Big Steel's Long, Drawn-Out Endgame
By LESLIE WAYNE -- April 29, 1999
WEIRTON, W.Va. -- It was a scene that summed up
so much about this quintessential steel town,
here
where the Alleghenies roll seamlessly into Appalachia.
Beneath a handwritten sign saying "Buy America or Bye
America," Mark Glyptis, a union boss and proud of it,
was counseling two laid-off steelworkers at the union
hall. Sunday hams are now available, he told them, but
yes, unemployment benefits for Weirton Steel's idled
workers were running dry.
As an awkward silence filled the room, Glyptis broke it
with a vague but supportive message to the glum
workers: "You guys are great. Don't give up the fight."
What they are fighting for, Glyptis says, is nothing
less than their jobs, their way of life and the fate of
the American steel industry. Weirton is still reeling
from events that started last year in places far away
-- Asia, Russia and Latin America -- where economic
turmoil and sagging currencies sent cheap steel
flooding to American shores, pushing down prices here.
For Weirton, this meant dropping its prices, shutting
one of the company's two blast furnaces and, even
though employees own a healthy chunk of the stock,
laying off 1,000 workers -- nearly a quarter of the
work force -- just before Christmas.
Now Weirton's workers, along with those of other big,
old-line steel companies, have taken their pain to
Washington, going by the busload to promote a measure
that would impose quotas on imported steel and roll
back imports to pre-1998 levels. The quota bill passed
the House by an overwhelming majority in March, and is
before the Senate.
Critics deride this legislation as dangerous, illegal
and unnecessary. Not only do they say that it would
cost American consumers an estimated $6 billion, but it
would violate world trade agreements and could lead to
a trade war. Two weeks ago, the Federal Reserve
chairman, Alan Greenspan, waded into the debate, saying
such protectionist efforts were both futile and
harmful.
For Big Steel, the plea for protection has come
periodically for a quarter-century. But, many say, this
cry has an increasingly hollow ring; these companies
are simply at the wrong end of a number of trends,
mostly inevitable, mostly unfavorable. More troubling
than imports is the competition posed by lower-cost,
more efficient American minimill steel companies, which
account for nearly half the steel market.
"We no longer need these giant facilities to make
steel," said Robert Crandall, a steel expert at the
Brookings Institution. "Minimills are building sheet
plants and making life miserable for the big guys.
We're talking about a long, drawn out endgame for Big
Steel."
Yet it is a measure of the enduring power of Big Steel,
which is far from disappearing, that so much political
effort is being devoted to saving a shrinking industry.
After all, today there are only 160,000 steelworkers,
compared with 400,000 as recently as 1980. And, in
financial weight, steelmaking pales in comparison with
the technology sector: The stock market value of a
single Internet company, Amazon.com, is twice that of
the entire steel industry.
In places like Weirton, this changing reality carries
painful human costs.
Big Steel -- consisting of integrated steel companies,
like Weirton -- is dependent on a process, more than
century-old, of turning iron ore, limestone and coal
into finished steel. With huge blast furnaces and
oxygen furnaces, this is the same process used by
Ernest Weirton in 1909 when he founded the company and
the town.
In reality, though, there are two American steel
industries, one growing and the other not; one
profitable, the other struggling. Better times are had
by steel minimills like Nucor Corp. in Charlotte, N.C.,
turning cheap scrap metal into steel with efficient
electric-arc furnaces, largely nonunion work forces and
lower costs.
Output from minimills has surged in the 1990s, after
the development of a technique called thin-slab casting
in 1989. The technique enabled minimills to start
making the flat-rolled steel that only big integrated
mills like Weirton, LTV Group and Bethlehem Steel could
produce before. As a result, minimills, which had a
fraction of domestic output when founded in the early
1980s, now account for almost 50 percent of domestic
steel output.
The sad irony is that the pain felt in Weirton comes
just as the appetite for steel -- for the sport utility
vehicles, washing machines, shopping malls and office
buildings Americans want -- is at an all-time high.
By many measures, the American steel industry is doing
quite nicely. Driven by the booming economy, American
steel consumption reached a record 138 million tons in
1998, up from 96 million tons in 1987.
This means that most American steel mills have been
running nearly flat out, at up to 95 percent of
operating capacity -- easily outpacing the rest of
manufacturing. And that still is not enough to meet
demand.
As a result, for the last decade, steel imports have
been necessary to fill the gap between what American
steelmakers are producing and what Americans consume.
Despite the role of foreign steel in last year's
short-term price plunge, throughout the 1990s, steel
imports accounted for more than 20 percent of the
domestic steel market. In fact, American steel
companies themselves, including Weirton, buy a quarter
of this foreign steel -- mainly raw slabs that become
finished steel.
American steelmakers have also made enormous strides in
increasing productivity and efficiency.
"What steel crisis?" John Reilly, a steel industry
consultant at Nathan Associates in Arlington, Va.,
asked. "There has been some turmoil in the marketplace.
But certainly, there is no crisis in the steel
industry. The demise of the steel industry is nowhere
on the near horizon."
The mill that stands on Main Street in this town of
22,000 once employed 13,500. Today, it has 4,300
workers, with 780 of them still furloughed.
To Glyptis, the union boss -- who remembers when
President Clinton campaigned in Weirton in 1992
promising to protect American steel from foreign
"dumping" -- steelworkers are now being sacrificed on
the altar of globalism and open markets.
