Indiana: America's New King of Steel

Industry's revival points up renaissance of manufacturing in the Midwest.

One of the latest chapters in the story of Indiana's boom economy got started at a dinner table eight years ago. There, two PhD metallurgists decided to launch a new steel company.

Qualitech Steel Corp., the brainchild of Gordon Geiger and Ed Calanog, cast its first blooms this month in this leafy community just west of Indianapolis. Qualitech's $240 million headquarters plant is what's known in the industry as a "minimill." It will produce half a million tons of so-called special-quality bar steel annually for use in car bumpers, washing machines, and other heavy equipment and machinery.

Its rise amid the tract homes and cornfields of Indiana symbolizes a renaissance in the manufacturing economy of the Midwest. The region once known as the Rust Belt has seen a revival in industries ranging from rubber to roller bearings in the boom economy of the 1990s.

While much of the heartland's prosperity has been driven by growth in the service sector, many old-line manufacturing industries have contributed to the enviable unemployment rates and corporate earnings as well.

Perhaps nowhere has the turnaround been more dramatic than in the steel mills springing up across the plains of Indiana.

Indeed, the state more often associated with Hoosiers and Bobby Knight basketball is now the country's No. 1 steel producer. Not Pennsylvania. Not Ohio. In just the past few weeks:

AK Steel began production at a new steel-finishing facility near the southern Indiana town of Rockport.

Relative newcomer Steel Dynamics Inc. chose a site in Whitley County west of Fort Wayne for a new mill.

In the western Indiana city of Terre Haute, a startup called Heartland Steel is preparing to build its first plant.

"There's been a renaissance in overall manufacturing," says Diane Swonk, deputy chief economist for First Chicago NBD Corp. in Chicago. "And steel feeds into that."

Ms. Swonk cites several factors behind steel's renaissance. The industry's restructuring and reinvestment were keys, and the fierce competition of the early 1980s abated somewhat later in the decade. Better exchange rates helped the industry compete with foreign producers.

What makes the current state of Indiana steel so remarkable is its striking contrast with the industry's crash a decade and a half ago. That's when economic downturn and increasingly stiff competition torpedoed the business of the big northwest Indiana mills.

Mayoral misery

Tom McDermott witnessed the misery from the mayor's office in Hammond, an industrial town on Lake Michigan. Within a few short years in the early 1980s, the community went from record levels of employment to a 20 percent jobless rate.

Ironically, Mr. McDermott's career got a boost from the downturn. Voters frightened by the worsening state of steel swept him into office in 1983 to pursue economic diversification.

"We lost 54,000 jobs" in four or five years, he says. "People would line up outside my office looking for a job."

McDermott set about trying to lure non-steel industries to balance Hammond's economy. Now with the Northwest Indiana Forum, a seven-county economic-development group, he reports significant success in diversifying.

Manufacturing employment has settled at a stable 25 percent of all jobs, thanks to a boom in the service economy. Five new riverboat casinos lure visitors by the millions. And non-steel manufacturing industries have boosted their share of the work force. "We're now as well suited as any part of the country to survive a recession," McDermott claims.

Meanwhile, a funny thing happened to Indiana steel on the way to oblivion. Though headquartered elsewhere, the nation's largest steelmakers in the mid-1980s began a massive modernization of their northwest Indiana plants aimed at boosting productivity and improving environmental compliance. They pumped billions into Indiana facilities.

"Our steelmakers are now as productive as they are in Japan or anywhere else in the world, with better quality," says McDermott, like a proud father.

Today 23 percent of the nation's steel comes from Indiana. By itself, the state is the sixth-largest producer in the world. Indiana has been helped by its proximity to major transportation corridors and raw materials.

Where are the jobs?

Still, the new steel boom has not necessarily translated into massive job hires. Many of the people laid off in the 1980s haven't been put back on payrolls. "It's been disappointing to some," says Swonk. "The industry isn't the employment generator it once was, even though it's an enormous profit generator."

Even so, the jobs remaining today seem more stable, and new opportunities are emerging at the integrated mills. "They're looking for people with education and computer skills," says McDermott.