Financially troubled Bethlehem Steel Corp. yesterday said it was reducing its steel-making capacity by 10 per cent, laying off 7,300 workers and cutting back its investment plans in order to "improve its profitability."
Bethlehem, the nation's second biggest steel maker, posted an operating loss of $75.4 million in the first six months of the year and last month announced that it was cutting its dividend in half.
Because of the company's financial problems, Moody's Investor Service said yesterday it has lowered its financial rating of several of Bethlehem's bond issues.
Bethlehem Steel said it would reduce production capability at its Lackawanna, N.Y. plant from 4.8 million to 2.8 million tons a year and reduce the work force there from 11,500 to 8,000 persons.
Bethlehem already had announced that its flood-damaged plant at Johnstown, Pa., would not be restored to its full capacity of 1.8 million tons and labor force of 11,400.
When cleanup of the plant is completed in mid-September, steel-making capacity will be lowered to 7,600 workers. Bethlehem reached an agreement with the Environmental Protection Agency last month under which the steel maker was permitted to delay putting on some anti-pollution devices for two years.
The EPA agreement was designed to avert further layoffs in Johnstown.
The steel maker also said it would cut $200 million from its capital spending plans for 1977 and 1978, with most of that reduction coming next year.
Lewis W. Foy, chairman and chief executive officer of Bethlehem, said that the plan announced yesterday would result in a "substantial onetime charge against income and, as a result, Bethlehem expects to report a substantial loss for the year 1977."
But Foy said that by eliminating "these marginal facilities and the costs associated with operating them." Bethlehem will be able to concentrate on its more profitable steel-making ventures as well as its other businesses, such as shipbuilding and plastics.
Because of the continuing lag in construction of new plant and equipment by U.S. industry, the steel industry as a whole has posted lower earnings this year. In addition, because of the lingering effects of the worldwide recession, steel imports have been capturing an increasing share of the U.S. market, further depressing domestic output.
Because Bethlehem's product lines are geared more to industrial users and construction, the second largest producer has suffered more than most of its domestic competitors and posted pre-tax losses in the first half of 1977.
Severe blizzards around Bethlehem's Lackawanna plant sharply curtailed production and increased operating costs. The Johnstown flood last month devasted the Bethlehem facility there, and the company is still putting the Johnstown plant back in shape at a cost of millions of dollars.
About 3,300 persons are at work in Johnstown - well below its peak employment of 11,400 and its projected level of 7,600 - and about one-third of them are involved in cleanup, a Bethlehem spokesman. He said that workers are being recalled as production capability returns.
When the steel industry was producing full tilt during the economic boom of 1973 and 1974, Bethlehem had a work force of about 120,000. In 1973, the industry produced 111 million tons of steel, and in 1974 turned out 109.5 million tons.
Output declined to about 80 million tons in the severe depression year of 1975 and to about 89.5 million tons last year. Things have not gotten much better this year, although an anticipated boost in capital spending by businesses later this year should help the industry.
Bethlehem's Foy cited steel imports, de facto government price controls, the rising costs of labor, materials and services, and "the ever-increasing costs of environmental and other government regulations" as the main reasons for Bethlehem's financial difficulties.
While most steel maker complain about government pressure to hold down steel prices - and Charles L.Schultze, chairman of the President's Council of Economic Advisers, while criticizing the industry's latest price boost, conceded last month that administrations too often may single out steel - steel prices have risen much faster over the last several decades than overall wholesale prices.
In the last 15 years, while overall industrial prices have risen 92 per cent, steel prices have risen 135 per cent. With the steel price increases announced last month to take effect Sept. 4, steel prices will have increased 12.5 per cent over the last year, while overall industrial prices rose 7 per cent.
Foy said that by shutting down the facilities at Lackawanna, the company will reduce its antipollution spending by $57 million over the next five years, spending that no longer can be justified because of a lack of profitability.