Trying to Toughen Up Steel

A painful process: out with the old to ring in the new

Like an aging heavyweight gone to flab, U.S. industry has fallen behind some of its world-class competitors. Many steel, rubber, auto and other essential plants have become outmoded because not enough capital has been invested in them. If the nation is to restore its technological edge, U.S. industry will have to modernize by building new factories and closing inefficient plants.

Nowhere is the need for this conversion process more acute than in the hulking, old steel industry. Fully 26% of its plant is outdated, and replacing it with the best technology available will require tens of billions of dollars. Last week the largest producer, U.S. Steel, took some belated steps on the route to conversion, at least two years after most of its competitors had already done so. The company by the end of 1981 will shut down 15 older plants and mills in eight states, laying off 13,000 of its 100,000 steelworkers. Among the closings: the Youngstown Works in Ohio where a steam engine installed in 1908 still drives one of the rolling mills. U.S. Steel's earnings will be hit by the plant closings, which could cost as much as $600 million, mainly in pension benefits to workers. But Chairman David Roderick indicated that further closings may be necessary unless productivity and quality are improved.

Roderick was openly pressuring the United Steelworkers (U.S.W.), whose contract expires next August, to moderate wage demands and become more productive. The domestic industry still leads its major foreign competitors in productivity. In fact, it is doing considerably better than European rivals, who also suffer from aged plants and surging costs. But the Japanese are rapidly gaining in the productivity race. They earn less but produce almost as much steel per worker as their American competitors. Over the past decade, productivity growth in the domestic industry has declined from 3% a year to 2%, while wages and benefits have risen from $5.38 to $16.53 for hourly workers, making the 455,000 U.S.W. members among the best-rewarded in the nation. The U.S. industry has paid a high price for its deal with the union five years ago to avoid strikes by submitting disagreements to arbitration.

It was the fear of strikes every three years when the union contract came up for renewal that led steel customers to buy still more imports to hedge their supplies. But when steel imports rose from a 13.4% share of the domestic market in 1975 to 17.7% in 1977, the Carter Administration imposed minimum or "trigger" prices for imports based on a complex formula. Imports have fallen off to 14% in this year's first nine months, and the trigger price was reduced 1% to $347.55 a ton for the third quarter. But with the yen weakening almost 23% against the dollar this year, the Japanese are becoming even more competitive. So American steel men are again unhappy and want the trigger price to be raised considerably. Steel men believe Government pricing decisions --from the Kennedy jawboning and the Nixon controls to the Carter guidelines --have been responsible for keeping its profitability low and thus denying it needed investment capital.

But over the last few years part of the industry seems to be getting back to basics and improving its position as a world-class competitor. Bethlehem Steel closed parts of its Lackawanna, N.Y., and Johnstown, Pa., plants in late 1977, recording what was then the largest quarterly loss in U.S. corporate history, $477 million. Armco, Inland, Republic and National have all upgraded their plants. Some companies have even contemplated building big new mills. U.S. Steel has been considering putting up a $3 billion to $4 billion plant in Conneaut, Ohio. It would be the nation's first fully integrated steelworks since Bethlehem built its plant in Burns Harbor, Ind., way back in 1964.

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