Restructured Steel Firms Face New Problems : Heavy industry: A painful decade of closings and modernization restored U.S. competitiveness. Now recession, labor costs and weak prices are bringing more changes.

While U.S. Steel’s ancient, massive South Works in Chicago nears the end of its trail this winter, a very different sort of steel plant is getting under way 100 miles to the east in a cornfield here.

The South Works, opened 112 years ago when Rutherford B. Hayes was President, looks like a sooty, oversized Erector set that nobody plays with anymore. The huge complex once employed 20,000 people, but it is to close for good in April and deposit its 700 remaining workers on the street.

By comparison, the new, $1-billion plant in northwest Indiana calls to mind a neat assemblage of white Lego blocks. The sprawling affair could pass for an office building and accomplishes in an hour what used to take 12 days. A joint venture of Chicago’s Inland Steel and Japan’s Nippon Steel, it employs 500 altogether, only 120 of whom actually operate the 24-hour-a-day, seven-day-a-week plant.

The contrast between the two facilities says much about today’s steel industry. And their respective fates--out with the old, in with the new--help take the edge off the huge losses reported by the nation’s biggest steel firms in recent days.

Most of the roughly $2 billion of red ink and thousands more job cuts reported by steelmakers for 1991 reflect the final stages of a painful decade that saw wholesale shutdowns, the elimination of 260,000 jobs, and $20 billion worth of modernization and new plants. During the decade, the industry lost $8 billion.

The result, by consensus, has been a return to world competitiveness for the U.S. industry, reaching full flower in a three-year steel boom that ended as the 1990s began. The industry now makes as much steel as it did a decade ago, but with half the workers.

Since then, a stronger U.S. dollar, recession and other factors--especially plummeting prices--have worked against steel. The industry is maneuvering now to bolster prices and to challenge what it calls wholesale dumping of foreign steel in the U.S. market.

But the restructuring goes on.

For example, the $767-million loss posted for 1991 by Bethlehem Steel Co., the No. 2 U.S. steelmaker, resulted almost entirely from two causes--its abandonment of a segment of the steel business that will now be claimed by other, more efficient U.S. specialty producers, and interruption of production at some other Bethlehem facilities by a $140-million renovation.

At U.S. Steel, a division of USX Corp., the last remaining mill at Chicago’s South Works makes structural steel--a product whose price has tumbled 30% in two years because newer mills can make money at such prices and undercut U.S. Steel. South Works is probably the last shutdown for USX, says Chairman Charles Corry. “We have honed our operations down pretty well,” he said. “I don’t at this time see any further shutdowns on the horizon.”

Meanwhile, in another example of the industry’s reshuffling, U.S. Steel’s new joint venture with Kobe Steel in Loraine, Ohio, stands to pick up some of the bar-and-rod business being abandoned by Bethlehem.

“Most of this is good news. They’ve finally bitten the bullet on the last of their bad plants,” says Charles Bradford, a steel analyst at UBS Securities Inc. in New York, investment arm of the United Bank of Switzerland.

Of course, in the restructuring game, one man’s good news is somebody else’s pink slip. The steel bosses are still hacking away at jobs and seeking a new dose of economic relief from an already battered United Steelworkers Union. Inland Steel wants to cut another $400 million--20%--out of its operating costs, and is targeting the work force for a third of it.

The joint venture of Inland and Nippon in Indiana is the very embodiment of such strategies: The massive plant can be run by 30 people at a time, most of them sitting in front of computer screens.

“I can’t believe people are still sitting around saying it’s good news that they wiped out half the jobs in the steel industry,” says Jack Parton, director of the United Steelworkers district covering Chicago and northwestern Indiana, the heart of what remains of the U.S. industry.

And the steelmakers remain deeply troubled on other fronts. Robert Darnall, president of Inland, the No. 5 U.S. producer, says: “I was probably more optimistic a year ago than I am today. That’s because I was naive a year ago.”

In addition to an upturn in labor costs after a decade of decline, prices have tumbled to 30% below 1981 levels when adjusted for inflation. The recession has crippled the all-important automotive, appliance and construction industries, markets in Europe and Japan are now weakening, and foreign producers are reportedly dumping their steel here--selling it for less than it costs to make.

Now a group of big steel companies is preparing to file a barrage of dumping lawsuits April 1 with the Federal Trade Commission and to try to impose a hefty 6% price increase, timed for their 1993-model contract negotiations with auto producers.

Big Steel made two inglorious efforts to raise prices last year; weak demand instead drove prices down sharply. Analyst Bradford, noting the auto industry’s troubles, figures that steel producers will be lucky to avoid further cuts this spring. General Motors and Ford are the nation’s two biggest steel buyers.

“If you expect GM to demand a 5% price cut, you ask for a 6% increase,” he says. Steelmakers will “be lucky to get zero to 1%.”

