American Steel Industry

THE TRANSFORMATION OF THE NORTH AMERICAN
STEEL INDUSTRY: DRIVERS, PROSPECTS, AND

VULNERABILITIES
TIMOTHY J. CONSIDINE
PROFESSOR OF NATURAL RESOURCE ECONOMICS
THE PENNSYLVANIA STATE UNIVERSITY
DEPT. OF ENERGY & GEO-ENVIRONMENTAL ENGINEERING
125 HOSLER BUILDING
UNIVERSITY PARK, PA 16802
PHONE: (814) 863-0810
FAX: (814) 865-3248
EMAIL: CPW@PSU.EDU
APRIL 21, 2005

TABLE OF CONTENTS
EXECUTIVE SUMMARY ........................................................................................................................III
LIST OF FIGURES.................................................................................................................................. VII
LIST OF TABLES.................................................................................................................................... VII
I. INTRODUCTION.......................................................................................................................... 1
II. STEEL & MATERIALS IN THE U.S. ECONOMY .................................................................. 5
III. A RESTRUCTURED STEEL INDUSTRY ............................................................................... 14
IV. THE GAINS FROM RESTRUCTURING................................................................................. 27
V. STEEL AND ECONOMIC DEVELOPMENT ......................................................................... 38
VI. CONCLUSIONS .......................................................................................................................... 44
REFERENCES ........................................................................................................................................... 47
ii
EXECUTIVE SUMMARY
After enduring several waves of restructuring over the past 20 years, the North
American steel industry is experiencing a rebirth. Shipments, productivity, and
profitability are up sharply. The industry is also pioneering an environmentally
sustainable path by adopting innovative process technology that improves energy
efficiency and facilitates extensive recycling, all while reducing costs. In addition, with a
wide array of new steels, the industry is seeking to expand sales in several market
segments, often via partnerships with industries that use steel intensively. These process
and product innovations have created a dynamic and highly competitive North American
steel industry. This report examines the drivers, prospects and vulnerabilities associated
with this transformation.
The North American steel industry endured an enormous contraction in
employment during the 1980s and a wave of bankruptcies during the late 1990s and early
2000s. These financial pressures created the need to consolidate and restructure
operations, which was facilitated by steel import relief enacted by the Bush
Administration in March 2002 that ended in December 2003. As a result of these diverse
factors, the industry was positioned to benefit from an upturn in the steel market.
During 2004, world steel prices increased sharply due to a recovering world economy and
rapid economic development, in China, and in other Asian countries such as India,
Thailand and Korea. Even with higher energy and raw material costs, the management
and labor efficiency improvements implemented during restructuring created a base for
much higher profitability as sales volume and prices rose. This return to profitability is
badly needed to fund the investment necessary to maintain the industry’s technological
iii
and environmental leadership. While the near-term prospects through 2005 for North
American steel are bright, there remain significant vulnerabilities. Chief among these is
steel dumping (selling products into a market at below the cost of production) and the
impacts of government subsidies for steel capacity outside North America. Should the
growth of world steel demand slow down, excess capacity could re-emerge and North
American steel producers could once again face an onslaught of unfairly-traded steel
imports.
The transformation of North American steel has some very solid foundations.
Steel is the most prevalent industrial material in North America, used in a wide array of
manufactured goods, including automobiles, bridges, buildings, containers, and
thousands of other durable goods. After stagnant growth from 1970 through 1990, steel
usage staged an impressive recovery, growing nearly 4 percent per annum from 1990 to
2003. This market growth is the direct result of steel producers delivering a high quality
material at competitive prices.
The North American steel industry has undergone significant restructuring in
recent years. As a result, the industry now has fewer but financially stronger companies.
These changes are extending impressive gains in productivity and environmental
performance that have been underway for the last 20 years. North American steel makers
have among the highest labor productivity rates in the world steel industry. The industry
also has reduced unit energy consumption significantly.
These process efficiency gains have been matched by equally impressive product
innovations. New advanced steels that are stronger, more durable, and lighter than
conventional steels are rapidly gaining market acceptance. Steel product innovations
iv
have been accomplished through collaboration with product designers and engineers in
steel using industries. Hence, the steel industry plays a key strategic role in developing
high quality, more durable manufactured goods and stronger, long-lasting infrastructure.
Besides the direct environmental benefits from improving the energy and material
efficiency of manufacturing steel, higher quality steels generate a wide array of
environmental benefits throughout our society, such as more fuel efficient vehicles and
more durable and hazard resistant structures.
The North American steel industry is also an important source for employment
and tax revenues for local and regional economies. In the U.S., for every one job formed
in the steel industry, seven additional jobs are created in other economic sectors, such as
raw materials, transportation, computers, and related technical services. These inter-
relationships demonstrate that the North American steel industry has a key role in
economic development. More generally, steel is an integral component of the
manufacturing sector. A financially strong, technologically-advanced, and
environmentally-sustainable steel industry located in North America is essential in
serving the material needs of our society.
In summary, this study finds that North America has one of the most dynamic and
competitive steel industries in the world:
• Steel remains the single largest industrial material in the U.S., constituting more
than $58 billion in value. New light weight and high strength steels are rapidly
gaining market share and will contribute to growing steel use in the future.
• In 2004, 1.1 billion tons of steel were used globally. This extraordinary wide use
of steel reflects its critical role in nearly all aspects of manufacturing and
construction.
v
• During the early 2000s, the industry consolidated production capacity and
restructured operations, such as reducing management layers and revising labor
work rules, particularly within the integrated sector. Although ultimately driven
by market forces, this transformation was facilitated by the trade relief enacted
under the Bush Administration during 2002 and 2003.
• The industry has demonstrated the foresight to invest in break-through
technologies that offer dramatic improvements in energy efficiency and
environmental performance. For example, the industry reduced energy
consumption 17 percent from 1990 to 2002. Scrap consumption rose from 41.7
million tons in 1990 to 62.5 in 2002, an increase of almost 50%.
• These consolidations and restructurings have improved productivity and reduced
costs. With higher world steel prices, largely as a result of higher steel demand in
China, after tax net income was $6.6 billion during 2004.
• While prospects are bright for North American steel, the industry remains
vulnerable to non-market interventions in world steel markets. Many governments
around the world are subsidizing a significant expansion of world steel production
capacity of nearly 25 percent over the next five years
vi
LIST OF FIGURES
FIGURE 1: STEEL MAKING AND VARIOUS END-USE APPLICATIONS ................................................................... 8
FIGURE 2: THE VALUE OF MATERIALS ENTERING USE IN THE U.S., 1960 TO 2002. ........................................ 12
FIGURE 3: MATERIAL INTENSITIES OF USE IN THE U.S., 1960 TO 2002 .......................................................... 13
FIGURE 4: NET INCOME AND CAPITAL EXPENDITURES ................................................................................... 14
FIGURE 5: STEEL INDUSTRY EMPLOYEE BENEFIT COSTS PER HOUR ................................................................ 20
FIGURE 6: SCRAP IRON AND STEEL PRICES IN THE U.S., 1990-2004............................................................... 23
FIGURE 7: PRICE INDICES FOR VARIOUS MATERIALS ...................................................................................... 25
FIGURE 8: LABOR HOURS PER TON IN THE U.S. STEEL INDUSTRY, 1953 – 2003 ............................................ 29
FIGURE 9: ENERGY CONSUMPTION PER TON SHIPPED IN U.S. STEEL INDUSTRY, 1955 – 2003 ........................ 30
FIGURE 10: TOTAL SCRAP CONSUMPTION IN THE U.S. STEEL INDUSTRY, 1950 – 2002 .................................. 31
FIGURE 11: STEEL USE IN AUTOMOBILES, 1992 – 2003.................................................................................. 35
FIGURE 12: LIFE CYCLE EMISSIONS OF STEEL VERSUS ALUMINUM VEHICLES ................................................ 36
LIST OF TABLES
TABLE 1: STEEL ENTERING USE IN THE NORTH AMERICAN STEEL INDUSTRY, MILLION TONS, 1999-2003..... 10
TABLE 2: BANKRUPTCY FILINGS IN THE NORTH AMERICAN STEEL INDUSTRY, 1999-2004............................ 16
TABLE 3: NORTH AMERICAN STEEL INDUSTRY CONSOLIDATIONS, 2002-2004 ............................................. 18
TABLE 4: STEEL COMPANY INCOME AND INVESTMENT IN MILLIONS, 2003-2004........................................... 28
TABLE 5: INTER-INDUSTRY PURCHASES BY IRON AND STEEL MILLS IN 1997 ................................................. 39
TABLE 6: FINAL DEMAND MULTIPLIERS BY INDUSTRY FOR IRON AND STEEL MILLS ....................................... 41
TABLE 7: TOTAL MULTIPLIERS FOR OUTPUT, EARNINGS, AND EMPLOYMENT FOR IRON AND STEEL MILLS ..... 43
vii
I. INTRODUCTION
Materials are an essential part of our knowledge-based economy. Advances in
computers and the widespread adoption of information technology have spurred
productivity growth, which has generated significant income gains and wealth
accumulation over the past decade. Another source of overall productivity growth has
been efficiency improvements in basic manufacturing industries, such as steel.
