It's crunch time in the American steel industry.
Today, in Pittsburgh, bargainers for USX--the new name for U.S. Steel--and the United Steelworkers face a midnight strike deadline in their summerlong standoff over the giant company's demands for steep wage and benefit cuts for USX's 22,100 steelworkers.
With the two sides still far apart on wages and no contract talks scheduled, union leaders warned Wednesday that the nation's largest steelmaker could be headed for its first major walkout since 1959.
Meanwhile, the nation's second-biggest steel company, LTV, has just filed for bankruptcy court protection and suspended health insurance benefits for retirees, only three months after its employees agreed to slash $3.60 per hour out of their wages and fringe benefits.
About 3,300 workers at LTV's giant Indiana Harbor mill outside Chicago have already walked off their jobs in protest against LTV's suspension of retiree benefits, and another 4,000 at its Cleveland works plan to go on strike Friday. (Meanwhile, the U.S. Senate on Wednesday passed and sent to the House a bill that would prevent LTV from discontinuing those retirement benefits.)
Rush to Bankruptcy Feared
LTV won't be lonely in bankruptcy court. It joins seventh-ranked Wheeling-Pittsburgh in seeking protection from creditors under Chapter 11 of the U.S Bankruptcy Code, and many industry analysts worry that No. 3 Bethlehem Steel may not be far behind. Bethlehem announced a $23.8-million second-quarter loss Wednesday and omitted the dividend on its preferred stock.
"The omission on the preferred may cause a panic among Bethlehem's trade creditors," said Charles Bradford, a steel analyst with Merrill Lynch.
So, just when it looked like things couldn't get much worse in steel, they've gotten really bad.
"It's not going to be a good six months," one United Steelworkers official sighed Wednesday.
Ironically, steel's latest woes have come at a time when the industry should finally be catching its breath in the wake of the long and traumatic crisis that it has endured since at least 1982.
Over the last few months, steel imports have begun to stabilize as a result of the Reagan Administration's quota program, while domestic steelworkers' wages have been plummeting at many companies, thanks to the union's willingness to grant relief to the weakest firms. More favorable interest and exchange rates should also be making American steel firms more competitive with foreign rivals while also spurring demand for cars and other manufactured products that use steel.
But steel's troubles have proven too serious to respond quickly to improving industry conditions. Despite a drop of more than 17% in import shipments in the first half of 1986, compared to 1985, domestic steel shipments continued to fall during the same period. Meanwhile, steel prices, which rose briefly early in 1986, have since declined below 1985 levels once again. Industry employment has slipped to a ghostly 187,500, little more than one-third of the level of 454,000 posted a decade ago.
Industry observers say that steel hasn't bounced back for one reason: American steel companies still haven't closed enough mills. With the nation's steel industry operating at the rate of only about 70% of full capacity, there are far too many mills producing too much steel for the industry's own good, the experts say.
But apparently no one wants to be the first to get out of the steel business. "There is a hopefulness in the steel industry that it will be the other guy's capacity that will be shut down," observes Walter Carter, a steel analyst with Data Resources, an economic forecasting firm. As a result, already weak steel companies are desperately discounting prices to capture new customers and stay in business, forcing the biggest firms to match or beat their prices to retain market share.
"Our problems are in the marketplace," USX Chairman David M. Roderick said Wednesday at a press conference in Pittsburgh. "Operating rates are weak, prices are low and there is an overcapacity of steel production in the United States."
Some observers lay the blame on the United Steelworkers for refusing to let some weak firms die. By giving a hemorrhaging company such as Wheeling-Pittsburgh a big labor cost advantage over healthier firms such as USX, the union has helped keep Wheeling-Pittsburgh in business, perpetuating the steel glut, Bradford argues.
Change in Strategy
"The steel union is making low-cost producers out of the most inefficient producers, and that is making it more difficult for the most efficient producers to compete," Bradford says. "It's the reverse of an industrial policy. We should let the inefficient ones go."
Wheeling-Pittsburgh now has the lowest labor costs in the industry, with an average of only about $18 per hour, while USX still pays full rates of about $25 per hour.