This classification includes establishments primarily engaged in manufacturing hot metal, pig iron, and silvery pig iron from iron ore and iron and steel scrap; converting pig iron, scrap iron, and scrap steel into steel; and in hot-rolling iron and steel into basic shapes, such as plates, sheets, strips, rods, bars, and tubing. Merchant blast furnaces and by-product or beehive coke ovens are also included in this industry. Establishments primarily engaged in manufacturing ferrous and nonferrous additive alloys by electrometallurgical processes are classified in SIC 3313: Electrometallurgical Products, Except Steel.
324199 (All Other Petroleum and Coal Products Manufacturing)
331111 (Iron and Steel Mills)
The first steel mill in North America was built in the 1600s, making the industry one of the oldest in the country. During much of the twentieth century the steel industry served as the measure of the U.S. economy. In 2001, U.S. steel companies employed about 127,359 people and shipped more than 88 million metric tons of steel. Despite its impressive size, the steel industry began declining in the mid-1970s and suffered a devastating depression between 1982 and 1986. After peaking in 1978 at over 137 million tons, U.S. steel production slipped to less than 90 million tons in 1991. Anemic market growth, expensive labor, increased production costs, and stagnant prices pummeled many manufacturers in the industry. In addition, the proliferation of foreign competition and the popularity of substitute materials, such as plastics and aluminum, gouged industry profits.
In response to a more competitive environment, the U.S. steel industry continued to restructure itself in the late 1980s and early 1990s. By 1993, new production techniques and facilities, as well as increased automation, had made U.S. steelmakers among the most productive in the world. From the low point in 1991, U.S. steelmakers steadily increased production during the 1990s, reaching peak levels in 1997 of 108.6 million tons produced and 105.9 million tons shipped. As productivity in the steel industry increased, the labor force declined to about 159,000 jobs in 1998, down from 171,000 in 1996.
Domestic steel production accounted for more than 12 percent of total world production annually from 1993 to 1998, reversing a downward trend from 26 percent in 1960 to less than 11 percent in 1991. Although U.S. steelmakers enjoyed strong domestic demand for steel in 1997 and 1998, especially from the automotive, construction, and industrial machinery and equipment production markets, they faced increasing competition from foreign steelmakers. There were record levels of imported steel in 1998, with U.S. steelmakers uniting to charge foreign producers with dumping steel into the U.S. market at below-market cost.
Despite the industry's successful reversal of its fortunes in the mid-1990s, the tides had turned again in the last years of the 1990s and the first years of the 2000s. Value of products shipped declined steadily, from nearly $57.0 billion in 1997 to $52.1 billion in 2000. Then the bottom fell out, and in 2001 total value of products shipped fell to just $44.1 billion, causing dozens of companies to file for bankruptcy. Import tariffs, imposed by the Bush Administration, along with consolidation within the industry led to a slight reprieve for the industry during 2002. However, serious questions remain regarding the long-term health of the steel industry in the United States.
Steel companies are involved in the manufacture of hot metal, pig iron, and silvery pig iron from iron ore, iron, and steel scrap. They are also involved in converting pig iron, scrap iron, and scrap steel into steel, as well as hot-rolling iron and steel into plates, sheets, strips, and bars. These end products are purchased by companies in other industries, which usually shape and manipulate the steel to create finished products.
Products offered by steelmakers are classified into five categories according to the manner in which they were processed and their chemical compositions. Carbon steels are used mostly for flat rolled products because of their high malleability. Machines, auto bodies, ships, and building structures are made with this type of steel. In fact, carbon steels accounted for about 54 percent of all U.S. steel production in the 1990s. Alloy steels, which made up about 10 percent of the market, integrate elements into steel to enhance its physical properties. Corrosion resistance, greater strength, and increased conductivity are a few of the advantages offered by some alloys.
In comparison to carbon and alloy steels, stainless steels are highly resistant to rust and may be stronger or offer resistance to temperature changes. Accounting for 4.7 percent of the steel market volume, stainless steel is often used in pipes, tanks, and in the medical field. Tool steels and high-strength low alloy (HSLA) steels accounted for less than 1 percent of industry production, combined. They are used in applications in which strength and weight are critical.
