[Marxism] American steel industry needs $1 trillion bailout

[Louis Proyect]

NY Times, January 2, 2009
Steel Industry, in Slump, Looks to U.S. Stimulus
By LOUIS UCHITELLE

The steel industry, having entered the recession in the best of health, 
is emerging as a leading indicator of what lies ahead. As steel 
production goes — and it is now in collapse — so will go the national 
economy.

That maxim once applied to Detroit’s Big Three car companies, when they 
dominated American manufacturing. Now they are losing ground in good 
times and bad, and steel has replaced autos as the industry to watch for 
an early sign that a severe recession is beginning to lift.

The industry itself is turning to government for orders that, until the 
September collapse, had come from manufacturers and builders. Its 
executives are waiting anxiously for details of President-elect Barack 
Obama’s stimulus plan, and adding their voices to pleas for a huge 
public investment program — up to $1 trillion over two years — intended 
to lift demand for steel to build highways, bridges, electric power 
grids, schools, hospitals, water treatment plants and rapid transit.

“What we are asking,” said Daniel R. DiMicco, chairman and chief 
executive of the Nucor Corporation, a giant steel maker, “is that our 
government deal with the worst economic slowdown in our lifetime through 
a recovery program that has in every provision a ‘buy America’ clause.”

Economists in the Obama camp said the president-elect’s proposals to 
Congress will include significant infrastructure spending that draws on 
heavy industry.

New spending should provide an immediate jolt to the steel business, 
which has already gone through the painful makeover now demanded of 
automakers. Steel mills were closed, companies were consolidated, 
hundreds of thousands lost their jobs and the survivors agreed to 
concessions. As a result, productivity shot up and so did profits, to 
record levels in the first nine months of this year. Even as the economy 
wobbled, steel held its own.

But then the recession hit in force. Steel goes into nearly everything 
made in America, from homes and office buildings to cars, appliances and 
light bulb sockets, and as construction and manufacturing wound down, so 
did the output of steel, plunging 50 percent since September.

The steel industry’s collapse closely tracks the alarming late-autumn 
swoon in the national economy, as the housing bust and the credit crisis 
converted a mild downturn into “a severe one that has much further to 
run,” says Nigel Gault, chief domestic economist at IHS Global Insight, 
offering a view increasingly shared by forecasters.

Through August, steel production was actually up slightly for the year. 
The decline came slowly at first, and then with a rush in November and 
December. By late December, output was down to 1.02 million tons a week 
from 2.1 million tons on Aug. 30, the American Iron and Steel Institute 
reported. The price of a ton of steel is also down by half since late 
summer.

“We are making our steel at four mills instead of six,” said John 
Armstrong, a spokesman for the United States Steel Corporation, adding 
that two mills were recently idled and the four still operating are 
running at less than full capacity.

“The third quarter was one of the best in U.S. Steel’s history,” Mr. 
Armstrong added. “And it has been a very precipitous drop from there.”

The cutback has been particularly hard on workers at the big integrated 
mills like those at U.S. Steel and Arcelor Mittal USA, with their blast 
furnaces and coke ovens converting iron ore and other materials into 
steel. Operated at less than full capacity, these mills are less 
efficient than the equally large “minimills,” like Nucor, whose electric 
arc furnaces can be operated efficiently at lower speeds.

So the plant closings have been mostly at the integrated mills, whose 
50,000 workers — roughly 40 percent of the nation’s steelworkers — are 
represented by the United Steelworkers. The union says that early this 
year it expects 20,000 workers to be on furlough.

Ten thousand already have been. Kathleen Loepker, a millwright and 
mechanic, is among the most recent to join their ranks. She was laid off 
on Dec. 19 from the U.S. Steel plant in Granite City, Ill., which shut, 
putting more than 2,000 employees out of work. With nearly 30 years 
seniority, Ms. Loepker, 48, has worked through bankruptcies, union 
concessions and consolidations during which her mill was acquired by 
U.S. Steel in 2003.

Her income today is tied more to incentive bonuses than in the past. On 
layoff, she is collecting $20 an hour, which is 80 percent of her base 
pay of $25.12 an hour. That base pay, rather than rising significantly, 
is fattened by incentive bonuses tied to amounts of steel produced and 
to profits. It had been averaging an additional $7 an hour — money now 
gone until the mill reopens.

“No one knows when that will happen,” said Ms. Loepker, who lives by 
herself in a four-bedroom home she bought in nearby Belleville, three 
blocks from a married sister. “The company tells us the end of March, 
but they don’t know either,” Ms. Loepker said. “The uncertainty has 
everyone fearful.”

Not since the 1980s has American steel production been as low as it is 
today. Those were the Rust Belt years when many steel companies were 
failing and imports of better quality, lower cost steel were rising.

Foreign producers no longer have an advantage over the refurbished 
American companies. Indeed, imports, which represent about 30 percent of 
all steel sales in the United States, also are hurting as customers 
disappear.

The industry, in response, is lobbying the Obama transition team for 
infrastructure projects that would require big amounts of steel. Mass 
transit systems are high on the list, and so is bridge repair.

“We are sharing with the president-elect’s transition team our thoughts 
in terms of the industry’s policy priorities,” said Nancy Gravatt, a 
spokeswoman for the American Iron and Steel Institute.

The Obama team has not yet revealed details of the president-elect’s 
soon-to-be-announced recovery plan other than to indicate that most of 
the package will probably go into infrastructure spending rather than 
tax breaks.

“If the president-elect really follows through, he’ll fund a lot of mass 
transit projects,” said Wilbur L. Ross Jr., the Wall Street deal maker 
who put together the steel conglomerate known as Arcelor Mittal USA. 
“All the big cities have these projects ready to go.”

The sharp slide in steel production has several causes. Construction and 
auto production have fallen sharply; between them, they account for 57 
percent of the steel bought each year in the United States, according to 
the Iron and Steel Institute. Appliances, machinery and other electrical 
equipment account for an additional 13 percent, and the fall-off in 
production of these goods has also reduced steel orders.

Then there are the wholesalers, known in the steel industry as service 
centers. They buy in huge quantities from the mills, building up 
inventories and selling to customers like a construction company that 
needs I-beams to build a shopping center, or a manufacturer of auto 
parts in need of steel tubing.

Until recently, the inventories were bought on credit, and the service 
centers constantly replenished these stockpiles as steel was sold to end 
users. But now the service centers, unable to borrow money easily and 
reluctant to borrow anyway in these hard times, have stopped buying from 
the steel mills. They are selling off their inventories instead, raising 
cash in the process. It is a tactic that annoys Mr. DiMicco, the Nucor 
chief, no end.

“They don’t want to be without cash when they go into whatever the black 
hole is that is being created by the financial crisis,” he said, and 
faulted the nation’s lenders for collecting billions in government 
bailout money and then, in his view, refusing to lend it to the service 
centers on reasonable terms. “Credit completely dried up,” Mr. DiMicco 
said, “and it is still hard to get.”