In the immortal words of British statesman Edmund Burke, “Those who don’t know history are destined to repeat it.” Considering that statement, there are perils and pitfalls that we must avoid when facing this latest economic recession in our great country. Two such pitfalls are complacency and panic in the face of adversity. Virtually every U.S. market has been affected by the downturn, but the one market that seemed as invincible as Superman was the U.S. steel industry.
Historically, the U.S. steel market has flourished and has been a worldwide leader in exports. One of the differences between then and now is that countries like China have dramatically ramped up their production capacity and become major exporters of steel and steel product themselves. This, among other things-coupled with our own domestic troubles-has put U.S. steel companies in a defensive stance. But we’re not the only industry in trouble.
Twenty years ago, it was the U.S. savings and loan industry that was beginning its descent, and much like the housing and foreclosure crisis of today, millions of Americans were then and are again now suffering great losses. But, we managed to rally and pull ourselves up by the bootstraps to come back from that experience wiser and stronger. And this is the hope that many in the steel industry are depending on today.
Since the onset of the current recession, the Obama administration has been taking evasive action by pouring economic stimulus funds into the financial system, as well as bailing out banks and industry giants. But industry leaders in the U.S. steel manufacturing sector are less than enthusiastic about the realities of the stimulus package.
When asked if the stimulus package has helped the steel industry thus far, Nucor’s Executive Vice President Ham Lott says not really.
“Ten percent of the dollars are going to be spent in 2009 and we are very disappointed in the amount of infrastructure spending that was in that bill,” he says. That matters because the infrastructure component of the bill is directly related to the construction industry, which is one of the biggest consumers of steel products.
Steel is the most recycled material in the world. Two-thirds of U.S. produced steel is made from scrap giving it a firm footing on the path for industries that desire to be more environmentally conscious. The steel industry itself has historically been seen as a dirty, environmentally unfriendly enterprise with its coal burning stacks belching smoke into the skies. But widespread implementation of new technologies, such as the electric arc furnace and mini mills, have led to vastly improved environmental conditions, labor, productivity and energy efficiency that have revolutionized the industry.
North American steel producer Nucor entered the long products market with bar products back in 1969. The company took advantage of new technologies using the EAF and mini-mill concept to change the steel making process. These technologies led to a whole new way of doing things. The company could run plants at varying capacities, work according to demand and start up and shutdown furnaces very quickly and energy efficiently. Nucor continued this progressive trend by applying the EAF to flat products, sheet and plate steel, in 1987.
Steel itself will stand the test of time and then some. It is consistently valued for its high strength, versatility and sustainability. Steel will not warp, crack, mold or rot. It will not twist, swell or contribute fuel to the spread of fire. After 20 years, a steel-framed home is, at its core, still steel. This is why it has become the choice material for so many construction, transportation and manufacturing projects and a bevy of consumer products.
According to the Energy Information Administration, “The steel industry accounts for upwards of $50 billion to the U.S. economy, add to that the downstream processing of steel and it reaches closer to $75 billion, which accounts for nearly 10 percent of the global raw steel market producing more than 110 million tons in 2006.”
The steel industry as a whole employed more than 154,000 people nationwide in 2006, according to the Bureau of Labor Statistics. As one of the fundamental building blocks of the modern world, the benefits of steel abound.
CURRENT HARDSHIPSCurrently, U.S. steel producers are fighting for their lives. While some companies have been able to avoid widespread layoffs, those less prepared to withstand the recession will most likely not make it through. One of the biggest pushes from industry leaders is to seek out new international export markets and to strengthen existing ones.
The primary challenge for the U.S. steel industry, as with other manufacturing entities, is how to compete with foreign product manufacturers. China and its neighbors have been criticized recently for their trade practices, which violate those rules set forth by the World Trade Organization. The problem, say U.S. steel executives, is that those countries use government subsidies to fund steel production, thereby pushing out U.S. imports. This has long been an issue in other markets and now it’s affecting the American steel industry.
At an American Institute for International Steel conference in New York recently, Nucor COO John Ferriola addressed a dinner gathering about the current trade situation saying, “We have a solid international presence marked by the same kind of quality and customer service to the global community that we provide to the domestic market.”
Many industry experts believe that the stimulus package’s phased approach will benefit growth in ways that are unseen at the moment. In that regard, Ferriola says, “I can’t say specifically what we are going to do. But we are poised to come out of this recession a bigger and stronger company than we were when we went in.”
This hope is evident in the fact that those secondary and tertiary markets that feed the steel industry will also receive some of the stimulus money themselves.
WILL STIMULUS HELP?One of the secondary markets that has received stimulus funds is the automakers. This year’s Car Allowance Rebate System program has helped average Americans with new car purchases and has boosted the U.S. steel and aluminum industries. Even so far as to reignite some idle steel mills with hot-rolled sheet steel up 44 percent month-to-month and cold rolled sheets up 32 percent in August, according to the United States Metals Report Q4 2009 from Business Monitor International.
The report says, “With inventories at extremely low levels by Q3, it is unlikely steel output will fall to the kind of lows seen earlier in 2009.”
The feeling that the construction industry will be slower to rebound is widespread and BMI predicts only “modest growth” in 2010. With automakers thinning out inventory, there is hope on the horizon for manufacturing to pick up again as the much-anticipated turn in the economy approaches; however it is just as likely that this, as well as other stimulus measures, prove to serve more as a band-aid to the economic situation than the cure that it was hoped to be.
There is more work to be done. As part of a new initiative from President Obama called “Lunch with the President,” top CEOs from large companies including Wal-Mart, Verizon, Starbucks and Nucor’s CEO Dan DiMicco, met with the President in July to discuss the economic recession and ways to take on the current challenges.
Much of the talk from the steel industry was about free trade violations that hurt the country’s overall ability to compete in the global market.
“China aggressively uses currency manipulation, illegal subsidies and border adjusted taxes to drive their economy through exports while insulating their borders from imports,” said DiMicco in a press release. “According to the WTO rules, the U.S. government can put trade remedies in place to stop our markets from being abused.”
Of course, getting world players to participate fairly may take more than the WTO and its bureaucratic approach. As we have seen, the American steel industry has slowed down and it appears that time and job growth is going to be the biggest obstacle to recovery. Still, DiMicco was pleased with the meeting and said he found the President to be engaging and open to looking at his proposals including his book on manufacturing, “Steeling America’s Future: A CEO’s Call to Arms-Saving Manufacturing Through Free Trade.” DiMicco says that the meeting was 100 percent straight talk with the urgency of speaking directly about the issues dealing with illegal trade practices.
In harsh economic conditions like we have seen in the past and are in now, companies and individuals are forced to become more innovative and resourceful. And while no industry is invincible when it comes to such economic uncertainty, the U.S. steel market and its most active players will not watch idly as foreign producers manipulate the market to create a competitive edge.
It remains to be seen how soon the steel industry will bounce back. One thing is certain: The men and women of steel will be forged by these economic fires and emerge stronger than ever. W&C