Integrated Manufacturers vs. Minimills. Steel manufacturers can be divided into two camps—traditional integrated mills and non-integrated "minimills." Integrated steel mills undertake every step of the steel making process. These facilities typically begin by converting mixtures of iron ore, limestone, and coke (made from coal) into molten iron using a blast furnace. Basic oxygen furnaces (BOFs) are next used to convert the molten iron into steel, which is then cast into ingots. Ingots are then shaped into slabs, billets, or blooms of steel.
Increasing numbers of integrated mills in the 1990s were using a process called continuous casting to bypass the production of ingots and cast billets, slabs, and blooms directly from molten iron. Compared to the old ingot teeming process, continuous casting is less complicated and yields a superior product. In this process, molten steel from a furnace is quickly carried in a ladle directly to a refractory lined container, or tundish, at the top of the caster. The molten metal is then poured into the tundish, which feeds it continuously into the caster, the core of which is water-cooled mold open at both ends. When molten steel enters one end of the mold and cools, a "skin" of metal forms around a liquid core. The material leaves the other end of the machine and is further cooled by water sprays, solidifying the metal. Continuous casting cuts time, consume less energy, and increases yield. It has been estimated that it cuts operating costs by about $30 a ton. Steelmakers next convert the finished, or semi-finished, steel into rolls, plates, bars, tubes, rails, or other more marketable products, especially for the auto industry, at a rolling mill. By 1995, every major U.S. manufacturer relied on continuous casting.
In the 1990s, minimills, or non-integrated facilities, were using the same process as integrated mills with a few exceptions. Rather than process base materials—iron ore, coke, and limestone—minimills typically start with scrap iron or steel. The scrap, melted in an electric arc furnace (EAF), rather than a blast or basic oxygen furnace, is continuously cast into blooms and billets. Minimills typically produced fewer finished products than integrated mills. Although many manufacturers were broadening their offerings to include steel pipes, plates, and sheets, most minimills emphasized rods and bars used in light construction.
Minimills are capable of producing from 150,000 to 2 million tons of steel per year. In contrast, most integrated mills can generate 2 to 4 million tons per year. Minimills are also typically able to produce steel at a much lower cost than their larger cousins. Because minimills do not have to be located near supplies of raw ingredients, for instance, they are able to operate closer to their customers, thus reducing product transport costs. In addition, more minimills are located in the southern United States and benefit from less expensive, non-union labor. Integrated mills, on the other hand, employ union labor. Union contracts prevent integrated companies from reducing compensation costs when production declines due to downturns in demand. Furthermore, minimills are more likely to employ more advanced technology, such as continuous casting and EAFs, that reduce production costs and improve quality.
Competitive Structure. Integrated steel producers have been steadily losing market share to minimills. In 1992, integrated steelmakers accounted for approximately 75 percent of U.S. steel industry production. In 1998, integrated steelmakers accounted for only 55.4 percent of U.S. steel production, compared to more than 90 percent in 1960. Minimills, on the other hand, increased their share of production from 8.4 percent in 1960 to 44.6 percent in 1998.
Compared to minimills, integrated steelmakers are more capital and labor intensive. On average, minimills realized about $500 in capital costs per ton of steel produced, while integrated mills incurred about $2,000 per ton. Likewise, during the mid-1980s and early 1990s, minimills generated about $32 in operating profit per ton of steel, compared to just $3 per ton for integrated mills. The availability of cheap scrap steel was also a factor in keeping costs down at minimills.
Minimills have been able to achieve greater labor productivity than integrated mills, in part because they employ nonunion labor. Nucor, the leading minimill manufacturer and the third largest steel producer in the United States, produced 1,333 tons per employee in 1998. By comparison, Bethlehem Steel, the second-largest integrated steel manufacturer in the United States, produced only 573 tons per worker in 1998.
