1000 Broadway Building
Oregon Steel Mills, Inc., produces a wide range of specialty and commodity steel products. Among minimill companies in the United States, Oregon Steel Mills (OSM) ranks second in sales, trailing only industry leader Nucor Corporation. OSM is organized into two divisions, Oregon Steel Division and CF&I Steel Division, which together operate two steel mills and five finishing facilities. The Oregon Steel Division produces steel plate, which is used to manufacture heavy equipment such as rail cars, storage tanks, bridges, and ships; and large diameter pipe, used primarily for transmitting oil and natural gas. Its Portland Steel Mill minimill provides the steel for its pipe mills in Napa, California, and Camrose, Alberta. Until late 1994, this division also operated a plate rolling mill in Fontana, California. The CF&I Division, centered on a minimill in Pueblo, Colorado, was acquired in 1993. It produces steel rail, rod, wire, and bar products, purchased mainly by customers in the railroad business. Both of OSM's minimills use scrap steel, rather than iron ore, as raw material for their steel production.
Gilmore Steel Corporation, as Oregon Steel Mills was known until 1987, was founded by William G. Gilmore in 1926. The company was incorporated in California two years later. Originally, Gilmore was a steel service center chain based in San Francisco. Its emphasis changed to steel production, however, following its purchase of a steel mill in Portland, Oregon. Gilmore remained a relatively small regional outfit through its first several decades of operation. By the early 1970s, the company was running two steel mills in Portland--one for reinforcing bars and one for steel plate. These two mills made up the company's Oregon Steel Mills division. Gilmore's other operating unit was Gilmore Steel Contractors, a fabricating company that used steel supplied by the mills. Although Gilmore had become an important steel supplier to the Western states by the 1970s, it appeared to be a company past its prime. The facilities were old and inefficient, and competition from foreign companies was forcing Gilmore to run its mills far below capacity. Other headaches included the high cost of keeping the ancient equipment in compliance with new environmental regulations. OSM's steel bar mill in Portland closed for exactly that reason in late 1974.
Over the next few years, the problem of foreign competition came to the forefront. In 1977 Gilmore filed a complaint with the U.S. Customs Office in Washington, D.C., charging that several Japanese companies were flooding the West Coast market with steel plate priced unfairly low. According to Gilmore president and chief executive officer Walter Jameson, Japanese firms had already captured half of the region's market by dumping steel plate at prices below the cost of production.
Although Gilmore's anti-dumping petition against the Japanese companies was successful, steel-making on the West Coast remained a chancy endeavor, and by the end of the 1970s only a handful of steel companies were left in the region. Gilmore remained on shaky ground into the 1980s. In 1980 the high cost of natural gas caused the company to shut down a direct-reduced-iron plant that had been completed only ten years earlier. Although Gilmore controlled about 18 percent of the market for steel plate in the 11 westernmost states plus Alaska and Hawaii, pressure from foreign mills continued, leading Gilmore to initiate anti-dumping procedures against steelmakers from West Germany, Belgium, and South Korea.
In 1982 Thomas Boklund, a construction engineer who had been with the company for about ten years, was promoted to president and chief operating officer. Also that year Gilmore's biggest West Coast competitor, Kaiser Steel Corporation of Fontana, California, went out of business and sold off its remaining steel at bargain basement discounts, depressing prices throughout the region. Despite proclamations by some industry observers that Kaiser's demise spelled the end of the West Coast steel industry, Gilmore persevered. By 1983 OSM had raw steel capacity of 300,000 tons per year, although its facilities were rarely operating anywhere near capacity. For the year, the company shipped only 150,000 tons of steel, and lost $7 million on estimated sales of $47 million.
Boklund also had to confront severe labor difficulties. In September 1983, hourly employees at Gilmore represented by the United Steelworkers of America began a strike that would last almost a year. During the course of the strike, the company continued to operate using replacement workers, joined by about 80 union laborers who crossed the picket line. The strike was bitter, and the tension between union and management, as well as between strikers and replacements, was great. The strike finally ended after workers dropped some of their demands and the company agreed to rehire union workers as business improved.
Although the strike was devastating for business, it marked a turning point of sorts, after which the company was able to transform itself from a dinosaur struggling for survival into a streamlined aggressor tearing up the industry. When faced with a crew consisting mainly of raw beginners, management was forced to pay more attention to its training methods. A new system was initiated in which input from employees was more welcome than it had been in the past. Managers began taking classes on how to communicate more effectively with employees. A new, more participatory culture was created among the new employees.
Meanwhile, the owners of Gilmore, which included the family of company founder William Gilmore, a foundation named after him, and two corporations, had grown tired of losing money, and they wanted out. Gilmore managers, who had purchased ten percent of the company's stock through an employee stock-ownership plan (ESOP) in the 1970s, decided to acquire the entire company via a leveraged buyout. They were assisted by Midland-Ross Corporation (Boklund's former employer), which purchased 68 percent of Gilmore's stock, and then sold it to the management group. In 1984 Gilmore workers voted to decertify the union, after which all Gilmore employees were put on salary. Management then offered its workers an ESOP of their own. Profit sharing was also worked into the system, and management perks were eliminated. These measures succeeded in sealing up to a great degree the rift between management and labor. They also marked the first step in the remarkable turnaround process that took place at Gilmore over the next few years.