Productivity growth has enabled producers to expand their stocks of plant and equipment,
while allowing consumers to increase their stocks of housing, automobiles, and other
household equipment. These tangible goods are made from materials. The resurgence of
the North American economy since the early 1990s demonstrates that the linkage
between economic growth and material use remains strong.
Steel in its many shapes and grades is the most prevalent industrial material. Steel
is an integral part of containers, machines, automobiles, appliances, structures, and
thousands of other consumer and industrial products. This success reflects the low cost of
steel in providing those attributes manufacturers, builders and designers demand. Steel is
synonymous with strength and safety, providing the backbone of infrastructure, such as
skyscrapers and bridges. It is very versatile because it is easy to shape into many different
forms.
Steel makers have successfully changed the nature and properties of steel to better
serve customers by developing more durable, high strength, and light weight steels
through the application of advanced technology. These actions have allowed the North
American steel industry to deliver higher quality materials at lower cost. These new steels
allow the hardening of infrastructure to meet homeland security concerns and to protect
Steel Transformation – Page 2
military personnel and assets. In addition, these steels allow firms to manufacture
products that enhance personal safety, energy efficiency, and environmental quality. Steel
product innovations generate substantial economic efficiency gains for society in terms of
longer lasting products. New steel products also generate substantial environmental
benefits by reducing emissions and avoiding unnecessary replacement over the life cycle
of products, manufacturing systems, and infrastructure.
In addition to product innovations, the North American steel industry has
dramatically improved the steel making process itself. Process efficiency gains are an
essential factor enabling steel producers to deliver higher quality steels at lower cost.
North America now has one of the most dynamic and competitive steel industries in the
world that is pioneering an environmentally sustainable path. For example, the U.S. steel
industry achieved a 17 percent reduction since 1990 in energy intensity per ton of steel
shipped, and is committed to another 10 percent reduction by 2010. Scrap consumption
rose from 41.7 million tons in 1990 to 62.5 in 2002, an increase of almost 50%.1 These
improvements have substantially reduced air, water, and solid waste emissions in steel
making. The North American steel industry is now one of the largest consumers of
recycled materials in the world. Slightly more than half of all steel produced in North
America comes from consumer and producer durable equipment and structures that are
recycled at the end of their useful life. High recycling rates were not achieved by an over-
arching master plan but through the efforts of steel companies to remain competitive in
world markets. Hence, the North American steel industry is a good example of market
forces promoting sustainable development.
1
Source: U.S. Bureau of Mines, Mineral Industry Yearbook.
This report lays out the facts and analysis supporting this view of the North
American steel industry. Given our theme of steel serving the material needs of society,
the next section will analyze trends in steel entering use with its competitors in material
markets. The term “entering use” is important because steel is never really consumed
since nearly all steel embodied in goods re-enters steel making via scrap recycling
channels. In contrast to many other materials industries, the North American steel
industry is much further along in achieving a closed-loop industrial ecosystem. Unlike
many other materials that degrade with recycling, obsolete steel products can be recycled
into other but not necessarily equivalent (i.e. stronger, higher value-added) steel products2
From this demand side perspective, the report then shifts to the supply side, in
particular focusing on the structure of the North American steel industry. The relative
success of the industry in expanding its share of material markets is a direct result of
reorganization within the industry. The North American steel industry has fewer yet
stronger companies that are more competitive in world markets. Rather than looking to
preserve market share, the industry has a well developed set of strategies to find and
develop new uses of steel. These marketing efforts have been facilitated by substantial
product innovations that appear to be reaping rewards in terms of expanding market share
and developing new markets.
Many companies have simultaneously worked to improve process efficiency,
which is the focus of section four. These achievements in productivity and profitability
have been impressive. Indeed, advances in steel productivity have outpaced productivity
2
At least in theory, steel can be recycled infinitely. The build-up of so-called tramp elements, such as
copper and tin, however, may be a constraint. In the case of tin, however, steel producers reduced the
thickness of tin coating on steel food cans and employed tin recovery technologies to address tin in scrap
steel stocks. Achieving similar technological innovations to deal with other scrap purity problems is a
challenge for the industry.
growth in many other sectors of the economy. Much of this success can be attributed to
the widespread adoption of advanced computing and information technology.
Despite these successes, many challenges lie ahead. Prices for natural resource
commodities particularly those traded internationally increased sharply during 2004. The
expansion of Asian economies appears to have crossed a threshold over which continued
development is placing pressure on world resource supplies. These developments have
directly impacted the North American steel industry by driving up prices for basic
materials and fuels used in steel making. Transitory developments, such as temporary
shortages of key raw materials have also contributed to higher prices. This cost push
combined with higher demand for steel products has led to higher steel prices both in
North America and globally. These higher prices and industry restructuring have led to a
strong recovery in the financial performance of the steel industry during 2004. While the
prospects are bright for North American steel, the industry remains vulnerable to non-
market interventions, such as subsidies of steel production capacity. Steel prices could
also decline from a reduction in demand brought about by a downturn or slowdown in
economic growth.
The North American steel industry is now much more geographically dispersed
than 20 years ago. While traditional steel manufacturing hubs in Pittsburgh, Cleveland,
Chicago, and Canada remain, other areas, particularly in the South of the United States
have emerged as important producing regions. The steel industry remains an important
source for high paying manufacturing jobs and in stimulating employment both upstream
for raw material and other suppliers and downstream for steel service companies, steel
using industries, and related firms. The multiplier effects of these linkages for national
employment and output will be examined in section five. The paper concludes with a
summary of the key findings and a brief discussion of the implications for policies
affecting the steel industry.
II. STEEL & MATERIALS IN THE U.S. ECONOMY

Imagine a world without steel or, for that matter, any economy and its
manufacturing sector trying to operate without steel. From engines to the assembly line,
from fuel tanks to metal warehouses, from rails to bridges and high-rises, steel is critical
for all aspects of modern life. From this perspective, steel is part of our lives from the
minute we wake up until we go to bed at night. It’s in the alarm clock that wakes us to the
razor blades we use to shave to the shower head in our bathroom. Steel constitutes over
50 percent of the weight of an average passenger vehicle and frames the office buildings
we work in. It’s in our lunch box when we pop open the can of peaches and it strengthens
the playground equipment our kids play on. Truly steel plays a more important role in our
daily lives than most anyone realizes.