The domestic steel industry remains fairly concentrated, but is a far cry from the oligopoly characteristic of the early twentieth century. Of the 79 companies in the U.S. steel industry, the top three—USX-U.S. Steel Group, Bethlehem Steel, and Nucor—accounted for 27 percent of total shipments in 1998. The top nine firms accounted for nearly 52 percent of industry shipments in 1998.
The main consumers of steel are the automotive industry, construction, and industrial machinery and equipment manufacturers. Service and distribution centers consumed 21 to 23 percent of U.S. steel production in 1995. The largest steel customer that built consumer products was the automobile industry, which used 13.5 million tons in 1995, or about 16 percent of total steel production. The construction industry purchased about 11.7 million tons of steel in 1995, and machinery manufacturers used about 2.0 million tons. Other large steel consumers included oil and gas companies with 2.7 million tons, container manufacturers with 3.8 million tons, and various commercial equipment producers with 700 thousand tons.
Steel is an alloy of carbon and iron that is harder and stronger than iron. The first ironworks were established in British North America in Jamestown, Virginia, in 1621, and the Saugus ironworks was established in Massachusetts in 1645. By the beginning of the eighteenth century iron making was underway in almost every other colony. Despite English parliamentary acts that tried to restrict the burgeoning industry, manufacturers in North America continued to build new iron mills, and eventually finished steel mills, throughout the 1700s. Iron production in this early period entailed the use of charcoal fuel or water power, along with a small labor force, to melt iron ore in a blast furnace. Entrepreneurs could start a mill with several hundred dollars. By 1800, approximately 84,000 tons of iron were being produced in North America.
The coming of the steam age in the early part of the nineteenth century created a huge demand for iron. Up to this time most iron mines, forges, and blacksmiths were small operations. Steam created a demand for rolled iron to be used in making boilers. In addition, more than 30,000 miles of railroad track with iron rails were laid in the United States between 1830 and the outbreak of the American Civil War in 1861. As a result, iron mills became major enterprises.
The production process changed very little throughout the 1800s, although advances in transportation freed the industry from many geographical constraints. The U.S. steel industry did not develop on its own until after the American Civil War. Up until that time steel was too expensive to manufacture by the methods then available. Its use prior to the American Civil War was confined primarily to high-value products, and the United States imported nearly all of its steel until after the American Civil War.
Two inventions in the 1850s resulted in the rapid rise of the steel industry, which supplanted the iron industry by the end of the nineteenth century. One was the Bessemer process for making steel, developed by British engineer Henry Bessemer in 1856. The second was the Siemens-Martin open-hearth method, introduced in 1858. These processes, once perfected, greatly reduced the cost of producing steel. The first Bessemer converter in the United States was built in 1864, and the first open-hearth furnace, which was better suited to American iron ore, was built in 1868. These spurred steel production in the United States. By 1873 the United States was producing nearly 115,000 tons of steel rail, approximately one-eighth of all U.S. rail production. As the price of steel continued to drop, steel rails replaced iron rails, which became brittle and required frequent repairs. The iron age was over.
Toward the end of the nineteenth century the structure of the industry changed as it became more concentrated and the number of firms dwindled. Between 1880 and 1900, U.S. steel production increased from 1.25 million tons to more than 10 million tons. The industry underwent consolidation as mill owners sought economies of scale. Led by Andrew Carnegie, Henry Clay Frick, Charles Schwab, and others, the modern steel industry took shape. Companies such as Bethlehem Steel and Illinois Steel Company were born. It was also during this time that the first steel import tariffs and trade associations were instigated. Many bitter and deadly labor disputes rocked the industry during the late 1800s and early 1900s, notably the Homestead strike of 1892, and the steel industry would not be fully unionized until the 1930s. In 1901 financiers J. Pierpont Morgan and Elbert H. Gary formed the United States Steel Corporation. With a capitalization of $1.4 billion, it was the largest industrial enterprise in the world. By 1910 the United States was producing more than 24 million tons of steel, by far more than any other country.
