Next month, Bethlehem Steel Corp. will shut down the steel furnaces at its huge Lackawanna, N.Y., plant, laying off another 3,000 steelworkers, because the furnaces are too old and costly to operate.
Just a few miles away on Lake Erie's shoreline is Republic Steel Corp.'s Buffalo plant, closed since May 1982, which has a rebuilt, computer-controlled furnace that Republic considers one of the best in the world.
A combination of the best parts of the Bethlehem and Republic plants would create a modern, efficient steel-making operation, with steel from Buffalo running through a new bar mill at Lackawanna.
Combinations, joint ventures, cartels--unthinkable thoughts within the big steel fraternity since the trust-busting era nearly a century ago--are being revived as the industry struggles to regain its feet after three years of deep recession.
On June 28, leaders of some of the biggest steel companies met privately with senior White House officials and Assistant Attorney General William Baxter, asking the administration to remove antitrust barriers to joint ventures within the industry. (The steel leaders also renewed their appeals for stronger import protection and better tax treatment for the industry.)
Outlining his company's position publicly several days later, Bethlehem Chairman Donald H. Trautlein told a Senate committee that the government should "encourage combinations or joint ventures among domestic steel and ironwork companies."
David M. Roderick, chairman of U.S. Steel Corp., told the same Senate Judiciary Committee hearing on July 1 that the industry needs a "clearly enunciated antitrust policy that permits mergers and joint ventures . . . "
William A. Niskanen Jr., a member of the president's Council of Economic Advisers, takes that idea one big leap further, suggesting the government should consider giving American steel companies "temporary and restricted" antitrust exemptions to permit their executives to decide among themselves which plants to close and which to keep open. Niskanen believes that the major producers must continue to close down older, inefficient facilities, even though a recovery has begun, until a solid base of productive plants is left. The meetings would be attended by government lawyers to make sure they don't "get into some other purpose," he said.
As an incentive, the government should consider allowing companies to reach agreements on backing out of each other's territories--a kind of government-monitored cartel on plant closings. In return, the industry would have to abandon further demands for import protection, Niskanen proposes.
Charles A. Bradford, vice president of Merrill Lynch & Co., said that the major steel producers cannot be competitive against imports unless their steelmaking operations are consolidated at the most efficient plants.
Although the furnaces at Lackawanna are old, there is a modern bar mill that will remain open, producing steel bar for the auto and construction industries. But Bethlehem will ship steel from Johnstown, Pa., 250 miles away, to run through the bar mill. "The bar mill at Lackawanna is one of the most modern bar mills in the country," said Bradford. The Republic steel-making equipment is excellent, he added. "Combined, these plants could be a first-class operation."
But Bradford argues that the Justice Department should approve such ventures while the companies are still in reasonably good financial health, and not wait until one of them is on the edge of bankruptcy.
That would permit U.S. Steel Corp. to sell steel from the modern blast furnaces near Birmingham to Republic's relatively new plate mill in nearby Gasden, Ala., Bradford said in testimony before a Senate committee recently.
The result would be a more efficient operation at both plants, allowing the full use of U.S. Steel's blast furnaces, which now produce far too much steel for the plant's most modern mills, Bradford said.
"There is no way, under current antitrust laws, that even a discussion of that sort between competitors could take place," said one steel executive.
Baxter, head of the antitrust division, has not disclosed how he feels about relaxing the merger rules for the steel industry's benefit, and Justice Department spokesmen said he doesn't plan to talk about the subject for the foreseeable future.
However, some informed sources believe Baxter is ready to take a broad look at joint-venture proposals by considering imports as a part of the competitive marketplace. Adding imports would reduce the market share of the two venture partners, making a deal between, say, U.S. Steel and Bethlehem tolerable on antitrust grounds.
"He is prepared to recognize the foreign competition," said one source.
"I think he has an open mind," said an industry source close to the discussions with the administration.
But Baxter may be cautious about giving too much to the industry, some administration officials say. He has his own package of antitrust law reforms--including an invitation for companies to form joint ventures in research and development. Some key Senate members have warned him his agenda could be jeopardized if he seems to be giving too much away to Big Business.
And that is still a sore subject for many experts, in and out of the industry.
Dennis J. Carney, chairman of Wheeling Pittsburgh Steel Corp., told the Senate Judiciary Committee that he opposes any relaxation of antitrust laws and enforcement.
"In recent years, the steel industry has become an arena for a wave of mergers," he said--"evidence of a trend toward greater concentration of economic power among the largest steelmakers. I submit that these mergers have made little or no contribution to the solution of the basic problems confronting our industry."
"Antitrust enforcement must prevent a cartel-like control of pricing and destruction of the small but efficient competitors equipped to serve consumers at lower costs," Carney said.
"It might make sense to permit some kinds of mergers, but I don't see any reason for a cartel," said Robert Crandall, an economist and steel industry analyst with the Brookings Institution.
In proposing the cartel option, Niskanen is not abandoning his conservative economic roots or his commitment to open world trade: he left Ford Motor Co. because he disagreed with Ford's advocacy of restrictions on imported cars.
But unless it can eliminate inefficient plants rapidly, the American steel industry will be unable to cope with competition from low-priced foreign steel and will increase its demands for protection, Niskanen says.
There is little debate about what lies ahead for the industry. American steel lost $3.2 billion last year with layoffs that hammered steel towns like Lackawanna.
Roderick estimates the industry has closed down about 10 percent of its capacity since 1978 and may close down an equal amount in the next three to five years. It faces relentless pressure from Third World steel producers who, Bradford said, built too much capacity in the belief that steel demand worldwide would continue to grow. Now, that steel is entering the United States from Brazil and South Korea at prices the U.S. producers cannot match.
Robert Hageman, steel industry analyst at Wall Street's Kidder Peabody firm, said that, although the U.S. producers may enjoy good profits the next few years, there is "no question the industry still needs major restructuring to compete internationally." Ironically, a few good years would encourage the companies to hold on to their less productive plants, he said.
Thus, American steel, coming out of the past recession, faces the same dilemma that has haunted it for more than a decade. Without cutbacks or modernization, it will fall ever further behind foreign competitors whose steelworkers make half of what American steelworkers are paid. This will generate increasing demands for help from the government, presenting Congress and the administration with the choice of standing aside and being blamed for the consequences or trying to take some responsibility for the results, with all the political risks that involves.