Steel and other materials play an essential role in economic development. During
the early stages of development, the consumption of steel, concrete, and other structural
materials is relatively high as society builds infrastructure, such as railroads, highways,
dams, bridges, and buildings. The United States went through this phase during the late
19th and early 20th century as the manufacturing sector became an important engine for
economic growth. Even today, China and other emerging Asian economies continue to
demonstrate that a nation’s wealth is tied to steel and a strong manufacturing sector.
As economies progress and basic infrastructure projects near completion, higher
levels of per capita income spur the demand for manufactured goods. For example, home
ownership and per capita use of appliances and automobiles rose sharply in United States
during the 1950s and 1960s. Western and indeed even China and other East Asian
economies appear to have entered a third phase of development with the rise of
knowledge based service economies employing advanced computer and information
technology.
These technologies enable productivity advances across a broad swath of the
economy, particularly in manufacturing. As efficiency gains generate even higher levels
of income and wealth, consumers demand higher quality goods. To achieve higher
quality levels, material innovations are a key component. As described below, the North
American steel industry has successfully introduced high quality steels that provide the
properties necessary to raise product quality. These innovations are an essential factor in
producing higher quality goods that are more durable, safer, and environmentally
sustainable. Resiliency to natural and man-made hazards is another important societal
objective. Material producers are intensely competing with each other to meet these
market needs. New steel framing used in residential and commercial construction has
considerable promise in earthquake and hurricane-prone areas. Light weight, high
strength steel is gaining acceptance in automotive applications by achieving fuel
economy goals while improving passenger safety. Likewise, new armor plated steels and
alloyed steels can play important roles in serving homeland security needs.
The societal forces and technological innovations spurring the production of
higher quality manufactured goods are developing important synergies between material
producers and manufacturers of a wide array of goods and services. Finished product
design criteria must be coordinated with the production of materials and components.
Hence, steel is an engineered material tailored to meet the specific needs of product
designers. The synergies between steel manufactures and these many end-users are
illustrated in Figure 1.
Using raw materials, such as iron ore, limestone, metallurgical coal, and scrap
iron and steel, steel manufacturers produce a wide array of products. The major types of
steel mill products are identified in the center of Figure 1. The largest market comprising
more than 50 percent of shipments are flat products that include hot and cold rolled
sheets, pickled and oiled coils, and other coated flat rolled products. Automobile
manufacturing is a major end-use for these steel materials that are used to fabricate body
panels, chassis, and other components listed in Figure 1. Virtually all steel in
automobiles is recovered.3 Other major markets for flat products include appliances and
containers with recycling rates of nearly 90 and 60 percent respectively.4 As Figure 1
illustrates, more than 70 percent of steel scrap is recovered for steel manufacturing. As
discussed below, steel recycling has been an important factor improving the energy
efficiency and competitiveness of North American steel producers.
Long steel products, such as hot and cold rolled bars and rod, wire rods, structural
tubing, and concrete reinforcing bars constitute the next largest market, comprising
roughly 20 percent of product shipments. These products enter construction, automobile
manufacturing, and many other end-uses identified in Figure 1. Structural shapes and
plates comprise another 16 percent of shipments and also enter a wide range of
applications, including heavy equipment, bridges, buildings, and infrastructure projects
(see Figure 1). Tubular products constitute another market segments with major
3
Steel Recycling Institute, http://www.recycle-steel.org/cars.html.
4
Steel Recycling Institute, http://www.recycle-steel.org/appliances.html and http://www.recycle-
steel.org/cans.html.
Figure 1: Steel making and various end-use applications

applications in the oil and natural gas industry, municipal water and waste treatment
facilities, and residential water delivery systems (see Figure 1). These products
comprised roughly five percent of domestic steel mill shipments in 2003. Most, if not all
of these products are recycled once they reach the end of their useful lives. Once again,
even within this category, recyclers efficiently recover most of the steel scrap. Even for
these very diverse end-uses, entrepreneurs have developed networks for collecting these
discarded products and, while separation is not necessary for recycling, they have devised
methods to separate materials for efficient re-use. This network of efficient steel scrap
recycling is an important factor in the recent success of the North American steel industry
in improving efficiency and promoting sustainability.
The North American steel industry serves one of the largest steel markets in the
world. The recent cyclical peak in steel use in the U.S. was the year 2000 at 131.9 million
tons. Canadian use also peaked in the same year at slightly more than 20 million tons.
Steel placed in use in Mexico, however, exceeded its 2000 level in the year 2003 at
nearly 18 million tons (see Table 1). Although complete data are not yet available, steel
use in North America during 2004 is likely to be substantially higher than 2003 levels,
putting it very near or above the previous cyclical peak of 169.7 million tons in 2000.5
Worldwide, North American steel use of 151.8 million tons in 2003 represents roughly
14 percent of the 1,060 million tons of world raw steel production.
Materials enter the production process in many different forms. For example, steel
makers combine scrap steel, iron ore, coal, limestone, and ferroalloys in the production of
various steel products. Similarly, automobile makers select steel, aluminum, plastics, and
5
According to the North American Steel Trade Committee (2004), “Apparent steel consumption in the
NAFTA region is up 15% in the first 8 months of 2004 compared to the same period a year
earlier.” Some of this increase, however, could be attributed to an inventory build-up.
other material inputs in manufacturing automobiles and trucks. The term “materials,”
therefore, can refer to raw materials or to semi-finished materials depending upon the
stage in the production process. Steel and competing materials must meet very specific
performance criteria for particular applications. As a result, these materials are not
homogeneous commodities. Hence, substitution between steel and other materials
involves complex trade-offs between performance criteria. Hence, steel should be
considered a highly engineered, technologically advanced material.6
Table 1: Steel entering use in the North American steel industry, million tons, 1999-
2003 (apparent supply)
United States Canada Mexico Total

1999 127.9 18.6 14.9 161.4
2000 131.9 20.5 17.3 169.7
2001 116.4 17.4 16.3 150.1
2002 117.0 18.7 17.1 152.8
2003 116.1 17.8 17.9 151.8
Source: American Iron and Steel Institute
Our focus in this section is on finished material inputs such as sheet, strip, pipe,
bars and rods made from steel, copper, aluminum, and plastic materials and resins. Also
competing with these materials are finished wood products and concrete. All of these
materials are used in the production of a wide array of structures and manufactured goods
including containers, automobiles, machinery, and computers. Economic activity in these
sectors has a direct bearing on the overall demand for materials.
Measuring aggregate material consumption is somewhat problematic because
material classes are diverse with many categories that each has very different physical
6
Economists often use the term commodity to represent a homogenous product traded on commodity
market exchanges, such as the Chicago Board of Trade Classic examples of commodities include copper
and wheat. At this time, there is no widespread steel commodity trading, although the London Metal
Exchange has been trying to introduce this activity and there is now an emerging market in Asia see
http://www.indiainfoline.com/nevi/mcxs.html).
attributes. Total steel shipments include sheet, strip, wire, tube, pipe, bars, and structural
steel. In addition, there are three different major grades of steel: plain carbon, alloy, and
stainless, for most of the product shapes.7 These steel products have different unit prices
that largely reflect their physical properties and their value in manufacturing applications.
Simple addition of the tonnages for each shipment category would ignore these quality
differentials and would imply that the components are perfect substitutes. This problem is
particularly acute when trying to aggregate steel materials with plastics and concrete,
which have very different weight to value ratios. Economists have devised a
methodology called divisia aggregation for computing such aggregates without assuming
perfect substitution.8
The divisia index for material consumption in the U.S. economy from 1960 to
2002 appears below in Figure 2. Several important trends appear in this chart. First,
overall material use was virtually stagnant from the early 1970s until 1990, with very
sharp declines during the recessions of 1975, 1980, and 1982. During this period steel
placed in use declined in real terms from more than $55 billion in 2000 dollars to under
$40 billion in 1991 (see Figure 2). During this time, plastics and wood gained material
market share while aluminum, copper, and concrete maintained their market shares. A
sharp reversal of these trends occurred during the early 1990s. Steel regained market
share with its value in use rising to slightly more than $58 billion as the economy reached
a cyclical peak in 2000. Despite a decline in steel sales with the economic downturn in
2001, average annual growth in steel use was 3.7 percent from 1991 to 2002. Steel
7
There is very little production of structural alloy steel and almost no stainless steel structural shapes.
