TIME: Almanac 1990/1990 Time Magazine Compact Almanac, The (1991)(Time).iso/time/021389/02138900.015

Text File | 1990-09-17 | 5KB | 94 lines

BUSINESS, Page 61

Big Steel Is Red Hot Again

So why do mills want barriers against foreign competition?

By Christine Gorman


    As if he were playing with a child's Erector Set, the crane
operator maneuvers a ladle filled with 230 tons of molten iron
toward a giant furnace and pours into its maw a glowing glob of
3000 degrees F metal. After 45 minutes in the oxygen-fired furnace,
the iron turns into liquid steel, which a computer-controlled
casting machine quickly forms into slabs 40 ft. long. Presto! In
just 3.8 worker-hours, one-third less than the U.S. industry's
average, this modern plant has produced a ton of steel. It is one
of the most efficient mills in the world, but this one is not owned
by the West Germans or Japanese. This is the Gary flagship of USX,
the largest U.S. steel producer. And its success is no fluke.
Twelve miles down the road, in Burns Harbor, Bethlehem Steel
operates a mill that is every bit as competitive.

    After years of clanking toward the scrap heap, Big Steel is
staging an impressive comeback. Last week USX said the operating
profits at its steel division reached $501 million in 1988, in
contrast to $125 million the previous year. The industry piled up
total profits estimated at $2 billion in 1988, and is expected to
match that performance this year. But the revival has ignited a
bitter lobbying battle between Big Steel and its customers. The
mills claim they need import restraints to keep the good times
rolling. But major buyers, notably the manufacturers of automobiles
and heavy machinery, argue that such protectionism is inflationary
and vow to oppose it in Washington.

    Not long ago, the U.S. steel industry was floundering in its
worst recession since the 1930s. One reason: since the mid-1970s,
global demand for steel has stagnated at about 475 million tons a
year, but mills have been producing an average 700 million tons
annually. The huge oversupply sent prices and profits into a
tailspin. In the U.S. the years of reckoning were 1982 through
1986, when losses amounted to $12 billion.

    To avoid annihilation, Big Steel had to slash its costs. "Our
labor alone put us out of the ball game," says USX Chairman David
Roderick. In 1980 the U.S. industry's workers made $17.46 an hour,
vs. $9.63 for their Japanese counterparts. Big Steel embarked on
a wholesale payroll-cutting campaign in which 60% of the industry's
428,000 workers lost their jobs. Those who remained gave generous
pay concessions. Last year U.S. steelworkers earned $22.63 an hour
-- equal to $15.48 in 1980 dollars -- vs. $18.52 in Japan.

    To make more steel per worker, the industry carried out a
long-overdue modernization drive. As recently as 1974, one-quarter
of all steel in the U.S. was still being produced by old-fashioned
open-hearth furnaces, which take eight hours to turn molten iron
into steel, compared with 45 minutes for the more efficient
oxygen-fired furnaces. Since 1982, American steel companies have
poured $9 billion into upgrading their mills. Open hearths now
produce only 5% of domestic steel.

    Stoking the smokestack revival even further, in 1984 the Reagan
Administration negotiated voluntary restraint agreements, which
limited imports to about 20% of the 100 million tons sold annually
in the U.S. The justification was that the worldwide steel glut had
forced many foreign governments to subsidize their mills, allowing
them to charge artificially low prices in the U.S. In exchange for
the VRAs, U.S. steelmakers agreed not to bring trade suits against
overseas competitors and promised to plow excess cash into
modernizing.

    President Bush promised during the election campaign to extend
the VRAs when they expire next fall, but steel buyers like
Caterpillar complain that prolonging the VRAs will boost costs.
According to industry analyst Peter Marcus of PaineWebber, steel
prices have risen 6% since early 1988, to $509 a ton, although
after adjustment for inflation, they remain $40 less than five
years ago. Critics are also concerned that a new set of VRAs will
bring back Big Steel's complacency.

    Not so, says USX's Roderick. "If we can rely on another five
years to put virtually billions of dollars into additional modern
facilities, then I think we can go back to trying to live without
VRAs," he argues. Without the market stability the VRAs provide,
Roderick contends, modernization would falter, bringing about
"catastrophic" long-term consequences. The best solution, some
experts suggest, is a compromise that would gradually wean the
industry from trade barriers.

    One major factor in U.S. steel's improving fortunes has been
the decline of the dollar, which has made imports more expensive.
But foreign competitors have trimmed costs and boosted efficiency
with almost the same zeal as the U.S. mills. The resurgent Japanese
steel industry has cut its work force 18% in the past three years,
to 228,000. Europe's steel industry, subsidized to the tune of $57
billion since 1975, is now largely self-sufficient owing to higher
productivity. Because of such moves, says Walter Williams, chairman
of Bethlehem Steel, "we'll never be able to go back to the good old
days." Big Steel has finally realized that the less comfortable it
is, the brighter its future will be.