In the early 1900s, the development of the open hearth furnace (OHF) made it possible for companies to produce higher quality steel and to use scrap metal in the production process. Improved steel quality was an important advantage for firms that were striving to serve the needs of the new automobile industry. Indeed, the massive growth in demand for new steel during the early 1900s, particularly in the 1920s, was a boon to the industry. After suffering setbacks during the Great Depression, when over 50 percent of U.S. steel production capacity stood idle, steel markets expanded significantly throughout World War II.
In the 30 years following World War II, U.S. steelmakers dominated the global steel industry. In addition to the fact that many European and Japanese producers had been stifled by damage during the war, U.S. plants were technologically superior. Additionally, U.S. facilities were also an average of more than three times larger than those in other industrialized nations. In 1950, over 45 percent of the world's raw steel was produced in the United States. American firms produced about 90 million tons of steel, compared to about 30 million tons and less than 5 million tons produced by Europe and Japan, respectively.
Because U.S. firms enjoyed great economies of scale and technological supremacy, their steelworkers were by far the highest paid in the world. U.S. manufacturers enjoyed immediate access to the fastest growing economy in the industrialized world. These and other factors helped to push U.S. steel production from around 90 million tons in 1950 to nearly 140 million tons by the 1970s. Although the U.S. steel industry maintained a significant lead over the European Community (EC) and Japan from the 1950s through the 1970s, companies in those two regions gained quickly on their U.S. counterparts. By 1970, the EC and Japan were producing about 120 million and 90 million tons of steel per year, respectively.
Despite its size and its rapid growth, the U.S. steel industry began experiencing problems in the 1960s and 1970s. In addition to high labor costs, slowing growth in domestic markets, and a declining world market share, the industry was also beginning to pay the price for failing to invest the resources necessary to maintain its technological lead. Most companies, for example, had been slow to convert their operations to more productive basic oxygen furnaces (BOFs), which were replacing the old OHFs. Indeed, by the mid-1970s it was clear that U.S. companies had lost their leadership role in world steel markets—despite a flurry of capital investment by steelmakers in the late 1960s.
Since the Mid-1970s. The U.S. steel industry experienced its first significant reversal in the mid-1970s. A rise in energy prices was one of most significant factors that contributed to the industry's decline. In 1975, after oil prices had jumped from $3 to $12 per barrel in less than two years, U.S. steel production dropped by 20 percent. To make matters worse, U.S. companies had substantially increased their production capacity in anticipation of strong market growth—a dreadful miscalculation. High labor costs continued to plague U.S. competitors as well, adding to their comparative inefficiency in the global market.
Other miscellaneous factors battered down industry profits. Environmental regulations, for example, forced the industry to spend a peak of nearly $400 million in 1981 to reduce pollutants. Also, government-subsidized imported steel was cutting into domestic market revenues. The dumping problem became so bad that the U.S. government enacted Voluntary Restraint Agreements (VRAs) in the early 1980s—which essentially amounted to anti-dumping legislation for 29 importing countries. Finally, steel substitutes were further reducing steel's market share. For instance, the average amount of steel and iron contained in an automobile fell from 2,535 pounds in 1977 to 1,757 pounds in 1992, but the average amount of plastic in an automobile rose from about 180 pounds to 245 pounds.
The proliferation of minimills also added to the woes of large steel producers. Although minimills had originated in the 1960s, by the late 1970s these facilities were beginning to compete directly with large producers in specific market niches. The more efficient and technologically superior minimills particularly benefited from EAFs, which proved much more productive than even the BOFs in which large manufacturers continued to invest. As a result, the market share of the top six producers declined from 64 percent in 1980 to about 50 percent by 1990.
The end result of the problems affecting the industry was decreased production and profits beginning in the late 1970s and continuing throughout most of the 1980s. Total U.S. steel production declined from a peak of 136 million tons in 1979 to a low of about 81.5 million tons in 1986. U.S. manufacturers' share of world steel production also plummeted from over 17 percent in 1976 to about 11 percent in 1990. Furthermore, industry employment plummeted from about 300,000 in 1982 to less than 190,000 by 1990. Industry profits fell through the floor, declining to a loss of over $1.8 billion in 1985, and a staggering loss of nearly $4.2 billion in 1986. Although industry net income jumped to over $1.0 billion in 1987, profits remained relatively stagnant throughout the decade.
