Big Steel Sees an Iffy Future
The big blast furnaces are roaring again at the old Cleveland Works plant, and the hot mill is churning out 20-ton coils of steel -- proof, the White House says, that U.S. steel makers will get along just fine without protective tariffs.
But to workers at this once-shuttered plant, which was brought back to life after President Bush put tariffs in place last year, the future doesn’t seem quite so certain.
“I’m not sure the job is done,” said maintenance technician John Smith, who helped keep the plant on life support for four months between its closing and reopening after restructuring. “I’m not sure we’re fully fixed.”
Many steel experts concur. Although analysts are still debating the wisdom of Bush’s decision last week to abandon tariffs 15 months ahead of schedule, there is general agreement that the industry’s restructuring is far from complete.
“You’ve got 10 or 11 companies that have been reorganized,” said economist Robert E. Scott at the Economic Policy Institute, a Washington think tank. “You’ve got 30 that have not.”
Although the assets of failed steel producers have been acquired by stronger players and several comatose plants brought back into service, many companies remain mired in bankruptcy. And while a number of factors are working in the industry’s favor, such as the weakening dollar and reviving U.S. economy, a few bad breaks might bring even the strongest steel makers to their knees again.
“A year from now, we could find many companies back where they were when this whole process started,” said U.S. Steel Corp. Chief Executive Thomas J. Usher.
Few industry analysts and economists expect that to occur, but they tend to agree that the elimination of tariffs removes a safety net that played a role in the industry’s partial restructuring over the last year and a half.
During the 21 months the tariffs were in effect, the newly formed International Steel Group purchased and consolidated the assets of three bankrupt steel giants: LTV Corp., Bethlehem Steel Corp. and Acme Steel Co. U.S. Steel Corp. acquired the assets of bankrupt National Steel Corp. Nucor Corp., the leading operator of cost-efficient mini-mills, bought up several smaller rivals.
The restructured firms have a big advantage over their predecessors because purchasers of bankrupt operations are not burdened with the costs of retiree pension and health benefits. In addition, the new owners were able to negotiate groundbreaking labor agreements with the United Steelworkers of America, significantly increasing worker productivity and reducing payroll costs.
Industry officials and analysts generally agree the changes have been profound.
“It’s been quite amazing,” said Standard & Poor’s steel industry credit analyst Paul Vastola. “We haven’t seen anything like this in the history of the U.S. steel market. It’s definitely changed the fabric of the industry and should help it be more competitive going forward.”
One of the earliest examples of the industry’s retooling was the big Cleveland Works East steel mill, built in the 1930s on the east bank of the Cuyahoga River. One of the nation’s largest full-service, integrated steel mills, it was shut down in December 2001, along with other plants operated by bankrupt LTV, including Cleveland Works West on the other side of the river.
Mark Granakis, president of United Steelworkers Local 979, shudders when he recalls the dark days that followed. About 2,700 steelworkers lost their jobs. Marriages failed, houses were lost. Several members committed suicide.
“I went to more funerals during those three months than in my entire life before that. It was right before the holidays,” Granakis said. “I don’t ever want to go through a period like that again.”
The ordeal ended after Wall Street financier Wilbur Ross, who specializes in restructuring bankrupt firms, formed International Steel Group and acquired the assets of LTV shortly after Bush put the tariffs in place. Ross has said he would not have done the deal without some assurance of steel price stability.
Ross reopened Cleveland Works East in April 2002, but with only 1,100 workers in place of the 1,900 who had worked there before the shutdown. Granakis’ union agreed to sweeping changes in workplace rules, including fewer breaks, longer shifts and new job classifications that in some cases required one worker to do tasks previously assigned to several.
The result: It now takes less than one hour of labor to produce a ton of steel, down from about two hours before the closing.
Plant officials say the mill is operating profitably and can make money on hot-rolled steel as long as the price stays above about $240 a ton. It fell below $200 a ton before Bush imposed tariffs, rose to nearly $400 after the tariffs took effect and is currently around $320.
Bush, with his tariffs ruled illegal by the World Trade Organization and a trade war looming, lifted the tariffs 15 months ahead of schedule and declared victory. He said the tariffs had done what they were supposed to do.
Prices have stabilized, imports have declined, and U.S. steel exports have risen, the White House said. Industry consolidation and restructuring have reduced production costs and increased productivity. U.S. steel makers have invested $3 billion in the industry’s transformation, and more than half of domestic steel making capacity is in the hands of merged or restructured firms.
Just how much the tariffs had to do with these improvements is being debated. Some analysts believe the acquisitions and consolidations would have occurred in any case. Others argue that the price floor provided by tariffs was necessary to attract new investment in the industry.
Christopher Plummer, managing director of Metal Strategies, a consulting firm in West Chester, Pa., said Bush’s tariffs helped new operators come up with the financing required to revive bankrupt firms but curtailed the competitive shakeout needed to eliminate inefficiencies.
“They may have slowed that natural culling process of companies falling by the wayside,” Plummer said. “On the other hand, certain assets might not have been purchased or restarted had there not been this protected environment.”
Now that the weak dollar is curtailing imports and the economic recovery is boosting demand for steel, the removal of tariffs is not expected to cause an immediate steel price free-fall. That could change, however, if economic problems develop in China or other big steel-using countries and another wave of surplus steel starts heading for U.S. shores.
So the president’s action worries workers like Smith, who said he spent his own money at Home Depot to buy valves needed to maintain the plant’s water treatment system during the four-month shutdown in early 2002.
“A lot of us are up in age,” said Smith, 56. “A lot of guys here are afraid this could jeopardize our jobs.”
Granakis is worried too. The closing of the Cleveland Works plant two years ago was the last in a series of setbacks for a city that once ranked as one of the leading steel-making centers in the world. Although the industry now employs only a fraction of its former workforce, he believes its presence remains vital.
“When that flame started up in that blast furnace, that was the heart of Cleveland beating there,” he said.
