A Semi-Success Story

HEAVY industry isn't quite as moribund in the United States as one might conclude from listening to today's political rhetoric. The steel industry, for one, has made notable strides toward greater efficiency and better management.

In terms of the man hours needed to produce a ton of steel, the US industry stacks up well against any foreign competitor, including Germany and Japan. The rolled steel made by the biggest firms, like USX (formerly US Steel), gets high marks from car and appliance makers.

But an improved competitive position and more efficient operations are only parts of the picture. Like other heavy industries, steel is going through a process of regeneration that over the long term is likely to root out some older producers no matter how admirable their efforts to reform.

The future will probably belong to the smaller companies like Nucor and Birmingham Steel, which aren't weighed down by antiquated blast furnaces and costly retirement benefits agreed to years ago. Only these so-called "mini-mills" are turning a profit in today's downbeat economy. An economic upturn will help everyone, including the old-line firms; but the newcomers will continue to bite off ever larger chunks of business. They're moving into rolled steel now, after having captured the market for structur al steel.

And what about the competition from abroad? Protectionist limits on steel imports were allowed to lapse last week by the Bush administration, which felt US steelmakers no longer needed them. In fact, the limits haven't aided American companies much since the strong-dollar days of the mid '80s. Foreign producers haven't even reached their import limits in the last couple of years.

Meanwhile, foreign investment, largely from Japan, has been a major factor behind the big US steel firms' modernization. Such investment is drying up now.

So while today's steel sector offers some assurance that American heavy industry can survive, it also suggests that the survivors are likely to exclude some familiar names - and that the job of retraining people and saving communities is likely to remain a big one.

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