Industry Restructuring. In response to the metamorphosis of steel markets, U.S. producers launched a major industry restructuring in the 1980s. Companies greatly increased investments in new production technologies. Integrated mills alone invested $23 billion in the 1980s to modernize their plants. The percentage of steel produced in older OHFs, for instance, fell from nearly 20 percent in 1977 to less than 5 percent by 1990. During the same period, steel produced using efficient EAFs increased from just over 20 percent to nearly 40 percent. Most importantly, manufacturers increased the amount of steel that was produced using continuous casting from just 15 percent in 1980 to over 75 percent by 1991—nearing the levels found in the EC and Japanese industries.
U.S. steelmakers made important gains in other areas, too. Investment in pollution controls declined to just over $100 million in 1990, although those costs began to rise again in the early 1990s. Manufacturers also succeeded in stabilizing their labor costs, although it was estimated that labor still represented 28 percent of the cost of production in as of 1994. Large investments in automation, however, had helped to bring labor expenses in line with overseas competitors. Also bolstering industry competitiveness was the success of highly efficient minimills that could produce steel nearly twice as fast as integrated facilities. By 1995, minimills represented 40.4 percent of industry production.
Domestic producers had also succeeded in reducing steel dumping by importers with such legislation as the VRAs. Furthermore, American companies had increased the quality of their products by investing in new production technology. They had developed new products, for instance, that allowed them to compete with many plastic substitutes. New steel products were being offered that had the corrosion resistance and weight advantages of many plastics, yet cost less to create.
As a result of restructuring during the 1980s and 1990s, U.S. steel companies in 1996 were the third most productive in the world. Manufacturers had dramatically reduced the average amount of labor required to produce one ton of steel from 11 man-hours in 1982 to 3 manhours in 1994—less than both Japanese and European producers. At least one study estimated that pretax production costs in the United States were lower than costs in any other major steel producing nation, except Britain. Furthermore, exports, which have since slowed to 7 percent in 1995, had reached a peak of 8 percent of production in 1992, despite a more than 5 percent decline in foreign demand since the late 1980s. At the same time, an upturn in the U.S. economy in 1995 and early 1996 buoyed domestic demand.
By the mid-1990s the U.S. steel industry was in good economic shape. Restructuring continued during the 1990s, and from 1992 to 1998 the steel industry spent an aggregate of $50 billion to modernize its plants. Steel companies improved their financial position by reducing debt, underfunded pension plans, and other liabilities.
After two strong years industry performance slackened slightly in 1996 as some plants suffered breakdowns after running at full capacity. Raw steel production during 1996 was 99.4 million tons, up from 97.1 million tons in 1995. Steel shipments rose in 1997 to 105.9 million net tons, then fell 3.5 percent in 1998 to 102.1 million tons.
Strong demand in the United States for steel in 1997 and 1998 resulted in a significant increase in imported steel of various kinds. Cheap imports from Russia, Japan, Brazil, and other countries forced the price of commodity grade steel down more than 10 percent. To prevent other countries from dumping steel into the United States market, the U.S. steel industry filed antidumping petitions with the U.S. International Trade Commission, under the U.S. Department of Commerce, and the International Trade Administration. "Dumping" refers to the practice of one country selling commodities or finished products in another country at below cost or fair market value. Since 1980 the steel industry has used antidumping complaints as a tool to curb imports, and in 1998 it filed complaints against Japan, Russia, and Brazil.
The major markets for flat-rolled steel are automotive, accounting for 50 percent; construction, 20 percent; and production of industrial machinery and equipment, 30 percent. All of these markets enjoyed increased production during the 1990s, resulting in growing demand for steel. High levels of vehicle production and increasing truck share, which are more steel-intensive than automobiles, have explained much of the strength in steel volume in recent years.
Steel prices have dropped due to a combination of softer demand, a drop in domestic steel operating rates, a steep decline in scrap prices, competitive pressures from imports, and expanded domestic capacity. However, steel prices started to turn upward in mid-1999 as the major producers announced price hikes.
