There's Something Under The Tree For Big Steel

Eight straight quarters in the red. More than $1.4 billion in collective operating losses. Global overcapacity. Prices so low they would make a strong man weep. Given their woes, it's no wonder the major U.S. steel companies have been singing the blues. But finally, starting Nov. 27, the big steelmakers may switch to a more upbeat songbook.

That's the day Big Steel expects to land the first of its one-two punches aimed at imports. First, the Commerce Dept. is due to release preliminary decisions on a bevy of unfair-subsidy charges filed last summer by the big steelmakers. Then, in January, Commerce will make a preliminary ruling on whether foreign steelmakers have dumped their products in the U.S.

OLD PALS. The betting among steel executives is that the feds will find in favor of the domestic mills, forcing foreign steelmakers to post millions of dollars in cash bonds on any steel exported to the U.S. until a final ruling is made in mid-1993. Rather than pay up, many cash-strapped exporters are likely to retreat from the U.S. market, leaving more business for domestic suppliers.

Big Steel is betting that the trade cases will help boost its bottom line as early as the first quarter of 1993. Already, companies are reporting healthy increases in orders as customers come back to domestic suppliers. "We see a lot of potential customers lately who say, 'Tom, how ya doin'? Haven't seen you in years,' " says Thomas J. Usher, president of the U.S. Steel Group of USX Corp. "We're becoming old buddies again." Even Wall Street is starting to cozy up to the big companies. Buoyed by the trade outlook, plus an improving economy and potentially higher infrastructure spending under the Clinton Administration, some major steel companies' shares are up 30% or more since early October.

A major reason is that Big Steel believes that it finally will be able to raise prices a tad. U.S. Steel, Bethlehem Steel, LTV Steel, Inland Steel Industries, Armco Steel, and National Steel have repeatedly failed over the past two years to make price hikes stick. They badly need relief. Across their product lines, with prices now no higher than they were a decade ago, the steelmakers lost roughly $21 per ton during the third quarter on each $468 ton of steel they sold (chart), estimates PaineWebber Inc.

Effective Jan. 1, the Big Six steelmakers have all announced $10-to-$20-per-ton price hikes on flat-rolled steel products, which account for about 85% of their revenues. They hope that less competition from foreign steelmakers will be enough to make the new prices hold. Inland Chairman Robert J. Darnall notes that U.S. steelmakers' orders and prices picked up fast once similar cases were filed against importers of leaded steel bars in April.

Big Steel argues that it had no choice but to launch a trade battle to beat back foreign competitors. Import quotas that had been in effect for 10 years expired on Mar. 31, threatening to flood the U.S. market with foreign steel. Although big U.S. steelmakers poured $23 billion into their plants during the 1980s and are now as productive as Japanese and German rivals, they continue to lose money.

The main reason, the U.S. companies charge, is that France, Italy, Brazil, and other countries have propped up their steel industries with more than $100 billion in subsidies since 1980. Foreign rivals counter that they're being made scapegoats for the weak U.S. economy. "In the middle of a recession, it shouldn't be surprising that steel prices are low," says Robert C. Cassidy Jr., a partner at Wilmer, Cutler & Pickering, a Washington-based law firm that represents European steelmakers.

BRIEF RESPITE. Whichever side is correct, it's doubtful that Big Steel has found a lasting cure for its problems. Even if domestic companies win the preliminary trade rulings as expected, winning the final one will be far harder, since they must prove that imports have hurt them. In the meantime, the European Community has just announced that it will pour $1.1 billion into restructuring Europe's big steelmakers--which will only make them more competitive.

Worst of all, Big Steel's trade war has distracted it from dealing with its other nemesis: domestic minimills. Charlotte (N.C.)-based Nucor Corp., the biggest U.S. minimill, has just opened its second flat-rolled steel mill, in Hickman, Ark., and vows to take 20% of the U.S. market by the end ef the 1990s. Other minimills also promise new flat-roll mills. In short, even if foreign rivals are forced into retreat, Big Steel may be back to singing the blues before long.

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