Steel Industry Needs to Forge New Strategy

U.S. Steel’s recently announced plan to use raw steel from South Korea in its West Coast operations has raised anew the question of what it’s going to take to save the American steel industry.

In a year of major labor talks in the industry and off-year congressional elections, the plan is likely to become a hot political as well as bargaining issue.

To the company, the deal will save jobs and fight foreign competition in the West, where imports already have captured a devastating 60% of the market.

To the United Steelworkers, it is the beginning of the end of raw steel production in this country. The union wants a new national industrial policy to rescue the industry and maintain capacity to produce this strategic material.

The big steel company plans to form a joint venture with giant Pohang Iron & Steel, one of South Korea’s many economic miracles, to refurbish its Pittsburg, Calif., finishing mill and to import raw steel for the mill from its Korean partner. The move is thought by many to seal the fate of the company’s steelmaking facilities at Geneva, Utah, beset by high costs and outdated equipment.

The company contends that Geneva turns out inferior material compared with what foreign producers can offer and that it could only match competition by investing $1 billion in modern furnaces and casting units. It doesn’t believe that it can invest that much and make a decent return, given the intensity of world competition.

The union currently is studying the Korean deal but has already suggested that it will campaign to kill it. In 1983, it took similar aim at a U.S. Steel plan to import raw British steel for its Fairless works in Pennsylvania. In the end, that deal fell through.

This time, the union faces a tougher task. For one thing, in 1983 the steel industry had just wrung a major wage concession from the union. Moreover, British Steel, the intended source of the raw metal, has been kept alive in part by subsidy from the British government, leaving U.S. Steel open to the charge of fostering unfair foreign competition.

Pohang, by contrast, is among the world’s stronger steel producers, and the western U.S. market is one where American producers have the toughest time competing with imports. Geneva and Pittsburg both are in trouble unless the company does something.

The union has no simple answer to this problem. It charges that management failed long ago to invest the funds required to make Geneva a modern mill. It is a charge that is rightfully leveled at most of the industry, but it is also water over the dam.

The union believes that making up for those past failings will take more than what the industry or the union can do on their own. In a report issued recently, it argues that no party alone can bring the industry back. It wants to bring to the bargaining table all interests--federal, state and local governments and major lenders.

It talks of an effort that would involve national policy-making that might include new tax incentives and perhaps even subsidies to stimulate adequate investment. It talks of getting lenders to restructure steel company debt where necessary to provide some of the needed funds.

Just how much aid the industry needs is by no means clear. National Intergroup recently took another approach to rescuing its operations. It sold half of its National Steel subsidiary to a Japanese company, and together they plan to modernize National’s U.S. facilities, raw steel and all.

There’s little question that the United States couldn’t tolerate a wholesale shutdown of raw steelmaking. The union is right to worry that U.S. Steel’s move could be a first step in that direction. But kept in perspective, it is only a small step and one that may be a wise response to the competition the company faces in this region.

That doesn’t change the broader issue, which is how to get the steel industry to gear itself up to world standards. Import protection hasn’t helped much. The union’s membership has made sacrifices already to reduce labor costs. It may have to make more. Now it’s really up to the industry to adopt longer-term strategies for rebuilding and to work closely with the union in doing so. The alternative might well be government involvement, and that’s hardly a bright prospect.