The steel industry's profitability continued to be affected by a wave of low-priced steel imports in 1999. American Metal Market reported that only five of the 14 integrated producers that it tracked were profitable for the first half of 1999. The 14 integrated steelmakers posted a combined operating loss of $519 million for the first six months of 1999, compared to a combined operating profit of just over $1 billion for the same period of 1998.
The Future of Steel. The steel industry remains highly competitive. Domestic producers face competition not only from foreign steelmakers, but also from substitute materials, such as glass, ceramics, aluminum, and plastics. World steel consumption was expected to decline by nearly 3 percent in 1999, followed by a modest recovery in 2000. Excess world capacity was expected to put pressure on U.S. steelmakers despite the many anti-dumping complaints being filed. Any increase in steel prices would act as a stimulant to encourage even more expansion of low-cost capacity.
Integrated steelmakers, which were under severe profit pressure during the 1980s, were expected to reap the most benefits from increased prices. Nevertheless, analysts expected that minimills would continue to gain market share and to significantly outperform integrated facilities. Minimills promised to pose a growing threat as they expanded their offerings to include flat-rolled sheet steel and large structural products—formerly the domain of integrated producers. Furthermore, rapid advancements in minimill production technology were allowing this sector to compete with integrated manufacturers in a growing number of markets.
Direct steelmaking is the most likely long-term solution to problems caused by the capital-intensive nature of the integrated steelmaking process. Widespread implementation of the direct steelmaking process would also eliminate the need for coke ovens, many of which are badly in need of being rebuilt and have been the source for harmful emissions. One direct-process plant has been in operation since 1989. Located in Pittsburgh, this experimental facility is capable of producing five tons of steel an hour. It uses a coal-based, continuous in-bath melting process that substitutes a single vessel for coke ovens, blast furnaces, and basic oxygen furnaces. This technique's energy requirements are about 20 percent lower than those of conventional steelmaking, which uses three separate processes. A second, larger experimental facility was completed in 1995, and several foreign competitors have built similar plants.
In 2001, the U.S. steel industry shipped 88.1 million metric tons of raw steel. By grade, carbon accounted for 86 percent; alloy, 11 percent; and stainless, 3 percent. Electric furnaces were used for 42 percent of production; basic oxygen, open hearth, and other types of furnaces were used for the remaining 48 percent.
With little commercial or industrial growth during the first two years of the 2000s, the steel industry experienced a significant lack of demand. Combined with a worldwide oversupply situation, prices plummeted. During 2001, 14 percent of the industry's mills were idled or closed. However, the Bush Administration stepped in to apply tariffs to cheap imported raw steel in an effort to even the playing field, because many major steel producing countries, including China, provided subsidies to their steel industries. Unable to compete in price, imports flooded the marketplace, and U.S. producers were left with too much steel and too few buyers. The tariffs slowed the influx of steel, although Canada, the United States' largest foreign supply of steel, is exempt from the tariff under the terms of the North American Free Trade Agreement. Between 1997 and 2002, at least 32 U.S. steel companies filed for bankruptcy. The decreasing number of players, combined with the effect of the tariffs, helped steel prices and demand rebound during 2002.
Although applauded by the steel industry, which was in desperate need of some relief, the tariffs affected only raw steel, not finished products. Thus companies in the United States that relied on raw steel to manufacture finished products saw their materials costs rise. These end users either had to absorb the increased cost or pass it on to their customers. In turn, their customers could choose to pay more or simply look overseas for the same finished product at a cheaper price. The steel tariffs, which have stirred significant controversy, are expected to be withdrawn during 2003, causing imports to rise and prices to fall.
Since 1977, the steel industry has lost more than 350,000 jobs. In the early twenty-first century, it is an industry in turmoil. Industry analysts agree that one of the predominant problems of the U.S. steel industry is fragmentation, which has led to production overcapacities and inefficiency. There are positive signs that significant consolidation is underway, including the merger of U.S. Steep Corp. with National Steel Corp., and Bethlehem Steel Corp. with International Steel Group. As a result, by 2003 three companies (U.S. Steel, International Steel, and Nucor) controlled 60 percent of the U.S. production of steel. Consolidation efforts have been stymied by the sluggish economy. Once economic activity regains momentum, expect the steel industry to see ongoing consolidation efforts.
