US scrapes the rust off Big Steel
For over a century, steelmaking has symbolized economic power. Smoke-billowing factories, burly steelworkers, massive ingots and I-beams and red-hot sheets of molten metal - nations that made steel were industrialized and could go on to make automobiles, battleships, high-rises, freeways, and more factories. So when steel mills in the United States were shuttered in the early 1980s, it seemed a graphic illustration of the sorry state of US industry. ``Steel'' and ``rustbelt'' and ``sunset industries'' became synonyms.
Between 1982 and '86, the US industry lost $12 billion. Two companies, LTV and Wheeling-Pittsburgh, had to declare bankruptcy. Workers took pay cuts. Employment of steelworkers last year hit its lowest mark since records were first kept in 1933. Meanwhile, imports ran at an all-time high of 26 percent of the US market in 1984. Steelmaking was going overseas.
But that was then. Today, Big Steel is making a comeback. Imports have begun to retreat. Orders are up. Steel prices are rising. The US is even exporting steel again. And Wall Street is bullish on the steelmakers. ``The investment case for steel,'' says a recent assessment in Value Line Investment Survey, ``is the strongest it's been for years.''
The main reasons for the turnaround: export restraints on steel from abroad, steel mill modernization at home, and newly favorable exchange rates.
Giant USX, which diversified in the early '80s to buffer against the dismal steel market, now sees big earnings growth in its old-line business, steel. And there's ``more and more interest from overseas,'' says USX spokesman William Keslar. ``It's gotten to the point that we recently unshelved an export unit that had been shelved for four years.''
Today's steel boom, however, is relative. The steel industry had fallen so far. The boom could be short-lived. Regardless of efficiencies made in the US industry - and of beneficial exchange rates - steelmakers in Asia and Latin America are still cheaper.
``There's a limit to how much US labor costs can be reduced,'' warns economics professor Kent Jones of Babson College in Wellesley, Mass. The current rebound in the steel market, while encouraging, gives little incentive to steelmakers to do anything that could lead to a strike or to poor relations with steelworkers, he says.
Slow growth outside the US and the continuing switch to plastics don't help, either. World steel demand will not grow significantly through the end of the century, according to the Organization for Economic Cooperation and Development in Paris.
It was steel - basic structural steel - that helped the industrial nations of the northern hemisphere grow powerful in the 19th century, Mr. Jones notes in a recent study. Now, he says, the newly industrializing countries (South Korea, Taiwan, Mexico, Argentina, etc.) should be allowed to take over basic steelmaking, to prosper industrially as well.
He calls for removing trade barriers to let this happen. This would ``benefit economic welfare in the entire world economy, and would in particular aid the development process in less developed areas.'' US steelmakers could produce high-value-added steel. Basic steel should be made elsewhere.
But that's a highly unpopular thought with the US steel industry, which lobbied for, and won, export restraints 3 years ago. The benefits of those restraints are just now being felt, notes Sheldon Wesson, a spokesman for the American Iron and Steel Institute. And up to one-third of all imports are still coming from countries that have refused to agree to export restraint.
Mr. Wesson notes that overseas producers still dump subsidized steel on the American market, but as a condition of the export restraint agreements, US producers have filed few complaints. The export restraints are due to expire Sept. 30, 1989, and the steel industry is lobbying hard to retain them.
In part, this is to protect US steel companies, Wesson says. In part, it is to ensure that modernization continues. Under the export-restraint agreements, steel companies must channel all their net cash flow to capital investment (less a small amount for worker retraining).
``It takes an investment of $300 million to $500 million to build a continuous caster,'' Wesson says, ``If the steel industry is going to do that it must have a picture of what the steel market will look like in five years.''
With its political muscle, Big Steel is likely to get what it wants, admits its chief rival on this issue, the American Institute for Imported Steel. But Erwin Klein, the head of this group, says if the quotas are renewed, the restraints should be flexible and of specific duration.
``Cost-cutting and modernization by US integrated steelmakers on the scale we have observed would never have occurred without steel import competition,'' Mr. Klein says.
Even the steelmakers agree with that. It's just a matter of how much import competition, they say, and how fair it is.