Wall Street Journal | September 19, 2001 | By Robert Guy Matthews, Staff Reporter of The Wall Street Journal
WASHINGTON -- The U.S. steel industry, alluding to last week's terrorist attacks, says that safeguarding its health is a matter of national security that warrants unprecedented trade protections and strong sanctions against foreign steelmakers.
Industry representatives also are calling on financial institutions, which in recent years have shunned most steelmakers, to provide capital to keep operations going.
Steel lobbyists, union leaders and elected officials from steelmaking states are presenting their arguments this week in hearings here before the International Trade Commission, an independent federal agency charged with determining whether the domestic steel industry has been injured due to a surge of imported steel since 1998.
Last week's events have provided them with a new argument: that domestic steel is vital in serving the military, rebuilding New York and Washington and maintaining the nation's infrastructure. Some steelmakers, such as Bethlehem Steel Corp., Bethlehem, Pa., and Ipsco Inc., Lisle, Ill., which make heavy plate for shipbuilding, have seen their stocks rise this week.
"Last Tuesday, our steel crisis, already a national security threat, became a national emergency," Sen. John Rockefeller IV, a West Virginia Democrat, told the ITC board. "Without steel, we cannot guarantee our national security. Without steel we cannot rebuild from our national tragedy."
The world steel industry is in the middle of one its most unprofitable and volatile periods ever. Domestic steelmakers have been mired in red ink and foreign steelmakers absolutely need to continue selling in the relatively open U.S. market to stay profitable. About 20 U.S. steel makers have filed for Chapter 11 bankruptcy-law protection since 1998, in part due to a glut of steel that sent prices to 20-year lows.
Concerned with the alarming number of steel bankruptcies, President Bush in June instructed the ITC to launch an investigation under Section 201 of the 1974 trade act and recommend whether he should, in effect, wall off the country from key steel products. The ITC is expected to come up with its recommendations toward the end of the year and President Bush is expected to announce his decision sometime in February.
Though imports have begun to fall this year, the level is still higher than before 1998. Foreign steelmakers argue that the market is beginning to correct itself because of falling imports and that there is no need for more trade sanctions. Domestic steelmakers argue that the damage already has been done to their companies and that the imports are lower because overall demand is lower.
Domestic steel makers have tried to cover their debts by raising prices for key steel products, but consumers refused to pay. Very few major steel makers are profitable. Nucor Corp., Charlotte, N.C., and AK Steel Holding Corp., Middletown, Ohio, managed to make money last year because of lower costs. The industry is hovering around 75% capacity, a level too low to be profitable for many companies. And it doesn't look as if the next few quarters will bring any relief. Analysts have downgraded steel stocks because of forecasts of slowing demand.
Robert Lighthizer, an attorney who represents Pittsburgh-based USX-U.S. Steel Group , Bethlehem and National Steel Corp., Mishawaka, Ind., all domestic integrated companies that have been losing money, said there is no question that the domestic steel industry has been injured. "The cause, foreign imports, is clear to us," he said.
William Barringer, a lawyer representing foreign steel interests, told the ITC that domestic steelmakers are hurting because of poor investments, inefficient capacity and failure to be competitive. "This is not about national security. And despite the tragic events of last week, this is not about what happened last week."
Charles Bradford, a steel analyst for Bradford Research, said an infinitesimal amount of steel is used in military applications. He calculates that less than 0.09%, or about 31,000 tons last year, is used for tanks and ships. Generally, airplanes and missiles and other war tools require lighter metals such as aluminum or composites of specialized metals, such as titanium.
But Leo Gerard, president of the United Steelworkers Union, who has argued for months that steel is vital to national security, says that looking at steel only for military applications is shortsighted. Steel is used in bridges and roads and buildings, he said. "Why should we rebuild America's infrastructure with foreign steel?"
Mr. Gerard said the union will be sending out a letter as early as Wednesday to Wall Street financial institutions, Senate finance and banking committees and other officials making the case for investing in steel companies and other manufacturers. Lenders have practically abandoned the steel industry, regarding the companies as too high-risk. "The letter will be a little more assertive on the issue of national security," Mr. Gerard said.
As the ITC hearings continue, dozens of foreign steelmakers have gathered in Paris this week to discuss an initiative to cut capacity from the steel market. It will be a difficult measure to achieve because no steelmaking country wants to close plants and lay off thousands of workers to better balance demand and supply. The world makes about 10% more steel than it needs, and if its economy continues to falter, the gap between supply and demand is sure to get wider. That would hit U.S. steel companies, with their high production costs, the hardest.
Both foreign and domestic steel makers expect President Bush to institute some kind of sanctions against foreign steel. The real question is which foreign steel products will be heavily taxed or hit with high tariffs.
Write to Robert Guy Matthews at robertguy.matthews@wsj.com
Copyright c 2001 Dow Jones & Company, Inc. All Rights Reserved.Wall Street Journal:
