Running Steel, Running America by Judith Stein

Author:Judith Stein
Language: eng
Format: azw3
Publisher: The University of North Carolina Press
Published: 2000-11-09T05:00:00+00:00

A bin of auto scrap for use in this minimill’s electric furnace, seen in background. There are over 300 classifications of scrap, the main ingredient for the furnace, and each must be segregated in different bins. The end product determines what kind of scrap is fed into the furnace. (Courtesy of Hagley Museum and Library)

With the exception of Bethlehem’s Burns Harbor plant, none of the BOF investments were part of new, completely modernized plants. Companies upgraded existing plants, which meant that layouts were not optimal. The Europeans also possessed much open hearth capacity, but European companies received large amounts of government capital for building new plants. Stinson noted that foreign steelmakers “don’t seem to be concerned about borrowing. They can go to their governments.”82 Because much of Japan’s prewar industry had been destroyed by the war, its companies did not have so much capacity to replace. MlTI’s provision of capital and infrastructure and its allocation of production quotas enabled Japanese companies to build greenfield mills. Still, it was not until 1972 that Japan matched U.S. productivity.83

American capital and construction costs were high. The Kennedy-Johnson tax reductions enabled the industry to increase capital expenditures from $1 billion a year in the early 1960s to $2.3 billion in 1968, 25 percent more than during the 1950s. But the cost of adding one ton of integrated steel capacity was $85 in Japan, $399 in the United States. The untargeted investment credit and tax reduction had rapidly accelerated investment in the United States, at a rate double and triple the growth of the GNP. The unusual demand for capital goods bid up the prices. In steel, the increase was burdensome because capacity remained constant and the industry did not capture all of the increased consumption because of imports. Thus, the industry faced increased capital costs per unit.84

Other critics of the industry, conceding that American efficiency in the 1960s still was the highest in the world, indict its pricing policies. But foreign steel, despite higher costs, often sold more cheaply than domestic steel in the United States. The sale of foreign steel in the United States was well below costs of production. Obviously, if a firm does not meet fixed costs, it will not be able to stay in business, but foreign firms maintained a two-price system, one for their closed domestic market and another for sales abroad. In 1967 and 1968, Japanese producers sold a ton of sheet steel for $116 dollars at home; in the United States the same ton cost $96 in 1967 and $86 in 1968, despite the additional costs of moving steel across the ocean. Sometimes the purpose was to increase market share; at other times, marginal cost prices aimed to maintain employment at home, fund fixed debts, or achieve other domestic purposes. Fulfilling all of these goals, however, required an open U.S. market. The critics of U.S. companies did not recognize that U.S. steelmakers could not compete with below-cost prices of foreign steel, much less accumulate capital for modernization under these conditions.

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