Settlement Is Bad News for USX’s Rivals : Long Walkout Had Helped Ease Glut, Increase Prices
Not everyone in Pittsburgh was overjoyed by this weekend’s news of a tentative settlement in the bitter, nationwide labor dispute between USX Corp. and the United Steelworkers.
In fact, there were undoubtedly at least a few executives at USX’s rivals in the steel industry sorry to see the walkout end. They may even have been privately hoping it might last a little bit longer.
For while the walkout has been a disaster for USX, formerly U.S. Steel, and a tragedy for its workers and their families, it has probably been the best thing that has happened to USX’s ailing competitors in the past year.
By idling roughly 20% of the nation’s steelmaking capacity since last Aug. 1, the walkout has temporarily rid the American steel industry of most of the production glut that had been depressing steel prices and profits at other domestic steel companies.
As a result, the walkout, termed a lockout by the union, has been a modest windfall for the rest of the domestic industry. Especially since it came just as the Reagan Administration’s 2-year-old quota program, long criticized for being ineffective, has finally begun to slow the tide of imported steel flooding the U.S. market.
Stabilizing Factor
With foreign producers thus prevented by quotas from taking advantage of USX’s absence from the market, the dispute at USX has allowed other domestic steelmakers to increase production, call back a few laid-off workers and eliminate some price discounting.
So, although steel demand has remained sluggish, the USX shutdown has at least temporarily stabilized the market for the rest of the industry.
“It’s been a great bonus for all of USX’s competitors,” says John Jacobson, steel analyst with Chase Econometrics, an economic forecasting firm. “They should report better financial results for the fourth quarter of 1986, as well as for the first quarter of this year,” he said.
“Every producer has recognized higher orders and higher prices than they would have otherwise,” added Walter Carter, steel market analyst with Data Resources, another forecasting firm.
Analysts and industry executives say that, because of the walkout, a 3% industrywide price hike for widely used flat-rolled steel took effect in October. The industry had failed to make the same price hike stick in May, before the USX dispute began.
“Prices did firm after USX went out; there has been a lot less discounting,” said Bob Toothman, a spokesman for National Steel Corp.
USX’s woes have been particularly helpful to the firm’s two biggest rivals, LTV Corp. and Bethlehem Steel Corp., the nation’s second- and third-largest steel producers, respectively. Officials at smaller steel firms say LTV, which is in bankruptcy proceedings, and financially troubled Bethlehem have been able to take over much of USX’s business because they had the idle production capacity to pick up the slack when the walkout began.
Indeed, the USX walkout, now the longest in the steel industry’s history, is already paying off for Bethlehem on the bottom line. Earlier this month, Bethlehem said that it expects to report a profit for the fourth quarter. It will be only the third time in 20 quarters Bethlehem has been able to avoid a loss. Bethlehem acknowledged that the USX walkout was a big reason for the improved earnings outlook.
LTV Became Largest
Meanwhile, the shutdown of USX’s mill’s has, by default, transformed deeply troubled LTV into the nation’s largest steelmaker. “We’ve picked up more work since the strike and gradually have brought some workers back,” noted David Carroll, a spokesman for LTV’s steel operations.
Even smaller steel producers that have not experienced big increases in orders have still benefited from the walkout.
National Steel, for example, which concentrates on sheet steel for the automotive and appliance industries, was already operating at over 90% of capacity before the walkout began, so it couldn’t increase production when USX was shut down. But it has improved its profit margins by selling more high-grade steel directly to automotive and office furniture customers previously served by USX, and less to steel “service centers,” wholesalers who tend to buy and sell steel at low, spot-market prices.
“We’ve been able to improve our product mix,” said Toothman, the National spokesman.
But now that the walkout appears to be ending, USX’s competitors are once again faced with the prospect of having too many steel makers chasing too few customers.
Another Glut Likely
Even if USX permanently shuts a few of its least efficient mills after the walkout, as many industry observers expect, the company’s reopening will still bring back the steelmaking glut and depressed prices that have plagued the industry for years.
In fact, USX’s competitors have already seen the first signs that the settlement will have an impact on prices. A second 3% price hike slated for early January didn’t stick, and some industry executives believe it failed because customers were counting on USX to come back quickly and slash prices to win back its share of the market.
If USX does fight aggressively to win back its market share, then 1987 could be a long year for the rest of the industry. And then, 12 months from now, USX’s competitors might wish they had never heard about a walkout at USX.