The largest domestic steelmaker, USX's U.S. Steel Group, had annual sales of over $6.9 billion in 2002. The company's net income was $61 million, down from $452 million in 1997. In 1973, this company produced a record 35 million net tons of raw steel. By 1990, however, its total steelmaking capacity had shrunk from 37 million to 19 million tons. The capacity reduction was the result of a restructuring effort in the 1980s that eliminated or modernized its facilities.
Another large U.S. steel producer, by revenues, was LTV Corporation, of Dallas. In the mid-1990s, this industry giant had annual sales exceeding $4 billion and employed 15,300 people. LTV Steel, LTV Corporation's steelmaking subsidiary, was formed as a result of the merger of Jones & Laughlin and Republic Steel in 1984. Shortly thereafter, following a price collapse in 1985, LTV Steel filed for bankruptcy. Massive capital investments, joint ventures, and automation efforts helped revive the company in the late 1980s. However, after rebounding with a profit in 1991, it again showed a loss in 1994 of $127 million.
In 1997 LTV turned a profit of $30 million on sales of $4.4 billion, but the company still struggled to compete with cheap steel imports and filed for bankruptcy again in 2002. The International Steel Group, based in Richfield, Ohio, scooped up the bankrupt company, and then added Bethlehem Steel, another bankrupt industry leader, to its lineup in 2003, making International Steel Group one of the top three players in the industry (along with U.S. Steel and Nucor). Bethlehem Steel Corp., with sales of $3.8 billion in 2002, filed for chapter 11 bankruptcy in 2003.
One of the most progressive and successful steel producers was Nucor Corporation, of Charlotte, North Carolina. In contrast to the larger producers already mentioned, Nucor produces steel in minimills. With a net income of $162.1 million on sales of $4.8 billion in 2002, this company was one of the most profitable of the large producers and was continuing to build new facilities. Established in 1967 with a single mill in South Carolina, Nucor had added five plants by 1991 with a production capacity of about 4 million tons per year. Using state-of-the-art technology, such as EAFs and continuous casting, Nucor was able to produce steel from scrap at a fraction of the cost incurred by its larger competitors.
Nucor has also been a leader in expanding the markets served by the minimill sector. In the early 1990s, the company broke into the flat-rolled steel market, which previously was controlled entirely by integrated producers and accounted for about 45 percent of their production. To produce this sheet steel, Nucor was utilizing a new technique called thin-slab casting. In this process, a machine employs a funnel-shaped mold to squeeze molten steel down to a thickness of 1.5 inches to 2.0 inches. This eliminates the need for primary stands that reduce the larger slabs, typically eight to ten inches thick, that conventional casters produce. This method has proved much less costly than conventional casting methods. Nucor's thin-slab casting operation became profitable in June 1990, only ten months after it started production, and was operating at its maximum capacity of 800,000 tons per year by 1992.
In July of 1992, Nucor opened a new $330-million, one-million-ton-per-year, thin-slab casting sheet plant in Arkansas. By 1996, both it and Nucor's Indiana plant were operating at full capacity. The company also announced plans to control 20 percent of the sheet steel market in 2000 by progressing to 8 million tons of capacity. In addition to its attack on the sheet steel market, Nucor also constructed a mill in partnership with Yamato of Japan to roll wide-flange beams—a product produced primarily by integrated mills in the early 1990s.
Other large integrated steel producers included AK Steel Holding, which merged with ARMCO, Inc. in 1999. The company reported revenues of $4.3 billion in 2002.
National Steel Corp., with sales of $2.6 billion in 2002, also filed for protection under chapter 11 bankruptcy. Another major producer, Inland Steel, was acquired in 1998 by London-based Ispat International for $1.4 billion.
