Small US steel mills show glimmer of vitality, but import threat looms large

Here along the Rock River, the once-profitable Northwestern Steel & Wire Company is struggling to survive. There are signs of vitality: New equipment has been installed; in one mill, red-hot steel bars shoot through a series of computer-directed rollers.

''There isn't a rolling plant in the world that has got any better stuff than we've got,'' one employee brags.

Despite these measures, the future of this family-run company is in doubt. More than a quarter of the work force has been let go. Remaining employees are making do with pay cuts. Two inefficient mills are now closed.

President Peter Dillon readily admits the company is not profitable. The reason, he says, is foreign competition.

''Every time I look at a sack (of screws) in the hardware store, I know that almost every one of those screws was made overseas,'' Mr. Dillon says. If the invasion continues, ''we're not going to have any manufacturing base. And to me that threatens our freedom.''

Earlier this month the International Trade Commission agreed by a 3-to-2 vote that imports are a key cause of the domestic industry's woes.

Of considerable interest now is what relief, if any, the commission will suggest to President Reagan.

From Dillon's point of view, action cannot come too soon. Imports have taken a growing percentage of the United States steel market - 25.2 percent for the first three months of this year, according to the American Iron and Steel Institute (AISI).

The problem is price - prices US steel officials believe are unfairly subsidized by steel-exporting countries.

Last week, for example, Northwestern Steel offered a company in Savannah, Ga. , 100 pounds of a particular wide-flange beam for $19.36, including freight. But the company answered that it could buy the same product, imported, for $16.

Steel officials argue that temporary quotas limiting steel imports to 15 percent of the US market would punish this foreign subsidization and give the industry time to deal with its own internal woes, such as outdated plants.

Although Northwestern has invested heavily in new continuous-casting and milling equipment in recent years, modernization industrywide has been disappointing. AISI estimates that only $1.9 billion was spent on that last year - with little or no improvement likely this year - whereas $5.5 billion is needed annually, it says.

Labor costs are another problem.

Steel officials and economists complain that US steelworkers' wages are too high. Wages and benefits averaged $22.21 an hour last year, AISI says, down $1. 55 from the '82 average.

In the past two years, Northwestern has managed to cut hourly pay and salaries. Wages and benefits were slashed by $7 an hour in the wire-products division and $4.85 an hour in the steel division. But the effort was not easy. Workers conducted an 84-day strike last year.

Many economists oppose more protectionism for the industry.

The result would be possible retaliation and higher costs to consumers, says Roy Ruffin, economics professor at the University of Houston. Americans spending more for big steel items such as washing machines and cars would have less money to spend for other US products and services - thus reducing employment in those sectors.

''What we're doing is shifting unemployment from where it's visible to where it's invisible,'' Professor Ruffin says. One of his graduate students has calculated that for every job saved in the steel industry, roughly one would be lost in the auto industry.

But the political pressure to do something for the industry is strong, says -William Dunkelberg, associate economics professor at Purdue University.

''I suspect we'll see at least some kind of a token barrier,'' he says. But ''I don't think we'll see major trade barriers.''

Even with trade barriers, Dillon says, wrenching changes lie ahead.

By 1985, steel is going to be ''an entirely different industry'' than it was at the beginning of the decade, he says. ''The one hope of maintaining a viable steel industry is the concept of the 'minimill.' ''

These newer, more-efficient US mills make steel products by melting scrap with electric furnaces. And their presence is growing. Last year they produced 15 percent of the nation's steel.

So far, these companies have had to leave the important market in flat-rolled steel - used in cars, consumer appliances, and other products - to the industry's giants.

But some observers say technological improvements in the next few years could mean that the minimills would be able to afford the equipment to produce flat-rolled steel.

Though Northwestern is bigger than a minimill, Dillon says he's intrigued by the concept because of its added flexibility.

Northwestern will be able to produce the same amount and range of steel product with three modernized mills that it used to do with five. Dillon also has hired a consultant to improve relations with Northwestern workers.

''This is a tough thing, because it has been a macho industry: 'Me, boss; you , worker,' '' Dillon says. ''I feel very strongly an all-out attempt has to be made'' to improve that relationship.