By 1985 Gilmore was the only steel plate producer in the West. Boklund was given the additional title of CEO that year. Now firmly in charge, Boklund initiated a program to modernize the company's aging equipment. A major factor in Gilmore's comeback was the installation in 1985 of a high-powered eccentric-bottom-tapping electric furnace, the first furnace of its type to be installed anywhere in the United States. It produced all of the Portland mill's liquid steel for the next decade. The new furnace improved the mill's efficiency dramatically, and allowed the company to focus on becoming one of the lower cost producers in the industry. With the melt shop finally operating at full capacity, Gilmore was able to turn its first profit in years in 1986. As of fiscal 1994, the company had earned a profit every year since then.
Several other factors contributed to Gilmore's resurgence in 1986. To keep the orders coming in briskly, Boklund launched an aggressive pricing policy. By keeping prices low, Gilmore not only kept its facilities operating at full tilt, but also discouraged competition from foreign companies. Gilmore also benefited from a strike at USX Corporation's Geneva Works plant near Provo, Utah, which had previously put about 10,000 tons of steel plate per month into the marketplace. By 1987 the company was completely rejuvenated and ready to expand. That year the company changed its name to Oregon Steel Mills, Inc., reflecting the fact that it had essentially transformed itself into a new company. In an effort to establish a captive market for its steel, Oregon Steel then spent $18.5 million to purchase the Napa, California, large-diameter-pipe mill that had been one of its steadiest customers as part of Kaiser Steel, which had shut down the Napa plant a year earlier. As part of Oregon Steel, the facility was resurrected and once again became the biggest user of steel plate from the company's Portland mill. It was also the only pipe mill located west of Pittsburgh, and one of only three in the entire United States.
OSM went public in 1988, and, as a result, dozens of company employees who had participated in the ESOP became millionaires. That year the company shipped 350,000 tons of steel, and had annual sales of about $190 million. Building on the success of its Napa acquisition, OSM began to seek out other aging steel facilities that it believed could be turned into efficient units. In 1989 the company bought a plate-rolling mill in Fontana, California, from California Steel Industries, Inc., for $7.5 million. The Fontana mill was capable of producing steel plate wider than that made at Portland, which enabled the company to manufacture wider steel pipe at the Napa facility than was previously possible. The addition of the Fontana mill boosted OSM's annual plate capacity to 1.1 million tons.
As the only large-diameter pipe producer west of the Mississippi, OSM found itself in an excellent position by the beginning of the 1990s. Around that time, many natural gas companies in the region were either expanding their pipeline networks or replacing older, deteriorating pipes. If they were located anywhere in the West, OSM was a likely choice to supply the new pipe. In 1990 sales reached $334 million, a 44 percent increase over the previous year, and profits soared to $28 million. Since the largest sources of natural gas in North America were located in western Canada, the Gulf of Mexico, and Colorado, but the greatest concentrations of users were in the Northeast and California, demand for pipeline remained high. This demand fueled OSM's growth, with pipe accounting for about three-fourths of the company's earnings.
In 1992 OSM boosted its Canadian presence by purchasing 60 percent of a pipemaking plant in Camrose, Alberta, from Stelco, Canada's biggest steel maker. Stelco retained control of the remaining 40 percent of Camrose. That year, Robert Sikora was named president of OSM, with Boklund retaining the chairman and CEO positions. OSM's biggest acquisition to date came in 1993, when it purchased Colorado Fuel & Iron (CF&I), a bankrupt steel company with a minimill in Pueblo. The acquisition of CF&I, which became a division of OSM, more than doubled the company's steel tonnage output for the year. The Pueblo plant produced steel rod, bar, wire, tube, and rail. Shortly after the purchase, a modernization program was initiated at the Pueblo mill, and like OSM's other facilities, it was quickly transformed into one of the industry's more efficient units.
In 1994 OSM made moves to become an international player in the steel industry, largely in response to the sluggishness of the U.S. market. During that year, projects in Mexico, Thailand, and Tunisia accounted for the sale of more than 200,000 tons of OSM steel pipe. In addition, OSM purchased a 13 percent interest in an iron company based in Guyana that was planning to make hot-briquetted iron at a plant in Venezuela. OSM also formed a strategic alliance with Nippon Steel, the largest steelmaker in the world. The alliance consisted of two parts: Nippon Steel's purchase of a ten percent interest in CF&I and OSM's acquisition of Nippon Steel's head hardened rail technology. OSM also began construction on a new combination mill at its Portland site. The addition of the combination mill, scheduled to go into production in the second half of 1996, would allow the company to consolidate its steel plate rolling operations into one facility, thus paving the way for the closure of the Fontana, California, mill. Although OSM's net income slipped to $12.1 million for 1994 (from $14.8 million), new records were set in revenue ($838 million) and tonnage sold (nearly 1.7 million tons).
Over the course of a decade, OSM managed to transform itself from an aging, inefficient company that produced steel plate into an international leader with the flexibility to produce several specialty steel products, all with a high degree of efficiency. The company continued to search for additional international markets, as well as for sources of raw materials to serve as alternatives to the scrap metal that feeds most of the company's production. OSM also sought to continue expanding its line of specialty steel products, which carry high profit margins. Although steel is a volatile industry, OSM's remarkable turnaround suggests that it has become capable of riding out even the stormiest of economic cycles.
Principal Subsidiaries: Camrose Pipe Company (60%); CF&I Steel, L.P. (95.2%); Napa Pipe Corporation; Oregon Steel Mills-Fontana Division, Inc.