Will the new shine in US steel last, or be a flash in the pan? Prices, sales, and profits have all climbed lately, but wary producers still want import protection
Happy days are here again! Or are they? American steelmakers, who will be getting together in Washington for their annual meeting next week, aren't sure whether the current brighter picture will last or prove to be a mere flash in the pan.Skip to next paragraph
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First-quarter profits rose dramatically. Prices and sales are up. Brokers are again recommending some steel stocks. The industry is operating at 95.5 percent of capacity.
``We are not dead,'' says Milton Deaner, president of the American Iron and Steel Institute. ``We have restructured. We have made a lot of strides. But we have a long way to go.''
The steel industry in the United States last year made $750 million in profits (half of it consisting of investment-tax-credit refunds), a great relief after losing $12 billion over the previous five years. This year profits should be much higher - ``significant'' is the word used by Peter Marcus, a steel stock analyst with PaineWebber Inc.
John B. Rogers, a steel analyst with Prudential-Bache Securities, sees the industry making $3 billion in operating profits on steel sales this year.
But Mr. Deaner suspects a sizable portion of the current sales strength is the result of an inventory buildup. Some steel company economists have a similar concern. Mr. Rogers expects demand to slacken somewhat in the current quarter.
Mr. Marcus, however, says the US steel industry has become sufficiently competitive against foreign steelmakers to perform well even if a mild recession should occur. He sees a world shortage of steel that will not ease until 1990 as steelmaking capacity is added.
Deaner, who sees no shortage of steel, wants continued protection from imports through what are inaccurately termed ``voluntary restraint agreements'' (VRAs). The US government, starting in 1984, twisted the arms of most steel-exporting nations to limit their steel exports to the US.
These agreements are scheduled to expire in September 1989. The steel industry is pressing the administration to negotiate an extension beyond that time. Deaner says an extension agreement this year would encourage American steel producers to continue modernization and help steel users in placing advance orders.
If President Reagan does not go along, the steel industry will put pressure on the new administration to help it out. Massachusetts Gov. Michael Dukakis promised in a campaign stop in Bethlehem, Pa., April 23 that he would support the extension of the VRAs, Deaner notes. George Bush has not spelled out his intentions.
Does the industry deserve help?
Yes, says Deaner, pointing to these trends:
The American steel industry has dramatically improved its efficiency. It takes about six man-hours to produce one ton of steel shipped, less than that required in Japan or West Germany.
Most current labor contracts allow more flexible, efficient deployment of workers. With the decline in the value of the dollar, the cost of labor in major Japanese producers is the equivalent of $25 an hour - slightly above the cost for the US industry.