However, high-strength low alloy steels, which are classified as carbon steel and discussed below, are a
dominant material in structural applications.
8
This approach assumes prices reflect social opportunity costs under perfect competition. See
Considine (1991) for a more complete discussion.
remains the most important industrial material by a considerable margin. Despite rising
plastic use during the 1980s, steel remains the material of choice for many users and has
expanded its lead over plastics in recent years.
180.0
160.0
140.0
Billion 2000 Dollars
120.0
100.0
80.0
60.0
40.0
20.0
0.0
60
63
66
69
72
75
78
81
84
87
90
93
96
99
02
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
Materials Plastics Aluminum
Copper Cement & Crushed Stone Wood
Steel
Figure 2: The value of materials entering use in the U.S., 1960 to 2002.9
Materials consumption also has important implications for sustainability. For
example, the World Resources Institute (2000) uses weight of materials as an indicator of
sustainability. Larson, et al. (1986) argued that material use was decoupling from the
economy so that the economy was in this sense “dematerializing.” Time series plots of
material intensities, defined as the materials use the indices above divided by real gross
9
The data presented in this chart are divisia indices, which are a cost share weighted average of
logarithmic first differences in quantities within each material category. Steel shipments, export, and
imports are from the American Iron and Steel Institute. Data on prices and apparent consumption for
copper, aluminum, cement, and crushed stone are from the U.S. Geological Survey, Mineral Commodities
Information. Wood and plastics consumption are derived from value of shipments data published by the
U.S. Department of Commerce and prices from the Bureau of Labor Statistics.
domestic product (GDP), appear in Figure 3. The aggregate materials use intensity was
relatively stable at 2.5 to 2.8 cents per dollar of real GDP from 1960 to 1974. During the
energy crisis from 1975 to 1981, however, it dropped to 1.6 cents in the early 1980s, due
to a shift to less-energy intensive goods. This downturn, however, did not lead to a
continued “dematerialization” of the economy because the intensity of use has stabilized
since the mid-1980s. Much of this stabilization is due to the expanding share of steel in
material markets reflecting market development efforts and restructuring.
3.0
2.5
Cents / dollar of real GDP
2.0
1.5
1.0
0.5
0.0
1960 1966 1972 1978 1984 1990 1996 2002
Materials Steel Other Metals Plastics Wood & Cement
Figure 3: Material intensities of use in the U.S., 1960 to 200210
10
These are the divisia material use series divided by real gross domestic product based upon data
collected by the U.S. Department of Commerce.
III. A RESTRUCTURED STEEL INDUSTRY

Despite robust demand growth during the 1990s, the North American steel
industry faced mounting financial losses from 1999 through 2002 brought on by the
Asian economic crisis of 1998-2000. A major factor contributing to these losses during
this period was a rising tide of steel imports. Steel imports into the United States
increased from 24 million tons in 1995 to nearly 42 million tons in 1998 and remained
over 30 million tons through 2001. As a result, steel prices steadily declined from 1997
through 2001. The recession of 2001 exacerbated the situation with falling steel demand,
which led to substantial excess production capacity and net income losses of nearly $4
billion during 2001 (see Figure 4). Net income sank even deeper into deficit during 2003,
as the industry restructured.
8.0
6.0
4.0
Billion Dollars
2.0
0.0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
(2.0)
(4.0)
(6.0)
(8.0)
Net Income Capital Expenditures
Figure 4: Net income and capital expenditures11
11
Net income and capital expenditures are from the AISI Annual Statistical Report except 2004 values
are estimated based upon company reports.
A significant recovery is now underway as net income is likely to exceed $6
billion during 2004 (see Figure 4). Steel prices increased substantially during 2004,
increasing on average between 30 and 40 percent, depending on the product. A major
factor that contributed to this sharp rise was skyrocketing demand from China’s rapidly
expanding economy (Hagenbaugh, 2004). Chinese steel use increased 38 million tons
during 2003, equivalent to the annual steel consumption of Mexico and Canada
combined.12 Demand growth is also strong in other East Asian economies, India, and
recovering East European economies, including Russia. In addition, the U.S. economy,
particularly the manufacturing sector, is in recovery.
Other factors contributing to higher steel prices come from the cost side,
specifically energy and raw material costs. While industrial natural gas and electricity
prices rose moderately during the first 9 months of 2004 over the previous period in
2003, at 3 and 3.4 percent respectively, distillate fuel oil prices, a major component of
shipping costs, increased more than 20 percent.13 Prices for metallurgical grade coal used
to produce coke increased 24.7 percent from third quarter 2003 to third quarter 2004.
Prices for steel scrap increased more than 57 percent from 2003 to 2004.14 Similarly,
prices for internationally traded iron ore increased 19 percent during 2004 and could
increase by 30 to 50 percent during 2005.15 Despite rising input prices, however, the
North American steel industry has recently created a solid foundation for a profitable
12
This observation was made by Peter Fish, managing director at EMPS in Sheffiled, England,
according to Hagenbuagh (2004).
13
The industrial natural gas, electricity, and coal prices are from the Monthly Energy Review published
by the U.S. Energy Information Administration.
14
This is based upon the producer price index for iron and steel scrap reported by the U.S. Bureau of
Labor Statistics.
15
The Associated Press reported on December 13, 2004 that Roger Agnelli, chief executive of Brazil’s
Companhia Vale do Rio Doce SA, expects prices to rise in this range noting that “Demand for iron ore
grew a lot more than anyone could have imagined, and the tendency is for prices to rise.”
recovery through consolidation and restructuring, which depends upon imports remaining
at their relatively restrained levels.
From 1999 to 2003, more than 30 steel companies filed for bankruptcy protection,
constituting more than half of industry capacity (see Table 2). While most bankrupt steel
companies ceased production during this period, many eventually restarted under new
Table 2: Bankruptcy filings in the North American steel industry, 1999-2004
Company Filing Date Capacity 106 tons Segment Employees

1 Stelco 1/29/2004 5.1 Steel Production 8,400
2 Rouge Industries 10/23/2003 3.2 Steel Production 2,705
3 Georgetown Steel 10/21/2003 1.8 Steel Production 465
4 Republic Engineered products 10/6/2003 Specialty Prods 2,400
5 WCI Steel 9/17/2003 1.5 Steel Production 1,800
6 Ivaco 9/17/2003 1.5 Specialty Prods 3,500
7 Slater Steel 6/2/2003 Specialty Prods 493
8 Weirton Steel 5/19/2003 2.4 Steel Production 3,500
9 Kentucky Electric Steel 2/6/2003 Steel Production 346
10 Calumet Steel 3/19/2002 0.2 Steel Production 210
11 National Steel 3/6/2002 7 Steel Production 9,283
12 Sheffield Steel 12/7/2001 0.6 Steel Production 610
13 Bethlehem Steel 10/15/2001 11.3 Steel Production 13,000
14 GalvPro 8/10/2001 Processing 60
15 Excalibur Holdings Corp. 7/18/2001 Processing 800
16 Precision Specialty Metals 7/16/2001 Specialty Prods 200
17 Republic Technologies 4/2/2001 2.2 Steel Production 4,600
18 Trico Steel 3/23/2001 2.2 Steel Production 320
19 GS Industries Inc 2/7/2001 2 Steel Production 1,750
20 Heartland Steel Inc 1/24/2001 Processing 175
21 CSC Ltd. 1/12/2001 0.4 Steel Production 1,225
22 LTV Corp 12/29/2000 7.6 Steel Production 18,000
23 Northwestern Steel&Wire 11/16/2000 2.4 Steel Production 1500
24 Wheeling-Pittsburgh Steel 11/16/2000 2.2 Steel Production 4,800
25 Vision Metals Inc 11/13/2000 Processing 610
26 J&L Structural Steel Inc 6/30/2000 Processing 275
27 Gulf States Steel 7/1/1999 1.1 Steel Production 1,900
28 Qualitech Steel SBQ LLC 3/24/1999 0.6 Steel Production 350
29 Geneva Steel Co. 2/1/1999 2.6 Steel Production 1,650
30 Laclede Steel Co. 11/30/1998 1 Steel Production 1,475
31 Acme Metals 9/29/1998 1.2 Steel Production 1,781
32 Al Tech Specialty Steel 12/31/1997 0.1 Specialty Prods 790
Total 60.2 88,973
management. After peaking at 130 million tons in 2000, U.S. raw steel production
capacity declined to 113 million tons in 2002 but then increased to 121.6 millions tons in
2003.16 The economic impacts of these bankruptcies and complaints of unfair trade
practices by foreign steel producers induced the Bush Administration to impose tariffs on
imported steel in March 2002 under Section 201 of the Trade Act of 1974. While steel
prices did recover during 2002 and 2003, the average annual increase was only 3.9
percent in part because numerous tariff exemptions were subsequently allowed. The
Bush Administration suspended steel tariffs after only 18 months in December 2003.
