Bethlehem Steel Corp., moving to modernize its plants to make them more competitive with foreign rivals, yesterday said it would go ahead with a major renovation of its plants at Sparrows Point, Md. and Burns Harbor, Ind.
The company said its board of directors had approved a $500 million project to install two new continuous casters and related equipment in these new facilities. Work on the casters, which will replace several major steps in steel making with a single, more efficient process, is expected to begin almost immediately. Both casters are scheduled to go into operation in the first half of 1986.
The project is part of the company's overall modernization plans, announced two years ago. However, the modernization was postponed as a result of the recession, which left Bethlehem with a $1.5 billion loss last year
The company is taking advantage of special tax-leasing provisions that enable steel makers to sell tax benefits on investments in capital equipment to third-parties during 1983--benefits that Bethlehem cannot take advantage of because of its recent financial losses.
Under the leasing arrangement, Bethlehem will not have to put any money up front for the casters. They will be owned by a third party and leased by Bethlehem.
"Going forward with the casters at this time is an expression of confidence in the future of the basic steel industry in the United States," said Bethlehem's chairman and chief executive officer Donald H. Trautlein in announcing the plans.
The decision "is terrific," said Michelle Galanter Applebaum, a steel analyst with Salomon Brothers. "Companies that are able to find funds to do projects such as continuous casting are in a good position in this highly competitive environment. It is one of the most efficient uses of capital within the industry because it has a short payback period and improves the product's quality and overall productivity," she added.
Continuous casters shortcut the traditional steel casting methods, converting molten steel directly into solid, basic shapes ready for rolling into finished products in as little as 45 minutes. The conventional method, which takes up to 12 hours, requires four separate operations in which molten steel is shaped into a large ingot, which is cooled and then reheated before it is converted into the solid basic shapes.
In Japan, 80 percent of the basic steel was produced by the continuous casting process in 1982, whereas in the United States, continuous casters accounted for nearly 28 percent of the nation's raw steel production.
Currently, about 15 percent of Bethlehem's semi-finished steel is done by its continuous caster at the Burns Harbor plant. Another caster is due to start up later this year at the company's Steelton, Pa., plant. When the two additional casters are added to Bethlehem's production line in 1986, the company will be continuously casting about 60 percent of its semi-finished requirements.
The caster at the Sparrows Point plant in Baltimore will have an annual production capacity of 2.9 million tons of semi-finished steel slab; the new Burns Harbor caster will have a capacity of 2.2 million.
"By putting in the continuous casters, we are making the Sparrows Point plant more competitive, so in that regard we are safeguarding jobs," said a Bethlehem spokesman. However, he noted, because the continuous casting process is more automated, it will end up reducing employment at Sparrows Point, which has already laid off nearly 5,745 employes.
However, the spokesman said the company hopes to achieve the reduction in its work force by attrition between now and 1986, when the casters go into operation.
The continuous-casting equipment "keeps them in business," said Charles Bradford, vice president of Merrill Lynch and an expert on the steel industry. "Without it, the economics of those facilities would be quite poor, especially at Sparrows Point." Yet, he added "even with casters, it doesn't solve Bethlehem's main problem: wage costs. They are far too high--90 percent above the American average and double the foreign average."
Financing for the casters is expected to be provided by a group of banks led by Morgan Guaranty Trust Co., and from Austrian sources. A major portion of the project will be awarded to a subsidiary of the Austrian manufacturer of casting machinery, Bethlehem officials said yesterday.
In addition to installing the two casters, company officials said they still plan to go ahead with plans to improve the structural mills in Bethlehem, Pa., and at Sparrows Point.
Bethlehem has transformed itself since 1977 in a program to reduce production costs by consolidating operations in fewer, more efficient plants. Last year, the company took steps to close or sell nearly a quarter of its previous 22 million ton annual steel-making capacity. It announced it would close its integrated steel-making operations at Lackawanna, N.Y., stop manufacturing pipe at its Sparrows Point plant and reorganize its Burns Harbor and Johnstown, Pa., plants. It also closed its Los Angeles plant and is trying to sell its Seattle plant.