Business: Steel at the Crossroads

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Beset by imports and low investment, an industry struggles to shape up

Throughout the developed world, trouble is brewing for one of modern society's most basic industries: steel. Producers everywhere are struggling with softening demand and excess capacity. Western European producers are trying to ensure their survival by dismantling older, inefficient plants and concentrating their slimmed-down industry not on raw steel but on sophisticated finished and specialty steels that have strong markets at home and abroad. But some of the toughest problems lie ahead for the American steel industry; 26% of its capacity is still outdated despite a series of closings over the past three years. The outlook for this year is uncertain. Orders for capital goods are stronger than anticipated, but sales to steel's other big customers, autos and construction, are down.

Steel is at the crossroads. With relatively inexpensive imports keeping a lid on prices and a considerable portion of capital outlays diverted into nonproductive environmental controls, the industry cannot raise the money to build the efficient plants it must have to compete with foreign steel. Management, labor and the Government know it, and they are finally in agreement that steps must be taken now to harden and sharpen steel.

Labor negotiations for a new three-year contract are now under way in Pittsburgh, and they will shape the industry's labor costs for the early 1980s. The 450,000 steelworkers are among the highest-paid American industrial laborers; their hourly wages average $10.59, and bene fits swell the total to $16.80. The United Steelworkers' high priority now, says President Lloyd McBride, is to win better pensions for their 250,000 retirees. Equally important is preserving jobs; in the past 20 years, more than 100,000 jobs have been lost because of plant shutdowns. Thus the union does not appear to be in a demanding mood, and bargaining is expected to reach a reasonably smooth conclusion by the April 15 deadline. Even if talks break down, there will be no strike; disagreements will be settled by binding arbitration. Says one high union official: "We have no illusions. The owners are not going to keep a steel mill open if it is not making money."

The past two years have been fairly good for American steel, but demand began weakening in the second half of 1979. Result: last year's profits were down by a still undetermined amount from $1.3 billion on sales of $46.9 billion in 1978. Rates of return have slid from 11.5% of net worth 30 years ago to 8.2% today. Those rates are the lowest in all American manufacturing and will have to be improved in order to attract investment. Steelmen want the Government to raise their return by enacting tougher protection against imports, faster depreciation on plant and equipment, and less stringent environmental laws.

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