The Detroit News
ECORSE, Mich. For two decades, the U.S. steel industry has warned outsiders about its imminent demise.
This time, it may be onto something.
Nine steel companies went bankrupt in the past two years. Only 10 percent of the nations steel manufacturers made money in the fourth quarter.
Since 1998, 15,000 workers have lost their jobs. And steel prices have plummeted to their lowest point in 20 years.
Its no longer just "Big Steel" that says the sky is falling.
"Its awfully serious," said David MacGregor, managing director of Midwest Research in Cleveland. "You have to go back 50 years for the last time it was this bad."
Steelmakers, as they have in the past, blame their predicament on foreign rivals, saying theyre selling steel at cut-rate prices. Theyve convinced the U.S. government to impose duties on steel and give the revenue to them.
Such a move, however, violates international trade laws and could ignite a trade war at a vulnerable time for the U.S. economy, trade experts said.
Whats more, many observers say its unlikely that tariffs would cure the industrys ills.
Thats because foreign competition is only part of the problem, according to industry analyst Charles Bradford of New York. The U.S. steel industry is facing a variety of ills within its own borders, some of its own making.
Its an industry besotted with too much inventory, production capacity, debt and overhead expenses, he said. Fuel costs are skyrocketing while steel prices are dropping. The older mills use outmoded equipment and processes.
"U.S. companies clearly have a problem, but its not the one theyre talking about," Bradford said. "To say its imports is a crock. The ones who complain the most about dumping are the ones who are the least efficient."
Consolidation could address some of those ills but the industry, abetted by strong political support, has resisted such efforts throughout the 1990s.
It may not have a choice this decade.
History of problems
The steel industry has periodically stumbled before.
In the 1970s an energy crisis and the introduction of foreign steel led to a fundamental shift in the industry. Many big inefficient, integrated mills closed in the face of stiff competition. The survivors moved toward automation in a big way in the 1980s as the industry shook off its Rust Belt image. The industry also shed workers, with U.S. steelworker employment dropping from 460,000 in 1980 to 152,000 today.
"The big guys have been terminal for some time now," said Robert Crandall, an economist with the Brookings Institution, a Washington think-tank. "Theyre really in their final decline. Theres no way they can bounce back."
More recently, an economic meltdown in Asia in 1997 led to a record amount of cheaply priced steel imports from Russia, Japan and Brazil. Prices were driven down. The U.S. government responded with dumping charges, stemming the tide of low-priced imports.
One sign of the industrys slow decline is the Detroit area, which once played an important role in the steel industry. One of the first steel mills in the United States opened in Wyandotte, Mich., in 1864 and the industry once rivaled automakers as the top employer in the area.
Now only two steelmakers remain, and one is an Indiana-owned company. The two operations, Rouge Steel Co. and National Steel Co.s Great Lakes Steel division, are struggling along with the rest of the industry.
Dearborn, Mich.-based Rouge Steel, a unit of Rouge Industries, announced this month that it would lay off 60 of its 3,000 workers and close one of its two blast furnaces for three to five weeks. The company lost $6.28 million in the third quarter and said it would probably lose more than that in each of the next two quarters.
"Its as bad as Ive ever seen," said Carl Valdiserri, Rouge chief executive. "Its like a rookie at bat and someone is throwing him a big-league curve."
Great Lakes, in Ecorse, was supposed to reopen one of its three blast furnaces in October, but has delayed it indefinitely. It was closed in July for relining.
No layoffs have been announced at the Ecorse plant, but National Steel has fired workers and cut production at other mills. National Steel said its financial results in the fourth quarter will be worse than analysts expected.
The nations steel industry is actually two industries in one.
Half the companies are the old, integrated mills, which make iron from virgin materials, and the other half are the newer, so-called mini-mills, which use recycled scrap metal.
The integrated mills, whose outmoded equipment and processes carry heavier production costs, struggle to make money, even during the best of economic times.
During a downturn they account for most of the financial blood that is spilled. The current crisis is threatening to drive several of the largest steelmakers out of business or into the arms of competitors. For instance, LTV Corp., the nations third-largest steelmaker, recently filed for bankruptcy.
Economists say the current shakeout was inevitable because the industry has too many competitors producing too much steel and pressuring prices.
In past crises steelmakers have bucked the pressure to consolidate. Whats more, the steelmakers dont make inviting takeover targets. They carry high debt and expensive union contracts that last for years.
Washington to the rescue
To stay afloat, the weakest companies turn to Washington, where they often find a sympathetic ear. Their political clout comes from vocal unions and the fact that although their presence has shrunk, some mills are the largest employers in their areas.
Sen. Robert Byrd, D-W.Va., whose state is home to several large mills, sponsored a 1999 bill that created a federal program that promised $1 billion in loan guarantees to struggling steel companies.
Not all steelmakers like the program. The healthier ones say it allows sickly competitors to stay in business, adds to the overcapacity and drags down prices.
With all the problems facing Big Steel, the one it focuses on is cheap imports.
Foreign companies, which have cheaper production costs and are aided by government subsidies, can sell steel to the United States at cut-rate prices and still make money.
They helped drive down the price of a ton of hot-rolled steel from $350 in April to $250 in November.
A similar drop in prices in 1998 led to tariffs of up to 67 percent against Japan, and agreements with Brazil and Russia to raise their prices and limit exports.
This time the steel industry has identified 11 other nations it said are dumping steel into the United States.
But by focusing so much on imports, the industry is neglecting to address all its other problems, said analyst Mark Parr of McDonald Investments in Cleveland.
"Imports are not the issue," he said. "Imports were never the issue. Management hasnt addressed the hard issues and havent been forced to address them."
Just before the election, President Clinton signed into law a bill that gives tariff revenue to U.S. steel companies. Neither that bill nor the loan guarantee bill were debated by Congress. Thats because Byrd, chairman of the Senate Appropriations Committee, tacked them on to unrelated appropriation bills.
Foreign nations howled about both measures, and the European Union said the second violates international trade treaties. Its challenging the move with the World Trade Organization. U.S. companies that trade abroad are worried about retaliation by foreign countries.
It doesnt help the position of U.S. steel companies that they are among the biggest importers of foreign steel.
The mills, to lessen their costs, found that it was cheaper to import slabs rather than produce their own. Slabs are used in the making of the final products: hot-rolled and cold-rolled steel.
Thus, the nations steel industry is left making the argument that its OK for it to import foreign steel, but not its customers.
In the end the government assistance wont help the industry, said analysts. It will just delay the inevitable.
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