"Clinton's not welcome here, and neither is Gore," said
Glyptis, whose organization, the Independent
Steelworkers Union, has removed the president's picture
from the union hall, leaving a bare spot on the wall.
"I'd run them out of town."
Around town, handwritten signs displayed in store
windows say "Let's Buy Steel" and "Don't Let Clinton
'Steel' Our Jobs." At Renee's Cafe, at the bottom of a
menu featuring homemade cakes, pies and 50-cent hot
dogs, is the postscript "Stand Up for Steel!!!"
With Weirton paying up to $60,000 a year, in a town
where a five-bedroom house rents for $350 a month,
employees rarely want to leave.
Aaron Bennett, 25, is a third-generation steelworker,
laid off and working as a courtroom magistrate to
support his wife and four children on a salary of
$20,000 a year.
"We did everything we needed to do to make our mill the
best," Bennett said. "But this has a lot to do with
economics and world affairs."
"Thank You Sen. Rockefeller, Sen. Byrd," read signs
outside the union hall, referring to the state's two
Democratic U.S. senators, John Rockefeller IV and
Robert Byrd. They are spearheading the Senate quota
bill -- following Rep. Dick Gephardt, D-Mo., who led
the House fight.
Byrd, chairman of the House Appropriations Committee,
also tucked a long-shot rider onto a pending hurricane
relief bill to provide $1 billion in loan guarantees
for steelmakers. In Washington, this rider is known as
the Weirton Bill.
Either measure could give some much-needed relief to
Weirton Steel. But even at the best of times, profits
are razor thin. In 1998, the company lost $6.1 million
on revenue of $1.25 billion, and more losses are
expected this year. Weirton's stock is now at $2 a
share.
The company is so mired in debt from a recent
modernization program that nearly every dollar it earns
is devoted to interest payments to its debt holders.
And like many steelmakers, Weirton cannot take
advantage of low interest rates to reduce its borrowing
costs because there is virtually no market for
steel-industry bonds.
Weirton's situation is especially poignant considering
that in 1984, with its former parent company, National
Steel, threatening to close the mill, Weirton was
bought by its employees for $386 million in one of
America's largest employee stock ownership plans.
Today, employees own 24 percent, having sold off chunks
in the public markets to raise money.
"Our whole community is on pins and needles," Dean
Harris, Weirton's mayor and a steelworker, said. "If I
lose my job, where do I go? How do we take care of the
dreams of our children?"
Although Big Steel has railed against imports for
years, last year's surge was particularly significant.
Over two months, the price of flat-rolled steel fell to
$250 a ton from more than $320. "When prices get down
to the $250-a-ton level, the whole industry is losing
money," said Richard Riederer, Weirton's chief
executive.
Still, Big Steel suffered much more than did minimills.
In the 1998 fourth quarter, when the foreign pricing
pressures were most severe, the nation's 11 biggest
integrated-steel companies were able to sell twice as
much steel as the 14-largest minimills -- $5.9 billion
in combined revenue, compared with the minimills' $2.6
billion.
Despite greater sales, the big mills' higher production
costs meant they earned less than minimills, which
recorded operating profits of $199 million for the
period, compared with $138 million for big mills.
Since then, steel prices have recovered somewhat,
rising last month to around $290 a ton. This came after
the Commerce Department imposed anti-dumping tariffs
against Brazil and Japan and negotiated a trade
agreement.
Despite these events, Weirton is in a bind.
The company's cash cow is a tin mill accounting for 40
percent of its revenue. Though company executives take
comfort that tin is rarely imported and is not made by
minimills, the market for tin -- mainly for food cans
-- has stopped growing.
And the bulk of Weirton's output, around 60 percent of
revenue, comes from rolled steel, a commodity subject
to the vagaries of global pricing.
Weirton is dabbling in new businesses, forming a
steel-trading e-commerce Web site, entering joint
ventures with overseas mills and inventing new
specialty products like steel roofing shingles. But
these early efforts have yet to pay off.
"It's not that we haven't done things right," Mark
Roach, a Weirton steelworker, said. "We've spent money
on modernization. We just can't compete with slave
wages. Until recently, we were the largest employer in
the state. It's kind of embarrassing to say now
Wal-Mart is."
For big integrated mills, it was not supposed to be
this way. Over the last decade, to compete globally,
the American steel industry pumped $50 billion into a
huge modernization that paid off handsomely -- though
with a human cost.
Twenty years ago, it took 10 man-hours to produce a ton
of steel; today, that is down to under four. Steel is
being produced with fewer than two man-hours a ton at
minimills, and, remarkably, even at Weirton, too.
And most of those left working at places like Weirton
are in their mid-40s.
"We used to have an influx of young bodies," Harris,
Weirton's mayor, said. "We'd have 20, 25 guys in the
hot mill. Now it's eight. You can walk for long periods
in the mill and not see anyone."
Yet, even as Weirton and other steel companies lobby in
Washington for protection against these trends, some
say it may not matter.
"The handwriting is on the wall for the big integrated
steel mills," said Daniel Griswold, a trade expert at
the Cato Institute. "There is nothing that Congress can
do about it."
Even Bennett, the laid-off steelworker, hedged his
optimism: "Even if they resolve this thing fast and
they call everyone back, it doesn't mean it's over. If
I leave this magistrate's job, should I go back? But
there really is nothing else around here."
Copyright 1999 The New York Times Company |