Nevertheless, trade relief gave the industry critical time to restructure.
Several significant steel company consolidations occurred after March 2002.
Nucor Steel acquired Trico and Birmingham Steel during 2002 (see Table 3). In another
consolidation, Steel Dynamics acquired Qualitech in September 2002. At nearly the same
time, Gerdau-AmeriSteel was formed from Co-Steel in Canada and a number of mills in
the United States. The most significant reorganization occurred with the emergence of the
International Steel Group (ISG) in April of 2002 that acquired the assets of LTV Steel.
ISG then added Acme Steel in October of 2002, Bethlehem Steel in May 2003, and
Weirton and Georgetown in 2004 (see Table 3). These acquisitions collectively represent
an investment of $2.16 billion.17 U.S. Steel Corporation acquired National Steel in
January of 2003 for $1.05 billion, which increased its steel production capacity to 19.5
millions tons per year. Both ISG and U.S. Steel attribute the Bush Administration’s trade
16
American Iron and Steel Institute Yearbook 2003.
17
Sources include Modern Trade Communication (http://www.moderntrade.com), Ohio Citizen Action
(www.ohiocitizen.org), and ISG Press Releases (www.intlsteel.com).
relief as an integral factor in these decisions.18 Nucor acquired Corus Tuscaloosa in June
2004, bringing its production capacity up to 19.6 million tons. In October 2004, Ispat
International acquired LNM Holdings to create Mittal Steel Company, which is in the
process of acquiring ISG, to become the largest steel company in the world.19
Table 3: North American steel industry consolidations, 2002-2004
Consolidation Individual Total

Date Capacity Capacity
Nucor 19.6
Trico Jul 2002 1.0
Birmingham Dec 2002 2.2
Corus Tuscaloosa Jun 2004 0.7
U.S. Steel 19.4
National Steel Jan 2003 6.9
International Steel Group 24.2
LTV Steel Apr 2002 7.6
Acme Steel Oct 2002 1.0
Bethlehem Steel May 2003 11.4
Weirton Steel Apr 2004 2.4
Georgetown Steel Jun 2004 1.8
Mittal Steel (In progress) 30.0
Ispat Inland Steel Oct 2004 5.8
International Steel Group Oct 2004 24.2
Steel Dynamics 4.1
Qualitech Sep 2002 0.6
Gerdau-AmeriSteel 6.8
Co-Steel Sep 2002 2.5
These consolidations in some cases also ushered in management teams that
eliminated multiple layers of management. For example, U.S. Steel cut 20 percent of its
executive management positions in 2003.20 W.L. Ross, who created ISG and managed the
consolidation of LTV Steel commented that, “we went from seven layers of management
18
For example, W.L. Ross, chairman if ISG said of the tariffs, “It was very important. In our case we
made a commitment to buying LTV a week before the Bush announcement, and we did it because it
appeared to us that he would do something significant… We would never have made this bid without it.”
Financial Times, January 15, 2003.
19
Ispat International owns Ispat Inland of East Chicago. LNM Holdings has production capacity of over
32 millions tons per year with steelmaking operations in Poland, Czech Republic, Romania, Kazakhstan,
South Africa, Algeria, and Bosnia. This acquisition is pending.
20
“U.S. Steel Slashes Executive Positions,” Associated Press, June 5, 2003.
from the factory floor to CEO to just two,” (MacFadden, 2003). In addition to
management efficiencies, the consolidations also facilitated operational efficiencies. For
example, ISG noted that their integration with Bethlehem Steel maximized “efficiency
through the elimination of duplicate capital spending, lengthening production runs
through coordinated marketing among facilities, optimizing product movement between
facilities, and leveraging existing sales and research functions,”21
Most of these companies also re-negotiated labor agreements. For example, ISG,
U.S. Steel, and Wheeling-Pittsburgh Steel renegotiated their collective bargaining
agreements with the United Steel Workers of America (USWA). These renegotiations
reduced costs and improved productivity (International Trade Commission, 2003). For
example, the agreement between ISG and USWA “(1) permits the company to cut the
workforce by 40 percent and includes a $125 million transition assistance program, (2)
reduces job classifications from over 30 to 5, (3) increases employee job flexibility and
training programs, (4) introduces profit sharing, (5) restricts executive compensation, (6)
requires company investment to maintain competitiveness, and (7) establishes a trust to
provide some health-care relief to retirees.”22 The benefits of these provisions translate
into rather impressive productivity gains that are discussed in the next section.
The bankrupt companies also transferred unfunded pension liabilities to a U.S.
government agency, the Pension Benefit Guarantee Corporation. Nine steel companies
transferred pension liabilities valued at over $8 billion.23 Approximately $20 billion of
unfunded employee benefit and pension liabilities remain for other companies. Overall,
21
Press Release, ISG, “ISG gets bankruptcy court approval of Bethlehem Steel purchase,” April 23,
2003.
22
International Trade Commission (2003), page 7.
23
International Trade Commission, page 3.
however, after steady increases in employee benefit costs since 1997, steel industry
employee benefits fell from $15.14 per ton in 2002 to $13.38 per ton in 2003 (see Figure
5). Compared with other manufacturing industries, these costs remain relatively high
because the ratio of retirees to active employees is considerably larger in the steel
industry. This larger social burden is a consequence of dramatic improvements in labor
productivity, in part attributed to recent and past restructurings, especially those that lead
to the dramatic reduction in steel employment during the 1980s.24 These restructurings
induced many workers to take early retirement that then increased pension costs.
16.00
14.00
12.00
$ / hour
10.00
8.00
6.00
4.00
19 3
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19 7
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96
19 7
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20 0
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03
8
8
8
8
8
8
8
9
9
9
9
9
9
9
9
9
0
0
0
19
19
Figure 5: Steel industry employee benefit costs per hour
Investment in new plant and equipment is another critical element in the
restructuring efforts. During the early 1990s the industry was investing $2.35 billion per
year in plant and equipment to remain competitive (Fruehan, 2001). As Figure 4
24
Import competition contributed to the accumulation of these unfunded liabilities to the extent that
they forced the industry to restructure.
illustrates, investment fell considerably below this level from 2000 to 2002 primarily due
to low net income in part attributed to the surge of steel imports. Despite this difficult
environment during the trade relief period, several steel companies invested to upgrade
steel production plants and adopted new technologies to reduce cost and improve product
quality. Although investment staged a rebound during 2003 from the depressed levels of
2001 and 2002, there remains a significant backlog of investment, which Fruehan (2001)
estimates could be as high as $9 billion. The recent rebound in net income is sorely
overdue to begin to work down this backlog of needed investment.
