US steelmakers: $30 billion fixup?
America's steel industry, like the auto industry, has dropped into the slow lane and is losing speed. Battered by imports and laboring under aged machinery, American steel manufacturers already have given up 15 percent of the domestic market to overseas competitors -- principally from Japan -- and by 1990 may have yielded 40 percent.
Unemployment in the industry is at its highest since 1933, in the midst of the Great Depression, according to industry statistics. At peak production, steel employs 466,000 laborers and managers.
Only with a huge new spending program, one estimated by some analysts to cost capacity expanded, jobs protected, and profits realized.
"Re-industrialization" of the industru can be accomplished, says a report released July 1 by the congressional Office of Technology Assessment (OTA), if the federal government primes the pump by changing the tax structure, eases stringent environmental regulations, and vigorously enforces new international trade laws.
This done, the industry may be able to jump ahead of overseas competition by 1990, and adopt innovative new technology, such as the "direct reduction" of iron from iron ore -- environmentally cleaner than existing processes and a shortcut around the costly coke oven and blast furnace steps.
The new OTA report, entitled "Technology and Steel Industry Competitiveness," should be fuel for the current national debate over tax cutting.
To make that $30 billion in investment capital coalesce, says the steel industry, Congress must approve a capital cost-recovery proposal, popularly known as "10-5-3," that would speed tax depreciation for costly equipment. If enacted, this proposal would allow steelmaking machinery to be depreciated over five years instead of the present 15.
The 10-5 proposal has 300 co-sponsors in the House and 52 in the Senate but is tied up in committees of both houses. It should be noted that 10-5-3 was part of the tax cut plan proposed by Ronald Reagan and GOP congressmen June 25. Democrats promise their own capital recovery plan by September, to be drawn up by a study group headed by Sen. Lloyd Bentsen (D) of Texas.
Carter administration economists, meanwhile, have favored a more targeted approach to aiding ailing industries such as steel. A plan proposed July 1 by Rep. Charles Vanik (D) of Ohio comes close to what the administration has advocated in the past. Mr. Vanik's plan would give depreciation breaks to selected industries in need of stimulation.
Aso to be considered, says the OTA study, are investment tax credits and guaranteed loans. The OTA does not endorse any particular approach, but devotes much attention to 10-5-3. It admits that accelerated depreciation in tax credits could drain government revenues but predicts that in time a healthy industry will result.
"The near-term direct costs of any of these programs would likely to offset by increased tax revenues after the rejuvenation of the domestic industry," says the nonpartisan advisory arm of Congress.
Whatever approach is decided upon, the OTA says, federal support will need to generate at least an additional $600 million in capital per year for the steel industry; the remainder must come from private sources. This will primarily benefit the behemoths, such as US Steel, Bethlehem Steel, and National Steel.
But the OTA sees strong promise in smaller, nonintegrated US steel producers that rely on ferrous scrap rather than iron ore to produce simpler steel products.
There also is potential for more exports by alloy and specialty-steel companies under the new Multilateral Trade Agreement, says the OTA. But unless new trade agreements are vigorously enforced, a surge in imports -- or fear of such a surge -- could set all US steel companies back.
The American Iron & Steel Institute (AISI) worked closely with the OTA in preparing the report, and it follows along the same lines as a January 1980 AISI forecast of the steel industry in the 1980s.
Many of the soaring expenses in steelmaking, say both the OTA and the AISI, are because of policies of the Environmental Protection Agency (EPA) and the Occupational Safety and Health Administration (OSHA). The steel industry reports that EPA and OSHA-related investments during the 1970s amounted to about
The indusry has been calling for "a more practical approach" from government regulators. Instead of retrofitting old steel plants with pollution-control equipment, for instance, only plants with "the most flagrant violations" should be cleaned up, says AISI.
The industry faces a struggle with government regulators and environmental groups over air and water cleanup in the 1980s. Air- quality standards for particulates emitted by steel plants are due to become tougher by 1982. But these already are more stringent than necessary, claims the AISI.
No new air and water standards should be imposed that cannot be demonstrated to be cost effective, the organization says. The OTA report, however, says because it would be difficult to calculate the social benefits of regulations, such an approach may be unfeasible.
If the capital can be acquired by 1990, time may be on the side of the steel industry. Instead of updating plants using existing technology, the OTA says, government and industry shold spend the 1980s developing new processes, such as rolling mills to make flat products, and, more important, "direct reduced" iron. In this latter process, natural gas or coal is used to turn iron ore into iron. Molten iron then is put into a basic oxygen furnace and made into steel.
The benefits of this process are substantial, says the OTA: Processing and final steel products can be improved, production costs lowered, and pollution reduced. Moreover, America's plentiful coal could be the energy source. The product would be a valuable export to countries, such as Japan, that use electric furnaces, but at present the technology has not ben perfected.
"Unfortunately," says james Collins, executive vice-president of AISI, "this process has not yet arrived. In the main, we agree [with OTA] that our industry is in need of modernization. But we don't agree with the technological scenario."