Monday, June 3, 2013

The Future of the US Steel Industry

The Metallic Backbone of Our National Defense
by James M. Terhune, President/CEO

“And while the law of competition may be sometimes hard for the individual, it is best for the race, because it ensures the survival of the fittest in every department.” One wonders if Andrew Carnegie, the 19th century industrialist who so dominated the steel industry in his time, would still be so sure of the wisdom of his statement if he were observing the state of US steelmaking in 2013. It is an undeniable fact that the United States is no longer the world leader in steel production. Indeed, most industry pundits see no viable scenario for American producers to regain their past dominance in the foreseeable future. China has eclipsed all other nations in steel production and is projected to increase production by over 4.5% in 2013, reaching a record 7.5 million tons. While this growing dominance in steel production by China may be of no concern to some, to those engaged in the defense industry this trend is disconcerting at best.

While the public interest has been captured by the emergence of the “smart technologies” that support our military sector like stealth and drones and robotics, the reality is that steel continues to be the metallic backbone of our defense. And, a parallel reality is the proven importance of the steel industry to the general economic health of our country. A growing number of economists and political scientists have warned that the single most important threat to America’s standing in the world community is our anemic economy and our unsustainable debt. The American steel industry directly employs over 150,000 people. Economic research confirms that for every one job directly attributable to steel production, seven support jobs are created. It is estimated that the US steel industry will contribute well over $100 billion in value added and over $250 billion in gross output in 2013. But this level of production and resulting economic benefit is by no means assured. One need only look to the current malaise of the European steelmakers; most notably ArcelorMittal. With the European demand for steel down over 8% in 2012 no robust recovery predicted for 2013, ArcelorMittal announced plans to permanently close its plant in Liege, Belgium.

So, there are two pivotal questions that need to be addressed by those whose business success and professional careers are inexorably tied to the defense industry. Are the vital interests of the United States military critically dependent on the health and economic well-being of the American steel industry? And, if the answer to the first question is a resounding “Yes”, then the second question is obvious; “What can be done to insure the long-term success of the US Steel industry?”. Here are three suggestions.

1. Accelerate the use of natural gas as the primary energy source for steel production. Steel production is critically dependent on energy for the melt and manufacture process. The recent discoveries of natural gas deposits in North America have begun to be utilized by steel producers as a less expensive fuel source. More needs to be done to safely access these deposits and thereby reduce the industry’s energy costs to produce.

2. Increase the research and development efforts of new steel alloys and expand the sustainability of steel products. One of the key factors in the resurgence of the US auto industry has been the development and incorporation of advanced high-strength steels. These high-tech steels provide vehicle designers a combination of high strength, superior formability, dent resistance and improved crash energy management and, perhaps most important, reduced weight resulting in improved MPG. This type of metallurgical research should be supported and expanded, by a partnership between the public and private sectors. As to sustainability, all steel is 100% recyclable and statistics for 2012 show that more steel was recycled than aluminum, copper, paper, glass and plastic combined. Innovative applications for steel in both the civilian and military sectors will improve the product sustainability and will reduce both the unit cost and the environmental impact of production.

3. Enforce fair trade law to insure a level playing field for all steel producers and insist on compliance with the spirit and intent of the Specialty Metals Amendment. The Berry Amendment USC, Title 10, Section 2533a, requires the Department of Defense to give preference in procurement to domestically produced, manufactured, or home-grown products, most notably food, clothing, fabrics, and specialty metals. The Federal Government must confront the unfair trade practices of foreign competitors and insist on aggressive enforcement of the prescribed trade remedies.

While it is impossible to know what Andrew Carnegie would think about the current state of the American steel industry, I suspect that he would have a great deal to say upon learning that in 2013, the United States’ share of the world’s crude steel production is 6% and the People’s Republic of China’s share is 47%. Perhaps Mr. Carnegie would sum up his reaction to the current state of steel by pointing to a quote from a 20th century titan of industry, Jack Welch of General Electric fame who said, “Control your own destiny or someone else will.”