Despite this recent consolidation, the North American steel industry and other
regional steel industries, such as Europe, remain far less concentrated than other
manufacturing industries. To a considerable extent, this lower concentration reflects
technological trends that have facilitated steel production from recycled resources. Steel
mills use one of two types of furnaces to make new steel. Both furnaces recycle old steel
into new, but each is used to create different products for varied applications. The first,
the basic oxygen furnace (BOF), uses up to 30 percent steel scrap to make new steel. The
remaining portion is molten iron produced from blast furnaces, which require iron ore
from mines, limestone from quarries, and coke from batteries of ovens. The BOF
furnaces produce uniform, high quality flat-rolled steel products used in cans, appliances,
and automobiles.
The other type of steel making furnace, the electric arc furnace, melts virtually
100 percent steel scrap to make new steel. Producers using these furnaces now produce
slightly more than 50 percent of total US steel production. Historically, this steel was
used primarily to make products that have long shapes, such as steel plates, rebar, and
structural beams. These mills, however, are now producing some dual phase, high
strength, and deep drawing steels for automobile makers although integrated producers
still dominate this market. The flat-rolled mini-mill sector is pushing 20 million tons of
output including plates. This sector is also producing hot rolled steel for exposed
applications in appliances, construction equipment, farm machinery, electrical panels and
similar applications. Overall, integrated and EAF producers both in North America and
abroad now compete in most but not all market segments.
This steady expansion of the steel mini-mill sector in North America has
increased the demand for scrap iron and steel. While scrap iron and steel prices rose from
1990 to 1995, plentiful scrap supplies and lower demand for scrap from higher imports of
finished steel kept scrap prices low or falling from 1996 through 2001. Since 2002,
however, scrap iron and steel prices are up considerably (see Figure 6), rising 16.4
percent in 2002, 25 percent in 2003, and roughly 56 percent during 2004. Stronger
demand for steel scrap is the principal factor explaining these sharply higher prices.
Much of this demand growth in scrap iron and steel has come from the explosive growth
of the Chinese steel industry.
With higher scrap prices, the value of scrap substitutes naturally rises. The search
for scrap substitutes has been underway for decades. The most prevalent substitute is
called “Directly Reduced Iron” (DRI), which can be produced using the MIDREX
350.0
300.0
1982 = 100
250.0
200.0
150.0
100.0
1990 1992 1994 1996 1998 2000 2002 2004
Source: Bureau of Labor Statistics
Figure 6: Scrap iron and steel prices in the U.S., 1990-2004
process fired by natural gas often at plants located near low cost natural gas reserves.25 A
promising coal-based alternative emerging from the Mesabi Nugget Research Project is
now under commercial development in Minnesota with plant construction anticipated
during the first half of 2005 (U.S. Department of Energy, 2003).26 Other scrap substitute
technologies include coke free direct iron making technologies, such as COREX under
commercial production in South Africa and South Korea and HiSmelt under construction
in Kwinana, Western Australia. These technologies allow electric arc furnace
technologies to utilize virgin iron ore resources via a directly reduced iron product or
coke free pig iron. This will provide the industry additional flexibility in adjusting to
scrap and iron ore availability and significant improvements in energy efficiency and
environmental performance.
25
These low cost natural gas reserves are located in areas without access to long distance pipeline
networks, such as Trinidad and Qatar. Hence, the opportunity cost of the gas is often very low.
26
On September 23, 2004, the Iron Range Resources board unanimously approved a $10 million loan to
Mesabi Nugget. If the permitting process proceeds as hoped, the project will begin construction during
Spring 2005 (Mining Matters, 2004).
Even with up-stream iron-making facilities, steel mini-mills are less capital
intensive than integrated mills because they do not require blast furnaces and coke ovens.
This feature and the reduced need for access to bulk transportation facilities have
contributed to the increased geographical dispersion of the industry. As a result, steel is
produced in many states outside the traditional production hubs in the Western
Pennsylvania, Ohio, Maryland, Alabama, and Northwest Indiana.
Another promising technology that offers significant improvement in capital
productivity as well as substantial gains in energy efficiency and environmental
performance is strip casting. Nucor Corporation, which successfully pioneered thin slab
casting during the 1980s, became the first licensee of the Castrip® technology,
constructing a plant in Crawfordsville, Indiana in early 2002. The plant has been making
good progress toward successful commercialization.27 The Castrip® technology enables
faster production of thin products and considerable savings in capital cost outlay,
completion and delivery times, and energy costs. In another example, new blast furnace
relines will increase Gary Works’ hot metal production by 30%. New technology
adoption and development is a key barometer of an industry’s health and vitality. This
example, the recent development of the Mesabi Nugget, and the track record of the
industry over the past 20 years in adopting new technologies often under difficult
financial conditions demonstrates that the North American steel industry has the foresight
and risk-taking ability necessary to remain competitive in world steel markets.
These innovations to reduce cost and improve product quality are ultimately
driven by the intense competition among North American steel producers and with other
27
The progress of the plant in achieving consistent casting performance is documented by Nucor
Corporation press release August 25, 2004 (see www.nucor.com/financials.asp?finpage=newsrelases. )
steel makers around the world. This intense competition is the prime reason steel prices
have remained low relative to other material prices, even after the recent upturn in steel
prices during 2004 (See Figure 7). The sharp rise in steel prices over the past year have
occurred along with substantial increases in prices for aluminum, lumber, concrete,
plastic, and copper (see Figure 7). This is consistent with the view that rapid economic
220
200
180
Jan 1981 = 100
160
140
120
100
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
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96
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00
01
02
03
04
19
19
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19
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19
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19
19
19
20
20
20
20
20 Steel Concrete Aluminum Lumber Plastic Copper
Figure 7: Price indices for various materials28
development in China is creating an overall demand pull on basic raw materials and
energy resources worldwide. Moreover, the chart above also illustrates that from 1990 to
2003 steel prices in the U.S. have been extraordinarily low relative to other material
28
Source: U.S. Department of Labor, Bureau of Labor Statistics, Producer Price Index (“PPI”).
Note: “Steel” is the PPI for Iron & Steel Mills, series PCU331111331111. “Concrete” is the PPI for
Ready-Mixed Concrete Mfg. And Dist., series PCU3273020327320. “Aluminum” is the PPI for
Aluminum Sheet, Plate & Foil Mfg, series PCU331315331315. “Lumber” is the PPI for Sawmills, series
PCU321113321113. “Plastics” is the PPI for Plastics Material and Resins Manufacturing, series
PCU325211325211. “Copper” is the PPI for Copper Rolling, Drawing & Extruding, series PCU
331421331421.
prices.29 The increase in steel prices during 2004 has brought steel prices back into line
with other material prices. The consolidation and restructuring during the import relief
program, however, generated substantial productivity gains that ultimately allowed the
industry to benefit from this rebound in market prices.
These higher steel prices along with subsides by foreign governments are
contributing to a substantial increase in new steel capacity.30 Chinese steel production has
increased dramatically from 127 million metric tons in 2000 to roughly 272 million
metric tons in 2004. Much of this new production is displacing imports into China and
with slower steel demand growth, China could become a net exporter of steel. In
addition, roughly 250 million metric tons of new steel capacity is expected over the next
5 years, much of it with significant state support in China, Taiwan, India, Brazil, and
Turkey.
These capacity expansion plans may well be excessive in light of future demand
growth. If the demand for steel slows and these new plants come into production, excess
supply and lower prices could emerge sometime in the future. For now, however, steel
prices remain relatively strong but are showing signs of weakness. In summary, while the
steel recovery is for real it critically depends upon prices and remains vulnerable to non-
market forces, such as subsidized capacity additions that contribute to excess supply
during market downturns.