The price weakness has several causes, such as continued overcapacity and competition from U.S. “mini-mills” that make commodity steels more cheaply. But steel executives such as Inland Chairman Frank Leurssen blame the poor prices--a ton of structural steel, for example, goes for $315 today versus $450 in 1990--in part on dumping by government-subsidized foreign producers.

They have a virtual license to dump, he says, in return for their agreement in 1984 to voluntarily limit their shipments to this country. That ceiling on steel no longer means much because steel imports have tumbled. The alleged dumping enables the foreign producers to hang onto their share of the U.S. market, the world’s largest outside the former Soviet Union.

Those import-restraint agreements expire March 31, clearing the way for what Leurssen promises will be dumping lawsuits against 40 to 45 foreign producers by at least five U.S. steelmakers. It is seen as a way to force other steel-producing nations into a multilateral steel agreement in the current round of international trade negotiations. Two top dumping targets: France and Italy.

But for all the complaints, the U.S. industry’s renewed competitiveness has helped slash steel imports to their lowest level in seven years. U.S. steel shipments have declined less than expected in the recession and showed surprising strength in January. And new high-strength, lightweight steels even seem to be holding their own lately in the competition with aluminum and plastics.

One way around the price problem is to make better, more customized steel that fetches a higher price and needs fewer man-hours to make. That is what’s happening at New Carlisle, Ind., site of one of the eight joint ventures formed since 1984 between big Japanese and American steel firms.

Partly because U.S. banks wouldn’t lend the battered steelmakers any money in the 1980s, all but one U.S. integrated steel firm (the ones that make raw steel out of iron ore) entered into major steelmaking partnerships with their Japanese counterparts, who were looking to follow Tokyo’s auto makers into the industrial Midwest.

Today, foreign-affiliated steelmakers own an estimated 17% of U.S. steelmaking capacity, the Commerce Department says, including the Japanese at 9%. Actual control is less than that because most such ventures are half-owned by the U.S. partners.

The Inland-Nippon Steel plant is the biggest single joint U.S.-Japanese investment to date, steel or otherwise: a pair of related joint ventures under one roof called I/N Tek and I/N Kote. Inland owns 60% of one and 50% of the other.

A blend of Japanese and Austrian technology, the plant’s second and final phase began production in November in the midst of a working farm, about 65 miles east of the slag heaps and landfills jutting into Lake Michigan that underlie the nation’s biggest remaining concentration of traditional U.S. steel mills.

One of them, Inland’s newly upgraded Indiana Harbor works in East Chicago, Ind., ships hot, 30-ton steel coils by rail to the new plant where they are stacked by robots from Milwaukee. They are then unrolled, welded into 600-foot ribbons and fed at 445 feet a minute into a maze of rollers, a massive French furnace, a 270-foot cooling tower, cleaners and a pickle bath, all controlled by a bank of diplomatically selected American and Japanese computers.

(The complexities of such global undertakings were illustrated by one big hitch in the plant’s start-up, says technology manager Frank Howard: I/N Tek switched late in the game to Mitsubishi computers after the original vendor, Toshiba, drew official U.S. ire for selling submarine technology to the Soviet Union.)

Stretched, flattened and transformed into finished cold sheets treated with a reputedly unique zinc-and-iron anti-corrosive coating, the steel is then recoiled and shipped to U.S. car plants. About 60% of the output is expected to go to U.S.-based auto firms and 40% to the U.S. plants of Japanese firms, nicely matching the mill’s 60-40 ownership split.

The process pulls together several steps that would normally take about 12 days at several facilities. Here, the steps are completed in less than an hour, under one roof, with dramatically less labor. The USW-represented work force operates under a radically different labor agreement that, among other things, does away with job classifications and is apparently “working pretty well,” according to the union’s Parton.

Meanwhile, boasts engineer Ed Nowak, “The sheet is more consistent, which means you can coat it better. The chemistry is more controllable. You have better shape, width and surface uniformity.”

Nowak’s commentary on a plant tour is relayed through headsets because of the roar of nitrogen gas used to blast excess zinc from the traveling ribbons of steel. The extra zinc is swept up, bundled and sold to the die-casting industry.

This winter, Nassos Lazaridis, manager of metallurgical technology, is nursing the start-up of the I/N Kote part of the operation as it seeks to qualify its galvanized steel for use in each of the hundreds of automotive components it hopes to supply for the 1993 models entering production later this year.

GM and Ford like one type of steel, while Chrysler, Toyota and Honda like another for the same parts, Lazaridis explains. “It’s like going to the supermarket and choosing between Kellogg and General Mills,” he says.

The chief idea of the I/N venture was to transform the hot coils made at Indiana Harbor into a premier-quality product that could fetch, say, 50% more money per ton. But some, like analyst Bradford, suspect that such powerful customers as GM will demand the quality without the fancy price.

Indeed, in today’s markets, steel isn’t all that much more valuable per ton than the corn that was displaced by the new billion-dollar plant. But Inland will hear none of this.

“GM and Chrysler don’t like our prices,” admits Chairman Leurssen. “But our quality’s going to be so much better that they’ll pay for it.”