Steel makes a comeback. Investments in technology and training pay off for US producers
Burns Harbor, Ind.
THE rust is rubbing off the steel industry. One of America's basic industries is showing signs of revival after five consecutive years of losses, the layoff of 280,000 workers over the past decade, and the closing of 440 steel mills or parts of mills over the past seven years. Some of the nation's steel mills, such as Bethlehem Steel's Burns Harbor, Ind., plant, are running at capacity. Cold furnaces are being reheated.
Some steel products are in such short supply that orders are backlogged three months. After five years, steel prices are firming up, partly because USX Corporation (formerly US Steel) has yet to recover from a six-month strike that ended Jan. 31.
Big customers such as General Motors and Ford are complaining less about quality. And the figures in the steel companies' quarterly reports are finally turning from rust to carbon.
Last month Bethlehem Steel and USX Corporation reported profitable second quarters and are expected to post similar results for the third quarter. Even LTV Corporation, which is in bankruptcy, is making money.
How far off the bottom?
Although some of the earnings are the result of favorable accounting and tax practices, a significant portion comes from profitable steel operations.
``I think we're off the bottom,'' says Charles Bradford, a steel analyst with Merrill Lynch & Co.
``But is it a real recovery or a temporary situation?''
There is no question that over the short term, the industry is enjoying some benefits it has not seen for a long time. The dollar, after years of overvaluation, has now dropped, making foreign imports more expensive.
Japanese labor costs, reflecting the higher-valued yen, have risen from $12 an hour to $16 an hour - only $7 an hour lower than the US's own labor expense.
Demand for plate steel is the strongest it has been in years because of highway repair work and naval shipbuilding.
Even though US auto manufacturing is down, Japanese auto companies are building auto plants in the US and are using US-cast steel.
Industry leaders are convinced this recovery will not corrode away.
After investing billions of dollars, some segments of the steel industry are finally becoming competitive. At Burns Harbor, for example, Bethlehem Steel has cut the man-hours required to produce a ton of steel to fewer than three - among the lowest in the world.
Quality is also improving, which allows US companies to compete against the Japanese and West Germans.
The US is competitive, in part, because of investments in machinery. The American Iron and Steel Institute, a trade organization, estimates the industry has invested $3.7 billion since 1984. Although this is 50 percent of the pre-1982 recession levels, a significant portion was poured into new continuous-casting equipment, which increases productivity.
New attitudes at work
Relationships between workers and management are also improving. In East Chicago, Ind., Inland Steel Company brought in buyers from General Motors Corporation to explain to workers why GM had tightened its quality standards.
``Our people come away with a greater understanding of the pressures the customers are under,'' says Del Rediger, Inland's vice-president for manufacturing.
Such efforts appear to be working as attitudes are shifting. At Bethlehem's Burns Harbor mill, where employment is down by 2,300 workers since 1981, caster operator Dale Valett, a member of the United Steel Workers of America for 23 years, says ``that's what makes you tough. You gotta keep up with the times.''
Mr. Valett's attitude is indicative of the breakdown in the adversarial nature of management and the union, which represents the hourly employees. In May 1986, Inland sent a team of five workers to Japan to watch Nippon Steel produce steel coils.
Inland had noticed that the cranes and tractors at its Indiana Harbor Works in East Chicago were damaging the coils. After two weeks, the union members came back with suggestions for improving the training of their fellow workers. Inland accepted the suggestions, and union workers put together a training program that solved the problem.
The trip to Japan also illustrates another lesson the steel companies are learning: Investments in plant and equipment work better if workers receive proper training.
``Whenever we look back,'' says vice-president Rediger of Inland Steel, ``and we did not reap the total benefits of an investment, it was because we did not train the work force to make it pay off.''
The importance of worker training has reached the political level. For example, over the past three years the Indiana Department of Commerce has provided $3.3 million in grants for the retraining of 2,200 steelworkers.
The industry still faces problems.
Imported steel has swallowed 22.6 percent of the US market despite the declining dollar. Countries such as Brazil and South Korea, where wages are about $2 an hour, pumped imports into the US at a record rate in May.
To cope with imports, the US established a Voluntary Restraint Agreement in 1984. Key countries such as Canada, however, are not members of the agreement, which comes up for renewal in 1989.
Turkey, another non-member, has increased shipments by 500 percent since last year. Experts say these shipments outside the agreement are a major problem.
``There is no question about it, that's what is preventing the program from working,'' says David Cantor, a specialist in industry economics with the Congressional Research Service.
Although the industry has already written off $6 billion from plant closings, industry analysts say capacity needs to be reduced by another 20 million tons.
Robert Crandall, a senior fellow at the Brookings Institution in Washington, ticks off the names of steel mills that may have a relatively short life span: USX Corporation's South Works in Chicago and Fairless Works in Bucks County, Pa.; an Armco plant in Ashland, Ky.; and two Bethlehem Steel plants - one in Johnstown, Pa., the other in Bethlehem, Pa.
Costs of closing mills
One of the reasons some of these plants have not already been closed is the high cost of funding pension plans for furloughed workers. Since 1981 employment is down by 56 percent to 175,000 hourly employees.
During the cash-short years of the early 1980s, some companies decided not to contribute the cash needed to meet worker retirements if plants were closed. LTV Corporation, the nation's second-largest steelmaker, went into bankruptcy in July 1986, dumping its pension commitment on the federal Pension Benefit Guarantee Corporation.
The Economic Policy Council, composed of Cabinet-level officers, is trying to decide what financial assistance the government should give. According to a study by Wharton Econometrics Inc., the additional closing of plants would cost $75,000 per person, of which $50,000 would be personnel benefits, mostly related to pensions.
The cost of such closings hangs heavy over the worldwide industry. The steel companies of the 12-nation European Community are expected to spend $5.5 billion over the next three years to reduce European steel capacity by 30 million tons. This will cost 80,000 jobs.
Over the long run, these closings should help make the whole industry competitive, keeping the industry rust-free in the future.