The steel industry, saddled with outmoded production facilities and high-cost labor contracts, is shrinking.
The announcement Tuesday by U.S.Steel Corp. that it would shut down 13 of its facilities -- some major, most minor -- and lay off thousands of workers is merely the latest and perhaps most dramatic stage in a trend that began several years ago.
In 1977 the nation's steel companies had the capability to produce 160 million tons of raw steel. In 1979, that steel-making ability had shrunk to 155 million tons, and apparently U.S. Steel's move knocks out another million tons.
There is little reason to believe the industry will stop getting smaller. In the process, however, the steel industry may become more profitable.
The transition to greater profitability by cutting out old plants will be a bumpy one. It is an avenue that may be traveled by other industries, such as autos. It will involve high costs.
In human terms, thousands of American steel workers, among the highest paid employes in the nation, will lose their jobs for good. Thousands more will be faced with the unpalatable prospect of picking up roots that often go back generations to relocate for new jobs.
The companies themselves will have to spill a lot of red ink before they strip themselves of old coke ovens, blast furnaces, finishing mills and other facilities that have been producing inefficiently.
U.S. Steel alone may have to write of as much as $750 million in the fourth quarter of 1979 to account for the costs of the shutdown. Bethlehem Steel Corp., the nation's second biggest producer, write off hundreds of millions of dollars two years ago when it sharply scaled back its operation at Lackawanna near Buffalo.
It is not easy for steel companies to come face to face with the need to shrink. For decades most chief executives have been steel makers or steel sellers.
"It's hard for a guy who loves to make steel to admit he's got to make less," one banker said. "It's not too much different than the problem (Lee) Iacocca faces at Chrysler. He's fighting hard to remain a full-line producer, understandably, when it's pretty clear that if the company is to regain profitability, it will have to carve out a smaller niche in the market."
Two years ago, the late chairman of U.S. Steel, Edgar B. Speer, was dreaming of building a massive new U.S. Steel plant in Ohio. Speer, who died of cancer last month, was a steel production man who could speak lovingly of making metal.
Speer was succeeded last March by David Roderick, who has spent most of his years on the financial side of the company.
"These are the guys who can say, 'Show me where I'm making a buck or at lest covering my material and labor costs and contributing to overhead. Otherwise let's cut it out,'" one industry observer said.
The steel industry has been in trouble for years: Low cost foreign imports have ben cutting into traditional markets, the industry bought relative labor peace at a high cost, and the government has been forcing companies to invest many of their dollars in pollution abatement equipment rather than in new, more efficient facilities.
While U.S. Steel -- and others -- have closed some facilities rather than make expensive pollution control investments, Tuesday's move bespeaks a more systematic cost-cutting program, and Roderick promised that unless things improve, the company might make further cutbacks in the company's works on the Southeast side of Chicago and in Birmingham, Ala.
"All American industry is changing," according to Robert Baldwin, chairman of the huge investment banking firm, Moran, Stanley & Co. "We saw what U.S. Steel has closed. Well, all corporations are looking at their whole program, being tougher on themselves. They're not saying anymore, "The future will get me out of this.'"
Although steel makers and their critics do not agree on who is at fault for the steel companies' difficulties -- steel companies tend to blame government regulations and predatory pricing by foreign producers, while critics blame steel company management -- there is no doubt the U.S. steel industry is a curious mishmash of up-to-date, efficient technology and wasteful, postwar production.
In periods of strong demand, the profit problems of the inefficient plants were carried by the earnings of the newer facilities. When prices were high, even some thoroughly outmoded facilities made money
When steel demand fell, older facilities were a drag on earnings, but few of them were closed permanently. The companies were afraid to lose market share during the next demand jump and, not so incidentally, disliked being forced to lay off workers permanently.
Furthermore, in operations like those of U.S. Steel or Bethlehem, figuring out whether a particular facility -- be it a single wire mill wthin a gant steelmakng complex or the complex itself -- makes a profit is difficult to assess.
But U.S. Steel, and the industry in general, is beginning to make those assessments. When they finish, there will be fewer steel-making facilities in the United States. But those that are left should be more efficient.
That will be a bitter pill for many steel executives and many more steel workers to swallow. And the years of heavy writeoffs and reduced profits won't make many investors happy.
But in the end, the once glamorous U.S. steel industry while a thinner version of its previous self, will be a more profitable and sturdier industrial entity.