Steel industry hopes for big stimulus shot

The steel industry, having entered the recession in the best of health, is emerging as a leading indicator of what lies ahead. As steel production goes, and it is now in collapse, so will go the national economy.

That maxim once applied to the Big Three car companies. Now they are losing ground in good times and bad, and steel has replaced autos as the industry to watch for an early sign that a severe recession is beginning to lift.

The industry itself is turning to government for orders that, until the collapse, came from manufacturers and builders.

Its executives are waiting anxiously for details of President-elect Obama's stimulus plan and adding their voices to pleas for a huge public investment program — up to $1 trillion over two years — that will lift demand for steel to build highways, bridges, power grids, schools, hospitals, water-treatment plants and rapid transit.

"What we are asking," said Daniel R. DiMicco, chairman and CEO of Nucor, a giant steelmaker with a Seattle plant, "is that our government deal with the worst economic slowdown in our lifetime through a recovery program that has in every provision a 'buy America' clause."

Economists in the Obama camp said the proposals to Congress will include significant infrastructure spending that draws on heavy industry.

New spending should provide an immediate jolt to the steel business, which has already gone through the painful makeover now demanded of the Big Three.

Mills were closed, companies were consolidated, hundreds of thousands lost their jobs and the survivors agreed to concessions. As a result, productivity shot up and so did profits, to record levels in the first nine months of this year.

But then the recession hit in force.

Steel goes into nearly everything made in America, and as construction and manufacturing wound down, so did steel output, plunging 50 percent since September.

The steel industry's collapse closely tracks the alarming late-autumn swoon in the national economy, as the housing bust and the credit crisis converted a mild downturn into "a severe one that has much further to run," says Nigel Gault, chief domestic economist at IHS Global Insight.

Through August, steel production was actually up slightly for the year. The decline came slowly at first, then with a rush in November and December.

By late December, output was down to 1.02 million tons a week from 2.1 million tons Aug. 30, the American Iron and Steel Institute reported. The price of a ton of steel is also down by half since summer.

"We are making our steel at four mills instead of six," said John Armstrong, a spokesman for U.S. Steel, explaining that two mills were recently idled and the four still operating are at less than full capacity.

"The third quarter was one of the best in U.S. Steel's history," Armstrong added. "And it has been a very precipitous drop from there."

The cutback has been particularly hard on workers at the big integrated mills like those at U.S. Steel and Arcelor Mittal USA, with their blast furnaces and coke ovens converting coal and iron ore into steel.

Nucor "minimills"

Operated at less than full capacity, these mills are less efficient than the equally large "minimills," like Nucor, whose electric arc furnaces can be operated efficiently at lower speeds.

So the plant closings have been mostly at the integrated mills, whose 50,000 workers — roughly 40 percent of the nation's steelworkers — are represented by the United Steelworkers of America. The union says that by early this year it expects 20,000 workers to be laid off.

Ten thousand already are. Kathleen Loepker, a millwright and mechanic, is among the most recent to join their ranks. She was laid off Dec. 19 from the U.S. Steel plant in Granite City, Ill., which shut down, putting more than 2,000 people out of work.

With nearly 30 years seniority, Loepker, 48, has worked through bankruptcies, union concessions and consolidations that saw her mill acquired by U.S. Steel in 2003.

Her income is tied more to incentive bonuses than in the past. On layoff, she is collecting $20 an hour, which is 80 percent of her base pay of $25.12 an hour.

That base pay, rather than rising significantly, is fattened by incentive bonuses tied to amounts of steel produced and to profits. It had been averaging an additional $7 an hour — money now gone until the mill reopens.

"No one knows when that will happen," said Loepker. "The company tells us the end of March, but they don't know either. The uncertainty has everyone fearful."

Not since the 1980s has American steel production been as low as it is today. Those were the Rust Belt years when many steel companies were failing and imports of better-quality, lower-cost steel were rising.

Foreign producers no longer have an advantage over the refurbished American companies. Indeed, imports, which represent about 30 percent of all steel sales in the United States, also are hurting as customers disappear.

Lobbying Obama

The industry, in response, is lobbying the Obama transition team for infrastructure projects that would require big amounts of steel. Mass-transit systems are high on the list and so is bridge repair.

"We are sharing with the president-elect's transition team our thoughts in terms of the industry's policy priorities," said Nancy Gravatt, a spokeswoman for the American Iron and Steel Institute.

The Obama team has not revealed details of the president-elect's soon-to-be-announced recovery plan other than to indicate most of the package will probably go into infrastructure spending rather than tax breaks.

"If the president-elect really follows through, he'll fund a lot of mass-transit projects," said Wilbur L. Ross Jr., the Wall Street deal maker who put together the steel conglomerate known today as Arcelor Mittal USA.

"All the big cities have these projects ready to go."