Us Steel Case Study

Shadowing the outlook further has been the sharp growth of competition from imported steel, which last year took more than 25 percent of the American market. Mr. Trautlein is a leader in the fight against imports, attributing many of the industry's woes to cheap foreign steel. President Reagan has established voluntary import quotas, with the steel companies pledging to modernize in return, but imported steel remains a serious concern.

In 1977, when Bethlehem experienced its first losses, the company began closing inefficient plants. Capacity fell from a high of 25 million tons in the early 1970's to about 17 million tons in 1985. Trauma overtook blue- and white-collar workers alike as they lost their jobs or took pay cuts. The company that had employed 83,800 in 1981 had only 52,000 workers by the end of 1984.

Now, Mr. Trautlein believes that he has lowered costs so that Bethlehem can squeeze out profits once again. He is betting heavily that the market will recover, and he is counting on big business outlays for capital spending, which have not materialized thus far in this business cycle, to increase demand for Bethlehem's products. Some say the company could end four years of losses with solid earnings next year -as high as $5.15 a share, according to one analyst's estimate.

But such a turnaround could occur only if demand and prices firm appreciably. Most of Bethlehem's competitors are also cutting costs, and few producers dare raise prices as they battle for market share. A recession could wreck Mr. Trautlein's course and, depending on its severity, even threaten Bethlehem's existence. Following is some advice from several outside voices about how the company might protect its future.

John Strohmeyer, a Pulitzer Prize winner and editor for 28 years of The Bethlehem Globe-Times. He retired in 1984 and is writing a book about the steel industry.

If I were Don Trautlein I would make it a point to visit each plant town and spend the day with the local union presidents. I would ask them to join me for a tour of the plant. View and lament together the silent blast furnaces and idle shops where equipment rots. Then have lunch in a saloon in the shadows of the plant and ask the bartender to tell us what's happening to the town and the hard-hat Joes who used to fill the place when times were good.

Local union presidents have got to get the message, and it is up to Mr. Trautlein to make sure that they do. If the union hopes to keep wages 70 percent above the industrial average, and keep work rules where only 60 to 70 percent of the personnel are productive, that's a sure prescription for extinction. Mr. Trautlein cannot turn the company around unless he reverses the bad labor-management relations that have dogged the steel industry since the United Steelworkers union was founded in violence more than 40 years ago.

Major concessions must be made in work rules, which means the company should regain the right to run its operations as efficiently as possible. Concessions in total compensation are secondary. I can understand the steel companies' asking for a 20 percent giveback in wages and benefits, but I believe Bethlehem can survive on considerably less - perhaps about 10 percent and most of it cut out of benefits - if the union is willing to give up the contract restrictions that now make it impossible for Bethlehem to run its own company as it would like to.

Meanwhile, Mr. Trautlein must also look to the larger arena. As chairman of the American Iron and Steel Institute, he should be sending a message about planning to President Reagan. The neglect of our crumbling infrastructure is a national disgrace. If the Government initiated a long-term program to rebuild roads and bridges, it would tremendously improve the health of the nation as well as the steel industry. Mr. Trautlein has the position from which to tell the President as much.

Fred Lamesch, president of Tradearbed Inc., a steel importing company, and president of the American Institute for Imported Steel, a group of 70 steel importers.

We object to Bethlehem's position that import quotas are the only way to deal with foreign competition. Even Bethlehem has not always opposed imports so rigidly. In 1984, the company abandoned its plan to make long-term purchasing arrangements with the Boo Kook Steel and Wire Company, a Korean wire rope producer, only because it was under severe pressure from steel labor. And despite the current campaign for import quotas, this year the integrated producers have in fact sharply increased their imports of steel slabs for processing into finished steel.

We need an American steel industry that is healthy and competitive to insure future demand for steel in the United States. If there is further decline in the integrated steel sector, steel substitutes - aluminum, plastics, concrete - will gain more ground.

But protection will never restore vitality to the American steel industry. Competition will force modernization, and that is the only hope for companies like Bethlehem. Today an oxygen furnace takes 45 minutes to cook a batch of steel, while an open hearth furnace takes seven hours - but more than 10 percent of steel production by integrated American mills is still done by the open hearth method. Competition is the only remedy for Bethlehem and the other integrated steelmakers.

Edward O'Brien, president of Local 2598, and chairman of the three combined Steelworkers locals in Bethlehem, Pa.

What would I do if I were Mr. Trautlein? Right now, I'd probably jump off a bridge. Seriously, I would like to see somebody from labor sitting on Bethlehem's board of directors. We're running a cooperative effort now. The company and the union are both doing their best to save the Bethlehem plant.

