Magazine article Global Finance

Competing with Korean Steel

Magazine article Global Finance

Competing with Korean Steel

Article excerpt

As imports climb and profits dive, the US steel industry has gone on the attack.The country's dozen major integrated steel producers have been inching toward more proficient capacity for 30 years. But with the more efficient minimills taking 50% of their domestic market and deflation driving pricing structures and profits lower, US steel executives are going long on rhetoric. The problem, they say, is not with themselves, but with unfair foreign competition.

CEO Curtis H. Barnette says "unprecedented levels of unfair and disruptive steel imports from every corner of the globe" caused Bethlehem Steel's fourth-quarter 1998 loss of $23 million on shipments of 1.9 million tons of steel. The inability to compete with the unfairly priced steel, he says, also forced Bethlehem to close two plants and lay off 540 workers.

Owing to such pressure, President Clinton warned the Japanese about exporting too much cheap steel in his State of the Union speech in January. If exporters don't voluntarily curb their dumping, the United States implied it might follow the European Union practice of putting quotas on steel imports. Meanwhile, the United States Trade Representative is pursuing a high-profile antidumping suit against Japan, Russia, and Brazil. And US Commerce Department researchers are fanning out around the globe looking for evidence of dumping or government subsidies.

Without doubt, commodity price deflation and the emerging markets crisis have landed a body blow to the American steel industry, which lost 10,000 jobs and put another 10,000 workers on short weeks in 1998. And imports are a big part of the problem. As a recent Commerce Department report to Congress points out, US steel imports in the first 10 months of 1998 rose 30% over the same period in 1997 to make up 29.5% of all steel volume. That compared with 24.2% in the year-earlier period. Imports from Japan (42%), Korea (18.5%), and Russia (17.5%) account for 78% of the increase. US plant utilization is down to 74% of capacity, from 90%, as dozens of companies declare losses.

The biggest target is South Korea, which has been listed in half of the six antidumping cases filed by the US steel industry. While the industry continues to lobby with its "Stand up for SteelStand up for the United States" campaign,Weirton Industries, a hard hit producer in the Ohio Valley of West Virginia, has launched an "Ohio Valley versus South Korea" campaign. CEO Richard Riederer insists Korean imports forced the company to lay off 1,000 workers, a quarter of its workforce.

Most of the 12 US giants have restructured as much as their resources and unions will allow them (the United Steel Workers of America is one of the country's strongest unions). Since 1989, Weirton, the eighth-largest US steel company, which lost $6 million on sales of $1.2 billion last year, has invested $850 million in plant upgrades. It has also moved its focus to noncyclical, value-added products, which make up 81% of its sales. Fully 40% of its business comes from tin food packaging; it has moved away from more cyclical auto industry sales, which account for just So/ of revenues.

Bethlehem Steel has also undergone massive restructuring. The Pennsylvania company divested itself of six underperforming businesses, strengthened its core business, and reorganized its units to make each responsible for its own marketing, production, and financial performance. It was also part to one of the few mergers in the industry. In May 1998 Bethlehem Steel purchased Luken, a steel plate manufacturer, for $800 million. It then closed two of Luken's six steel plate mills and sold its other nonplate assets for $175 million to Allegheny Teledyne. But US steel is one of the few industries that hasn't joined the worldwide M&A party. Buying enormously expensive but outdated white elephants hardly seems a way to boost return on investment.

And the US companies' slippage in global competitiveness may have more to do with lagging efficiencies and exchange rate discrepancies than unfair trade practices. …

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