29
As the analysis above demonstrates, high imports into North America were a major factor
contributing to low prices from 1998 to 2002. Although imports are up considerably during 2004, prices
have not declined because steel demand is so high throughout the world.
30
“The NAFTA Steel Industry Pulse,” November 2004 report to the North American Steel Trade
Committee (NASTC) Regarding Recent Steel Developments.
IV. THE GAINS FROM RESTRUCTURING

Like the restructuring during the 1980s, the recent re-organization of the industry
has improved industry productivity and profitability. These improvements translate into
lower costs of production per ton as output expands. Moreover, as the consolidated firms
package a wider and more diverse set of products, additional cost savings are realized.31
While these gains will take several years to be fully realized, there is growing evidence
that the recent restructuring is already paying off. Earnings during 2004 are up
considerably from 2003. For the sample of companies reported below in Table 4, after tax
net income was a negative $1.1 billion during the 2003 but then increased to over $6.6
billion during 2004.
Investment in plant and equipment is also substantially higher and is likely to
increase in the future since it often takes at least a number of years for firms to revise
their investment plans (See Table 4). A separate survey on investment conducted for this
study reveals that steel producers anticipate increasing their investment spending by 30
percent over the next two years.32 Maintenance investment expenses, which represent
nearly 60 percent of reported expenditures, are anticipated to increase over 26 percent
during 2005-2006 from 2003-2004 levels, no doubt this is investment the industry wanted
to make several years ago but could not. Investment in new equipment, which constitutes
32 percent of investment spending, will increase 43 percent. The other 8 percent of
capital spending is for plant automation, such as furnace guidance systems. This last
31
These cost savings are known as economies of scope in which a firm’s cost of production when
producing two products jointly is lower than the costs of producing them individually. Economies of scale
occur as the unit or the marginal cost of production declines as production increases as firms spread fixed
costs over a larger volume of output. The limits of economies of scale and scope are determined ultimately
by production technology and, therefore, change with technological progress.
32
This survey included 8 companies with combined capacity of 83.6 million tons.
category is anticipated to increase 6 percent over the next two years. No existing
producers are contemplating building new green-field plants, which stands in sharp
contrast to state-supported capacity expansion overseas. While the sharp rebound in
profitability reflects a cyclical rebound in steel shipments and higher prices, it also
reflects substantial gains in productivity.
Table 4: Steel company income and investment in millions of U.S. dollars, 2003-2004
After Tax Net Income Investment

Company 2003 2004 2003 2004
AK Steel -460.00 414.90 98.80 79.60
Algoma Steel 8.40 343.90 36.80 42.20
Allegheny Technologies -292.10 19.80 74.40 49.90
California Steel Industries Inc. 8.52 109.34 16.48 22.95
Commercial Metals Co. 19.00 132.00 0.00 0.00
Dofasco Inc. 233.00 657.00 163.00 318.10
Gerdau AmeriSteel -26.70 337.70 55.15 82.15
International Steel Group Inc. -23.50 1,027.40 96.90 267.20
IPSCO Inc. 5.30 535.20 13.58 31.57
Ispat Inland Inc.* -31.20 215.70 93.90 18.60
MacSteel (Quanex) 42.89 54.47 28.63 19.54
Nucor Corp. 62.78 1,121.49 203.77 282.83
Stelco** -169.00 64.00 28.00 35.00
Steel Dynamics Inc. 47.40 295.30 137.06 102.05
The Timken Company 36.50 135.70 131.32 147.01
United States Steel Corp. -463.00 1,085.00 316.00 579.00
Wheeling-Pittsburg Steel -105.90 62.40 40.69 132.44
Total of Sample -1,107.61 6,611.30 1,534.48 2,210.14
* First nine months of the year, merged with LNM Holdings
** First nine months, annual data not available.
Indeed, productivity growth in the North American steel industry has been
impressive historically. Man hours per ton fell from over 16 in the early 1950s to less
than 3 hours per ton in 2003. This trend seems to be accelerating in recent years due to
the restructuring. Even at apparently low levels of hours per ton, labor productivity
continues to improve. In 1990, hours per ton were 4.85, declined to 3.2 in 2002, and
declined more than 15 percent in 2003 to 2.8 hours per ton (see Figure 8). There are some
steel mills in the U.S. using well under 1 labor hour per ton shipped. Since 1990, labor
productivity in the U.S. segment of North American steel industry improved 5.7 percent
per year on average, which outstrips the 3.9 percent growth in U.S. manufacturing labor
productivity over the same period.
The sharp improvement in labor productivity during 2003 combined with slightly
lower hourly earnings led to a dramatic reduction in industry average unit labor costs
from $135 per ton shipped in 2002 to under $112 per ton in 2003. The relatively high
level of labor productivity in the U.S. steel industry is a critical factor supporting the
creation of high paying manufacturing jobs.
18.00
16.00
14.00
12.00
Hours per ton
10.00
8.00
6.00
4.00
2.00
0.00
1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003
Figure 8: Labor hours per ton in the U.S. Steel Industry, 1953 – 2003
The industry has also improved energy efficiency. Energy consumption per ton
shipped fell over one-half from roughly 30 million British Thermal Units (mmbtu) in
1980 to approximately 14 mmbtu in 2002 (see Figure 9). This energy efficiency
improvement implies concomitant reductions in air emissions, including greenhouse gas
emissions, such as carbon dioxide, and criteria air pollutants, including sulfur dioxide and
particulate matter. These gains were achieved by improvements in the efficiency of
furnaces, rolling mills, and other process equipment. Recycling is perhaps the largest
source of these energy efficiency gains.
50
45
40
35
M Btu per ton
30
25
20
15
10
5
0
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2003
Figure 9: Energy consumption per ton shipped in U.S. steel industry, 1955 – 2003
Similar organizational, technical, and managerial changes are reaping impressive
gains in productivity and environmental performance in the Canadian steel industry.
According to the Canadian Steel Producers Association (2004), productivity growth over
the past decade has averaged 6.8 percent per annum, compared with 3.2 percent growth
in Canadian manufacturing. Energy efficiency improved more than 25 percent and scrap
consumption increased 20 percent from 1990 to 2001 and 2002 respectively. The more
efficient use of fuels and materials and better emissions control technology resulted in a
20 percent reduction in CO2 emissions, a 24 percent reduction in NOx emissions, and a 77
percent reduction in SO2 emissions. Emissions of polycyclic aromatic hydrocarbons,
benzene, and solid waste discharges are also down substantially. Improving the
environment may not be a zero-sum game. Efforts to reduce the environmental impact of
steel production may be complimentary with market driven pressures to cut production
costs and improve productivity.
Steel is the most recycled material in the world. Currently the U.S. industry
recycles more than 60 million tons of steel per year (see Figure 10). Use of recycled steel
scrap increased by 50 percent since 1990 as steel producers switched to using electric arc
furnaces to produce a wider array of steel products (see Figure 10). Making steel from
70000
60000
50000
1000 short tons
40000
30000
20000
10000
0
1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002
Source: USGS, Mineral Information Service
Figure 10: Total scrap consumption in the U.S. steel industry, 1950 – 2002
scrap makes good economic sense because producers save capital, labor, and energy
resources by foregoing the need to make steel from iron ore, coal, and limestone. The
steel producers using virgin resources, however, are actually contributing to the health of
the industry by creating the iron units available for future recycling. In this sense, the
North American steel industry is producing a renewable resource: recyclable steel scrap
as a by-product of steel put in use.
