Big Steel's surprise comeback

The shine is coming back on the US steel industry.

After years of ruinous losses and thousands of layoffs, largely because of cheap imports, the industry is poised to post some of its biggest gains in a decade - and has quietly emerged as one of the most competitive producers in the world.

Big Steel's surprising - and still nascent - turnaround comes as President Bush has decided to lift protective tariffs on imported steel. It's a decision that nonetheless holds big political and economic ramifications.

Some analysts think the move could hurt the president in key swing states, such as Pennsylvania and Ohio, where large numbers of steel workers are concentrated. When running for office, Mr. Bush promised them he'd help, and many were hoping the tariffs would remain until 2005. "If Bush wants to be a wuss and give in to the European Union, China, and Japan, he'll feel it from the American steel workers, and instead of 30 percent voting for him, maybe only 5 percent will," says Gary Hubbard of the United Steel Workers in Washington. "It will be easy. We're organized."

But Bush was confronted with a difficult choice: remove the protective barriers or face foreign tariffs on such American goods as oranges, rice, and pool tables. Nonetheless, his lifting of the protectionist measures Thursday, in the face of a Dec. 10 World Trade Organization deadline, will force the US steel industry to continue to consolidate and innovate - something toward which it has been making strides. "The US steel industry is in the best shape for sustained profit recovery that it's been in for at least a decade," says Mark Parr, head of the metal research department at McDonald Investments, a Cleveland investment banking firm.

Helping the improvement is a host of changing economic conditions. Since January, the US dollar is down about 15 percent in value compared with the euro. Combined with the tariffs, this has helped reduce steel imports to the US by about 30 percent. "The US is a less desirable place to sell steel," says Bob Moore of Salzgitter International, a major European steel importer. At the same time, Chinese demand for steel products has accelerated. This has doubled the ocean freight rates - another factor in exporting steel to the US.

One more important change is in the US steel market itself. Bethlehem Steel, the nation's second-largest US steel manufacturer, went into bankruptcy and was acquired by the International Steel Group (ISG), which also owned LTV Steel, also coming out of bankruptcy. In addition, US Steel Corp., the nation's largest steel producer, bought bankrupt National Steel.

The consolidation gives the companies the size to compete against giant European and Japanese steel producers.

Yet probably the biggest change is on the shop floor. In an industry that has a history of difficult union-management relations, much of the animosity in the hot and noisy mills is dissipating. For example, here at Sparrows Point, ISG eliminated 200 overseers, reducing seven layers of management to three. "There are less people looking over their shoulders," says Joe Rosel, a United Steelworkers contract coordinator who helped negotiate the new contract.

Now, the workers are basically running the plant, making many of the day-to-day operating decisions. "We were 50 years coming to this point," says Jim Huber, a union trainer.

The workers are quick to point out that they are working harder too: Sometimes one hard hat is doing the work that used to be done by two or more. Some 165 different job descriptions - with all the union ramifications - have been trimmed to five. "It's been hard to get used to in the last six months," says Mr. Huber, "but a lot of growing pains have eased."

Even though wages remained the same, not everyone on the shop floor is happy. "Mouse" Banks is a mechanic who has worked at the company for 30 years. She stands in the hot strip mill beneath a moving crane whose giant hook swings gently above her head. "I'm one of the disgruntled employees," she says. "It's no better than it was," she says. "More work, less people - we go through the motions, do what we have to do, then we go home," she says with both anger and resignation in her voice.

Mr. Rosel concedes some workers are unhappy. But he says, "This was a tremendous accomplishment but not fully understood."

Some of the workers feel they are nothing more than pawns in a larger playing field. Thomas Johnson, who controls the movement of the red-hot steel bars through the mill from a "speed pulpit," thinks Bush lifted the tariffs to strengthen support abroad for the campaign in Iraq. "So what's a couple of steel workers?" asks Mr. Johnson.

It's hard to say how much politics played into Bush's final decision. But, this week, the American Institute for International Steel (AIIS) raised the ante at a press conference. Dennis Rochford, who represents the ports on the Delaware River, said the number of ships unloading steel had dropped from 400 to 150. "There are 38,000 jobs dependent on steel imports on the Delaware," he said.

The steel users had their own coalition putting pressure on Bush. They pointed out to the administration that nationally, some 100,000 businesses with 12 million workers use steel, compared with 160,000 steelworkers. And at a fundraiser on Monday, the president most likely heard from auto-parts executives in Michigan about the impact of the tariffs.

Yet with or without the tariffs, some analysts believe there will be steel shortages in the US next year. The mini-mills, which melt down scrap, are battling the Chinese for America's smashed-up used cars, so they can't expand production. Many integrated steel companies are still in bankruptcy. "By next year, steel imports will be rising, but it may not be enough to keep prices from rising too," says David Phelps, president of AIIS.