Up from the Ashes: The Rise of the Steel Minimill in the United States

Up from the Ashes: The Rise of the Steel Minimill in the United States

Up from the Ashes: The Rise of the Steel Minimill in the United States

Up from the Ashes: The Rise of the Steel Minimill in the United States

Synopsis

Large U.S. steelmakers, suffering from aging physical plants, import competition, rising costs, and declining demand, have steadily reduced their production capacity since 1974. Numerous firms have failed, and the future is bleak for many of those remaining. There is one bright spot in the U.S. steel industry, however: minimills--small-scale plants producing steel from scrap instead of iron ore. While Big Steel has been shrinking, minimills have been growing, and they now turn out aboutone-fifth of the raw steel produced in the United States. In this study, Donald F. Barnett and Robert W. Crandall present a comprehensive survey of U.S. minimills--their operations, methods, costs, growth, and competitiveness. They show that by constantly reducing costs through more efficient facilities and incentives for labor productivity and by steadily expanding the array of products offered, minimills will likely account for 40 percent of the U.S. steel market by the end of the century. Indeed, the minimills have been nearly as important as imports in contributing to the decline of the large, integrated producers. Despite a number of failures, minimills have out-performed larger steel companies on the stock market and have continued to attract investment capital more easily. Minimills, the authors conclude, do not require trade protection to survive and in fact are highly competitive with all other steel producers.

Excerpt

In the past decade the U.S. steel industry has lost nearly 20 percent of its capacity. Slow growth in demand for steel, an overvalued dollar, and an overhang of inefficient production facilities are largely to blame. Despite this rather bleak performance, however, the industry has a bright side. a group of small companies called minimills, which melt scrap in electric furnaces, have doubled their capacity in this same period and continue to grow. They have prospered because of their ability to adjust to new technologies, to use plentiful supplies of scrap, and to realize much higher labor productivity than their larger "integrated" rivals.

In this book Donald F. Barnett and Robert W. Crandall document the surprising growth of the minimills, comparing their economic performance with that of the larger steel companies. the authors find that the minimills are increasingly moving into more sophisticated product lines, taking markets away from both importers and the bigger U.S. companies. in fact, the authors show that, unlike their larger domestic rivals, U.S. minimills have costs that are as low as those of any producers in the world. Though the minimills can probably not produce all the higher grades of steel, they will be able to recapture a substantial share of the steel market from imports, thus arresting the rising trend of import penetration.

The success of the minimills, which now number more than forty firms, may provide an example for other industries and for government policymakers. Rather than attempt to protect and rejuvenate large producers, it may be more productive to encourage new, entrepreneurial firms to grow. the minimills provide at least one example of a domestic enterprise that has risen virtually from the ashes of a seriously troubled industry.

Donald F. Barnett, formerly chief economist and vice president of the American Iron and Steel Institute, is an independent consultant and a member of the faculty of the University of Windsor. Robert W. Crandall is a senior fellow in the Brookings Economic Studies program. the authors are particularly grateful to Alice M. Rivlin for her helpful . . .

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.