With the conditions he faced - the import situation - Mr. Trautlein did the things he had to do. But now the big corporations should put more pressure on the President about imports. It seems like they just took his decision on the voluntary import quotas and abided by that. Steel companies can apply more pressure than the union since President Reagan certainly isn't a union-loving person.

As for the past, it may be that both parties were guilty - too complacent about modernization, unwilling to change with the times. The company was 75 percent guilty and the union 25 percent. We should have been looking ahead, too.

But that's water over the dam and there's no sense in dwelling on it. Now we are trying to cooperate. We formed Partners for Progress with the company in May. We hold regular meetings and the employees attend a week of training school. They see tapes on problem-solving in the plant. The program could be helpful in cutting costs. We have hopes for it. These are rocky times, and it's an effort that we're making.

As for saving the plant, it depends on how the industry turns around. Bethlehem made a profit in the second quarter. That's the second time they made a profit in a quarter in the last three and a half years. It's a long hard road.

The Rev. William T. Hogan, S. J., professor of economics at Fordham University, consultant and author of a five-volume history of the steel industry.

With the exception of some raw material ventures, Bethlehem has traditionally limited its business horizons to the United States. Now it is time for the company to look abroad for future growth.

International joint ventures - possibly in marketing and technology - could pay off. The company's recent move to market its Gavalume process for coating sheet steel is a step in this direction, and so is the restructuring of Bethlehem Steel International, the company's overseas operation.

If the right opportunity presents itself, the company should diversify into a nonsteel business that would protect it on the downside of the steel cycle. Bethlehem's almost complete commitment to steelmaking may be easing. A management consulting firm was hired last year to investigate diversification possibilities.

This year the company acquired J. M. Tull Metals, a steel service center, which acts as a middleman in steel distribution, with 12 branches in the Southeastern United States.

Bethlehem's modernization program has radically improved its steelmaking facilities, and it could be poised for a return to profitability when the steel market improves. Most of the capacity that has been eliminated was high cost and obsolete, so what remains is reasonably competitive. By 1986, this position will be improved. That's when new continuous-casting machines at Burns Harbor, Ind., and Sparrows Point, Md., go into operation. And that will bring to 60 percent the continuously cast portion of Bethlehem's steel output.

With these internal changes, the company's problems are now centered on the soft market for steel products, and an even softer price structure. Any improvement in those areas would help Bethlehem's recovery.

Charles A. Bradford, vice president and senior steel analyst at Merrill Lynch Capital Markets.

If Bethlehem Steel wants to survive, it must redouble its cost-reduction efforts.

Unfortunately, we believe that the company still has not fully bitten the bullet, and one more major plant has to close because it cannot be economically modernized.

Steel prices in the United States have been substantially above prices found elsewhere. Even with these higher prices, Bethlehem Steel has been unprofitable, while some foreign steelmakers have been in the black.

Clearly, large expenditures on modernizations have failed to generate even a minor profit for the company. Furthermore, the company's almost constant claim that its problems were caused by dumped foreign steel ignored reality and sent the wrong signal to its employees. These charges essentially said that inefficiency and excess workers were not the real problem - it was those ''nasty foreigners.''

When Don Trautlein became chief executive in June 1980, a much more realistic approach to the world steel business occurred at Bethlehem. Unfortunately though, early last year, the company relapased into its old ways and filed a trade case with the United States International Trade Commission calling for quotas on imported steel. Within a couple of months, the amount of imported steel soared as importers attempted to beat any such quotas.

What is really required is for Bethlehem to reduce its costs almost another $100 a ton (20 percent) so that prices in the United States become equal to those charged to large steel users in Japan. Otherwise, domestic steel users will continue to move plants overseas or to buy imported parts made from steel.

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Overall, the North American Steel Industry has made significant strides to protect our environment and preserve our resources by: reducing overall energy consumption per ton of steel by 29% since 1990; reducing greenhouse gas (GHG) emissions (including CO2) by more than 25% from 1994 thru 2003; reducing air toxics volumes by more than 70% from 1994 thru 2003, and total air & water discharges by 69%; collecting and reusing of steel making by products such as: slag for road building, railroad ballasts, fertilizer, glassmaking, & other applications; coke oven & steel making gases for fuel/heat generation; increased steel manufacturing efficiencies now result in the production of 100 units of steel from 114 units of raw steel vs. 140 units previously, which has resulted in a yield improvement of 16% to 87% from 71%. These statistics indicate that the industry is doing an efficient job improving the environment in such a short span of time. Recently, United States Steel Corporation has been taking strides to improving sustainability within its corporation. Originally, U.S. Steel has always been a company that prides itself on good business practices. Today, they are taking further steps by incorporating sustainable measures to fit the trend developing in society. This is a study devoted to evaluating U.S. Steels current successes and failures regarding their recent sustainability practices.

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