On a sweltering industrial site on the west bank of Cleveland's Cuyahoga River, workers are piecing together enough steelmaking machinery to fill up a good-sized cathedral. They are pushing hard to make a September deadline. In fact, they're in such a hurry that they didn't even stop for a toast on June 28 when their company, LTV Corp., emerged from seven years of bankruptcy.
The LTV bankruptcy, one of the biggest and messiest in American history, has come to an end. The emerging company is trimmer and better focused: Having shucked off its missile operation, it's a $3.8 billion steel company with a clean balance sheet. LTV's fight for survival isn't over, though. Now, the struggle has moved from the glitzy New York hotels and skyscrapers where the $9 billion bankruptcy accord was hammered out to grimy steel mills, such as the Cleveland West Works. There, LTV must stake out a course for survival in what promises to be a brutal 1990s steel market. By mid-decade, predicts Charles A. Bradford, an analyst at UBS Securities Inc.: "There's going to be a price war. A few guys will fall."
NO RETREAT. LTV is betting its new life on a new way of making flat-rolled steel, the sheets of metal that cover cars or get fashioned into oil pipes. Its showcase, now under construction at the West Works in Cleveland, will be Big Steel's newest flat-rolled facility. In this $312 million complex, LTV hopes to perfect an innovative but risky new process for pouring steel and pressing it into sheets while it's still hot. This new method, says LTV Chairman David H. Hoag, should make LTV one of the lowest-cost producers among large steel companies. Hoag also thinks it will keep LTV a step ahead of its challengers, Nucor Corp. and the rest of the North American minimills. "We're not backing off one inch," says Hoag.
LTV has its work cut out. Nucor, based in Charlotte, N.C., is leading the charge of minimills into the $38 billion flat-rolled market. These smaller mills--which melt scrap steel instead of processing iron ore--keep costs down by putting nonunion workers at the controls of the world's newest steelmaking machinery. That has meant world-record productivity at Nucor, where it takes less than one worker-hour to produce a ton of flat-rolled steel--fully four times as fast as Big Steel's average. Now, a host of minis, from Oregon Steel Mills to Canada's Dofasco, are following Nucor into flat-rolled steel. The upshot will be a market brimming with low-cost capacity by the mid-1990s.
To survive, LTV is mimicking the minis. Its West Works is an attempt to rival Nucor's trailblazing plant in Crawfordsville, Ind. And LTV's new labor pact, which went into effect on June 29, gives the union a board seat in exchange for 220 fewer jobs. The contract also does away with many restrictive work rules and calls for more training and multiskilled teams such as Nucor's. Hoag and United Steelworkers President Lynn Williams point to the LTV contract as a model for the rest of the industry. But local union leaders are less gung ho. LTV wants the right to "ask anybody to do anything at any time," fumes Bob Kovacevic, a USW negotiator in Hazelwood, Pa. "We won't accept that."
PENSION PINCH. LTV thinks it already leads the minimills in quality. During its seven years of bankruptcy, the company invested $2 billion in its steel business. It spent $350 million more on joint ventures with Japan's Sumitomo Corp. to produce high-grade steel for the auto industry. In this market, where Nucor doesn't compete, LTV has fared well. It has the highest steel sales to auto companies--including Japanese transplants, the car industry's pickiest customers. Nucor Chairman F. Kenneth Iverson concedes this high end of the market to LTV and other integrated companies, such as the U.S. Steel Group of USX, National Steel, and Bethlehem Steel. "If they want that 9 million tons," he says, "I'll give it to them."
But integrated steelmakers such as LTV still have a major disadvantage: their legions of retired workers. LTV, with 16,500 active employees, has 60,000 retirees. In its settlement, LTV whittled down the retirement obligations that helped force it into bankruptcy. But it still must wrestle with health-care costs for its many retirees while depositing a minimum of $30 million to $50 million per year, for the next 28 years, into the pension fund. It is paying most other creditors with new stock.
Indeed, LTV may be struggling for years. Startup costs for the new West Works should keep the company in the red this year, says Hoag. And by 1994, flat-rolled plants run by minimills should be coming onstream, depressing prices. In that coming battle, the new LTV will have to fight for its second life.