The American steel industry will need government guaranteed loans or other federal assistance if it is to overcome critical problems with declining production, backward technology and low profitability, a detailed congressional study has concluded.
A grim picture of the prospects for the nation's large, integrated steel companies was painted yesterday by the congressional Office of Technology Assessment in a 374-page study.
The greatest need is for a coordinated federal policy toward the steel industry patterned after the practice in Japan, based on goals for growth and modernization, the study said.
The industry, whose production capacity increased only 1 percent in the 1962-78 period, has suffered through a series of major plants closings since then. It is likely to shrink further unless it gets government help and tries harder to save itself, the study said.
"Many jobs could be lost and the nation might become vulnerable to scarce and high-priced imports, which by 1990 could account for 40 percent of the domestic market, compared with recent levels of about 15 percent," the report said.
Congress should examine limited-term loan guarantees for companies that cannot raise capital through conventional means and are willing to take the risks of investing in long-range, innovative technology, said the report, prepared by the committee staff and reviewed by a panel of industry experts.
Other kinds of government support could be used, the study said, citing tax credits, faster depreciation of plant and equipment and government-funded research and development on basic steel technology.
The House Ways and Means trade subcommittee will hold hearings on the government's policy toward the steel industry, said Chairman Charles Vanik (D-Ohio) at a press conference where the OTA report was released.
The industry can be revitalized by an investment of $3 billion a year in research and new facilities over the next decade, a 50 percent increase over current levels, the study predicted. This strategy probably could hold imports at the current 15 percent level, the study added.
However, actual private captial investment is likely to run at least $600 million a year below that goal through 1988, the study concluded, a gap that would have to be filled by some combination of federal assistance and higher prices and profits.
The American Iron and Steel Institute, speaking for the steel producers, has said captial investment of $4.9 billion a year will be needed to revitalize the industry.
The study criticized the management of the large, integrated steel firms, that begin with iron ore and produce finished steel products, for a long-standing indifference to new steel-making technology that has helped their foreign competitors.
"More often than not, steel industry executives express a desire to be second with proven technology, not first with new technology. This situation clearly a barrier to innovation that does not exist in many other industries, the study said.
The study singles out low industry profits as a major factor in its poor record of capital investment. "The profitability of the steel industry, compared to other domestic manufacturing industries, is poor and getting worse. . . . The industry's better years do not offset its poor years." Moreover, if the nonsteel activities of the major companies are excluded, the picture looks even worse, the study noted.
The domestic industry receives much less help from the U.S. government than foreign steel makers receive from their government, the study said. Republican and democratic administrations have kept a close watch on steel prices, often jawboning the companies to restrain price hikes. These policies have not permitted domestic prices to equal import prices in periods of strong demand, hurting the industry's profitability, the study said. p
The industry also has spent about 13 percent of its annual capital investments on environmental equipment since 1969, an average of $280 million a year, according to industry figures. Future regulations could raise that total to as much as $800 million a year, the study said. An additional $80 million a year may be required to meet occupational health requirements. These expenditures have produced major benefits, the study added.