetcher-in-chief inside the Beltway. On Monday he offered a new exhibit to his case: papers filed in New York that ushered Bethlehem into the hall of mirrors known as Chapter 11 of the bankruptcy code.

It was a grim milestone, although its impact was dulled by Bethlehem's long decline.

During World War II, Bethlehem employed 300,000 to help turn piles of rocks into battleships, tanks and bombers. At Sparrows Point, 30,000 people toiled around the clock.

Today, Bethlehem employs about 13,000; Sparrows Point, 4,000. Bethlehem got kicked out of the Dow Jones industrial average in 1997. The news of the company's Chapter 11 filing didn't even rate the front page of the New York Times' business section.

It's a dog-bites-man story, is one reason. About two dozen U.S. steel makers have already entered bankruptcy proceedings. Bethlehem's filing adds another straw to the burden of those resisting calls for protectionism.

Baltimore Democratic Rep. Benjamin L. Cardin told this newspaper that Bethlehem's move is "a direct result of our failure to strengthen our trade laws and enforce existing trade laws."

That's probably true, but it doesn't mean that tightening anti-import laws is a good idea. It's not a good idea for the U.S. economy. It's not a good idea for Washington's effort to build a global coalition against terrorism.

And depending on how it's done, it may not even be a good idea for Bethlehem Steel or Sparrows Point itself.

Dunham, who was replaced as Bethlehem's chairman and chief executive four days after he encountered Senator Clinton on the train, was a main force behind President Bush's decision in June to initiate a so-called "Section 201" investigation that could lead to a whole new layer of steel-import barriers. Dunham was knocked down to chief operating officer, reporting to Robert S. Miller Jr., a turnaround expert brought in from outside.

Supporters say trade curbs protect U.S. jobs, but American steel mills employ fewer than 200,000 people these days. By contrast, U.S. companies that buy steel and benefit from low import prices employ 12.8 million, according to the Consuming Industries Trade Action Coalition, an anti-duty lobby.

Import barriers might wipe out more jobs than they save.

Anti-trade measures also prolong the death throes of U.S. mills that are far less competitive than Bethlehem. Bethlehem's facility in Burns Harbor, Ind., is among the top five U.S. mills in cost efficiency, and Sparrows Point, while less competitive, "is very close" to that rank, said Barnett, whose firm, Economic Associates, is in Great Falls, Va.

If some of the zombie-mill rivals went out of business, it might clear the way for Bethlehem to regain market share in North America, where there will always be buyers paying top dollar for higher quality and quicker delivery.

Some protectionist measures floating around Washington would be positively toxic for Sparrows.

One of the mill's advantages is its perch on the Chesapeake, which gives it access to foreign iron ore. Offshore ore is generally cheaper and of better quality than the American product. Sparrows Point buys 100 percent of its iron ore and coke from other countries, a company spokeswoman said.

But at the behest of mining interests, the Commerce Department is investigating whether to recommend tariffs, quotas or other barriers against foreign ore. A decision is due Oct. 29.

Says steel analyst Charles Bradford: "Sparrows is closed if they were to win that case."

Laws passed to protect jobs don't always do what they say.

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