Labor productivity in the U.S. steel industry tripled between 1980 and 1998, from an industry-average of 10.1 man-hours per ton in 1980 to 3.2 man-hours per ton in 1998. Many North American facilities were able to produce a ton of finished steel in less than two man-hours per ton and some in less than one man-hour. These factors, combined with a reduction in demand since the late 1980s, dealt a lethal blow to many jobs in the industry. The trend toward automation was expected to maintain a trend toward fewer workers. Jobs in the steel industry declined from 171,000 in 1996, to 159,000 in 1998, and 127,000 in 2001.
While overall steel employment declined through the 1990s, new positions were expected in the emerging minimill sector where a wide gap existed in labor productivity between minimills and integrated producers. Between 1986 and 1991 employment growth at minimills rose by an average of 19 percent, while employment at integrated companies fell by 30 percent. Minimills typically employed nonunion labor. Steel workers at integrated producers were represented by the United Steel-workers of America.
U.S. exports of steel typically accounted for less than 10 percent of total shipments during the 1990s, due in part to the fact that the U.S. domestic market is the largest in the world. Imported steel, on the other hand, reached a staggering 42 million tons in 1998 compared to an average of 23 million tons per year from 1990 to 1997. Among the countries showing the biggest increase in exports to the U.S. market in 1998 were Japan (5.5 million tons, up 157 percent from 1997), Russia (4.4 million tons, up 46 percent), and South Korea (2.9 million tons, up 105 percent). The largest exporters by volume to the United States were the European Union, Canada, Brazil, and Mexico.
Total global steel production fluctuates from year to year due to a variety of circumstances. In 1998, global production fell 3 percent to 775.3 million tons, due in part to the financial crisis in Russia, an economic crisis in Southeast Asia, and a lengthy strike at U.S. automaker General Motors. China was the largest producing country with 114.3 million tons, 14.7 percent of the world's output.
Rather than expanding production capacity, producers in the late 1980s and 1990s were relying on new technology to help achieve greater efficiency and quality. Because the overall global steel market has matured, companies in the mid-1990s could grow only by increasing market share, raising profit margins, or by developing new steel products.
In addition to continuous casting, thin-slab casting, and EAFs, companies were experimenting with a variety of new production techniques. For example, an array of devices were being employed in the early 1990s to help companies spot, map, describe, and classify defects in sheet steel that were as small as .02 inches in diameter. Strobe lights, laser beams, and artificial intelligence systems were all at work ensuring higher quality output. Furthermore, continuing advancements in alloys and steel coatings were allowing manufacturers to create new steel products that could compete with advanced plastics and ceramics.
Nucor has also been experimenting with an electromagnetic braking system, designed to improve surface quality of the sheet by reducing turbulence in the mold. Less turbulence should result in fewer surface defects and allow for greater casting speed. In addition, AK Steel has pioneered an oxygen-blowing technique that shows some promise in the fight to become more competitive. AK uses a form of oxygen injection in its blast furnaces to increase output and to improve its ability to cope with the world steel market. It is believed that oxygen injection will allow a decrease in the break-even volume for making steel in a blast furnace.
Besides new production techniques, U.S. steelmakers were also realizing productivity gains in the mid-1990s through information technology. Bethlehem Steel, for instance, entered a 10-year contract with Electronic Data Systems, Inc. (EDS) to coordinate its operations. EDS will eventually provide Bethlehem with all necessary resources for data center management, applications development support, and process control activities. The goal of the effort was to fully integrate all aspects of Bethlehem's operations and to allow the company to concentrate on steelmaking, rather than information management.
With the growth of the Internet in the late 1990s, the steel industry also embraced electronic commerce. By late 1999 the industry had two major electronic commerce ventures, Metal Site and e-Steel. Metal Site, based in Pittsburgh, was founded in 1998 by Weirton Steel, LTV Steel, and Steel Dynamics. It held its first steel auction in December 1998. New York-based e-Steel began conducting trial sales in 1999 and enjoyed financial backing from the same venture capital firms that had invested in other successful Internet businesses, such as Amazon.com and America Online.
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