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

By , Staff writer of The Christian Science Monitor

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.

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.''

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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.

The US industry has shrunk much more than its counterparts in Western Europe or Japan. Employment in the US now runs about 170,000, compared with nearly 400,000 in 1980. Today's crude steel capacity of about 112 million tons a year compares with 160 million tons a decade ago.

Unlike much of its competition, the US industry does not benefit from government subsidies. The American Iron and Steel Institute says European Community steel companies have received $40 billion in subsidies since 1980, plus the protection of production and import quotas and government-established minimum prices.

American steelmakers on average are now getting a higher yield of finished product from crude steel. The yield last year was 86 percent, compared with 72 percent 10 years earlier. It would have required about 106 million tons of crude steel to support 1987 shipments, instead of the 88.5 million tons actually produced, if the yields of a decade ago had remained unchanged.

Deaner's organization estimates that it cost $440 to produce a ton of steel in the US last year, $483 in Japan, $470 in West Germany, and $367 in the Britain. When transportation costs are added, US-made steel is even more competitive at home.

In other words, if the US steel industry faced competition only from the industrial world, it could manage relatively well nowadays.

Deaner says that the markets in Europe and Japan are essentially closed to American steel, but not to American products made of steel. He suspects that US tractors, earthmoving equipment, and other such machinery made with steel may recapture some of the markets abroad they have lost in recent years when the dollar was extraordinarily strong. That would, of course, benefit the industry.

But steel manufacturers in third-world nations have an advantage in low labor costs, Deaner says. He calculates the surplus in world steel capacity at 200 million tons.

About 65 to 70 percent of steel imports are covered by VRAs, the industry association executive says. He would like the agreements broadened to cover more third-world nations.

At present, about 59 percent of the nation's raw steel is processed in continuous casters - a technique for squeezing liquid steel into shapes ready for rolling that saves a great deal of energy, time, and money. A continuous caster to process 1 million tons of steel a year costs about $150 million. That scale of investment will need protection, Deaner contends.

Academic economists hold that at least the basic steel industry should be allowed to move gradually to developing countries such as South Korea, Mexico, and Brazil, where steel can be produced more cheaply.

Deaner holds that such academics ``don't care about fair trade.'' At this time, most third-world countries - certainly those that are heavy debtors - would have problems finding the large sums needed to expand steelmaking capacity.

Whatever, since at least 100 members of the House of Representatives are considered to be part of the steel bloc, it appears likely that the industry will continue to receive some protection.

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