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Steel: Industry seeks help in another crisis year
Sunday, March 25, 2001 By Len Boselovic, Post-Gazette Staff Writer
Here's the twisted economics of the domestic steel industry these days: demand sets a modern era record, and U.S. producers are drowning in a deluge of red ink.
It's not the way things were supposed to be. Domestic steelmakers entered last year optimistic that they could recover from a bad bout of import-itis that hit in mid-1998.
Early on last year, business looked good as customers bought into a series of spring price increases. But the promising scenario vanished in the second half as imports and bloated inventories caused prices to plummet. Prices for hot-rolled sheet steel, a basic commodity product, are about 25 percent lower than they were at the end of 1999, says Tom Runiewicz, director of steel services for WEFA Group.
"These are the lowest prices we've seen in ages," he said. "This year is going to be kind of like a reverse scenario of what we saw last year."
Although steel shipments rose 3.2 percent last year to 109.6 million tons, imports rose more than two times faster. They increased 8.1 percent to 37.8 million tons. It was the second highest annual total ever, topped by only the 41.5 million tons imported in 1998. Imports accounted for 28.6 percent of domestic supply last year, up from 27.9 percent in 1999.
The consensus forecast of analysts surveyed by Locker Associates, an industry consultant, expects 2001 shipments of 105 million tons, a drop of about 4 percent. Runiewicz is forecasting shipments of 101 million tons, figuring the economy isn't going to improve until late in the year.
"This is not something that's going to snap back. Maybe in the fourth quarter we'll start to see some decent increases," he said.
Developments outside the mills could be just as important as those inside. LTV Steel and Wheeling-Pittsburgh Steel, which filed for Chapter 11 bankruptcy protection last year, are reorganizing under the supervision of a federal judge in Youngstown, Ohio. Industry pundits say one or two steelmakers may join them later this year. There is much speculation that the bankrupt steelmakers will close or sell some of their operations, consolidation that analysts say the industry desperately needs.
There also will be plenty of action in Washington, D.C., where President Bush and lawmakers once again are under pressure to provide the industry some import relief. A reference point for those discussions is a five-point proposal from the United Steelworkers of America. The union's wish list, now before Congress in the form of the Steel Revitalization Act, includes five years of import restraints, a 2 percent surcharge on steel shipments to cover hundreds of millions of dollars in retiree health care costs, and a $10 billion loan guarantee program.
Despite the lack of substantial help from a Democratic administration, union officials are confident that the Bush administration will answer their call.
"I honestly believe they want to do something," former USW president George Becker said last month.
Just what kind of year steelmakers will have depends on how soft a landing Federal Reserve Board Chairman Alan Greenspan can engineer. Bernard Lashinsky, a consultant for Powell, Woodward & Associates in Chicago, is forecasting only a 3 percent drop in steel consumption, figuring the worst of the news will be out of the way by the end of the first quarter.
"It doesn't look like death warmed over like it did in the fourth quarter," Lashinsky said.
Indeed, U.S. Steel, Nucor and other major producers announced price increases of $30 to $40 per ton. The increases apply to sheet products and took effect March 1. Critics contend demand isn't strong enough and inventories aren't low enough for customers to accept higher prices. But Lashinsky believes that steelmakers will get at least a little of the relief they are seeking.
"Take the price increase announcement and divide it by two, and that will hold," Lashinsky said.
Given the industry's woes, it's not the most opportune time for workers to be entering contract talks. New labor agreements must be negotiated for approximately 3,500 hourly workers at Weirton Steel. Their contract expires today. Given that employees own much of the West Virginia steelmaker's stock, analysts expect that members of the Independent Steelworkers Union will continue working even if a new contract isn't negotiated by today's deadline.
Union workers at Allegheny Ludlum, the specialty steel arm of Allegheny Technologies, have until June 30 to negotiate a new contract. That's when a three-year agreement covering workers at plants in Pennsylvania, New York, Indiana and Connecticut expires.
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