Competitive recycling is also catching on in other parts of the industry. For
example, steel producers are now selling solid wastes, known as slags, from their blast
and steel furnaces for use in building materials, primarily road aggregates. These
materials increase the strength and durability of concrete and asphalt and have been in
such demand that some slag disposal sites are being mined. These waste-to-product
flows have been practiced for decades at coke ovens that produce an array of
petrochemicals from by-product gases. Coke oven and blast furnace gases are also used
to generate electricity. These waste-loop-closing strategies are also being applied to
recycle water use in rolling and finishing mills.
The industry has wisely sought to leverage this success in its competition with
other materials on environmental grounds. A major study conducted by Scientific
Certification Systems (2000), funded by the Steel Recycling Institute, AISI, and the U.S.
Steel Corporation (2000), developed a methodology for conducting environmental life-
cycle assessment and applied these techniques to estimate the overall environmental
impacts of producing galvanized steel for framing systems in residential construction
markets. This study and similar efforts are proving quite useful in the ongoing debate
over the environmental performance of steel versus aluminum, plastics, and other
materials.
Improvements in energy, material, and environmental efficiency will likely
continue given the industry goal to reduce greenhouse gas emissions another 10 percent
by 2012. The American Iron and Steel Institute made this commitment to the U.S.
Department of Energy as part of the Business Challenge Program, which was renamed
Climate VISION. AISI agreed to gather data to establish a 2002 baseline to benchmark
future progress.33
The recent return to profitability also bodes well for continued efficiency
improvements that can be achieved by investment in new plant and equipment. While
investment plummeted during the steel crisis of 2000-2002, it rebounded sharply in 2003
(see Figure 4). If the past is a prologue to the future, the industry will continue to
modernize facilities with advanced automation that significantly enhances productivity.
While these incremental improvements and upgrades are important, companies have not
invested in major new facilities given the risk that massive flows of imports could disrupt
the U.S. steel market.
In addition to process innovations, there are several very important product
innovations. Most of the steels now produced by the industry are stronger, lighter, easier
to shape, and more durable than those made 5 years ago. These new attributes are
improving the quality of automobiles and other durable goods and opening new markets
for the steel industry. Lighter more durable steel enables the industry to more effectively
compete with other materials in commercial and home building markets.
These higher quality products are also helping the industry to maintain its
dominant role as an automotive material. For example, over the past 10 years, the
33
Letter from Andrew G. Sharkey, III to The Honorable Spencer Abraham, Secretary of Energy, May
11, 2004.
percentage of steel in average vehicle weight has remained steady at around 54 percent
(see Figure 11). Making advanced high strength steel (AHSS) involves the precise
control of complex steelmaking processes. Throughout the 1990s steel metallurgists
coordinated with leading researchers at North American Universities to discover the
relationships between microstructure and product properties for this family of steels.
Much of this work was done under AISI’s Technology Roadmap Program wherein the
first modeling and diagnostic tools were developed to allow the observation and
measurement of microstructural evolution.
Advances in computing power and sensor technology through the 1990’s allowed
steel industry scientists and system engineers to precisely control and tailor the formation
of steel microstructures in the hot rolling and continuous annealing processes. By
manipulating time/temperature relationships exactly, a new family of steel was born
providing additional passenger safety and fuel economy while lowering vehicle cost.
The weight of steel per vehicle, however, has increased because steel has been
able to maintain its material share.34 In addition, average vehicle weight increased from
3,135 pounds in 1992 to 3,358 pounds in 2003. More than 60 percent of the increase in
steel use per vehicle since 1992 has been served by high strength steel (see Figure 11).
This reliance on weight, however, actually understates the importance of these high
strength steels because the attributes they provide customers are not proportional to
weight. The industry should consider alternative metrics for measuring industry output in
the future, particularly since the use of these high strength steels are expected to increase
34
This increase in average vehicle weight most likely reflects the changing composition of the fleet
from lighter weight sedans to heavier sport utility vehicles.
dramatically over the next 10 years.35 Tonnage measures of output are increasingly
irrelevant as the industry shifts to providing higher quality materials with less mass.
2000 100
1779 1790 1810 1802 1787 1780 1799 1814
1800 1711 1726 1739 1767 90
1600 80
% ste e l in v e h c ile
lb s p e r v e h ic le
1400 70
1200 60
1000 50
54.6 54.8 54.8 55.1 55 55.1 55.5 55 54.4 53.8 53.9 54
800 40
600 30
328 339 351 364 379
400 249 259 263 279 287 295 319 20
200 10
0 0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
HSS Total Steel Steel %
Figure 11: Steel use in automobiles, 1992 – 200336
The development of light weight, high strength steels will be very important for
the industry as it competes with alternative materials on the basis of cost, performance,
and environmental impacts. This later criteria has attracted considerable attention in
recent years as governments around the world have considered take-back legislation and
policies specifically targeted at materials management to meet CO2 emission targets and
other environmental goals. In addition to steel’s low cost and excellent performance,
Clark (1999) finds that if society switched to aluminum in automobile production, CO2
emissions would increase substantially because producing one ton of virgin aluminum
generates approximately 15 times more CO2. It would take 32 to 38 years of driving
aluminum cars to offset the additional emissions from manufacturing aluminum (see
35
This problem can be addressed with the development of a hedonic price index for steel, similar to the
models developed by Berndt, et al. (1995) to adjust computer prices for improvements in quality.
36
Source: American Iron and Steel Institute
Figure 12). Moreover, any improvements in power-train efficiency would extend this
period.
The industry through the AISI has a well developed market development program
to communicate and educate end-users about the advantages of steel (AISI, 2003). The
program is built upon a collaborative market development involving designers,
manufacturers, architects, engineers, and consumers in three major market segments:
automotive, construction, and containers. These efforts are essential because maintaining
or expanding market share involves addressing regulations, standards, engineering, and
cultural constraints that take time to overcome. For example, the progress the industry is
now having in selling steel to the construction industry has been achieved after years of
surmounting entry barriers posed by building codes, construction practices, and other
institutional factors.
Figure 12: Life cycle emissions of steel versus aluminum vehicles
The Canadian steel industry is leveraging its partnership with American
companies and in some cases forging new technology innovations. Some Canadian
producers have been strong supporters of the Ultra Light Steel Auto Body program. In
Canada, for example, the industry supports several research programs at Canadian
universities that have led to the development of light weight high-strength steels for
bridge construction and more earthquake resistant housing. These applications have a
good chance of fostering completely new markets for steel.
Another important market for the Canadian steel industry is oil and natural gas
production. Unlike the U.S., this market comprises roughly 23 percent of Canadian steel
put in use. Steel is used in pipelines, well casings, and many other applications in oil and
gas drilling. The future growth potential of this steel market segment is considerable.
Canada has enormous reserves of hydrocarbons locked in tar sands in Alberta. Extraction
technology has progressed to a point where crude oil production from these deposits is
now exceeding 700 thousand barrels per day. Total reserves in place are 2.5 trillion
barrels of oil with over 300 billion barrels recoverable under current technology. By way
of comparison, proved reserves in Saudi Arabia are 250 billion barrels. Oil production
from tar sands is expected to double over the next 5 years. If crude oil prices remain
above $35 per barrel for the next few years, which seems quite possible given recent
prices of around $50 per barrel, even higher production will be coming from tar sands in
the years and decades ahead. Moreover, it is only a matter of time before the huge
reserves of natural gas in the Canadian artic regions are developed and brought to market
via thousands of miles of large diameter steel pipe. The highly efficient and competitive
Canadian steel producers are well positioned to serve these growing markets. So from
raw material production through end-use market development, the North American steel
industry has employed innovative technology and imaginative business strategies to

improve process efficiency and product quality and educate end-users about the
advantages of steel.
V. STEEL AND ECONOMIC DEVELOPMENT

The steel industry in North America is instrumental in serving societal needs for
infrastructure and manufacturing. While labor productivity growth continues to allow the
industry to produce higher quality output with fewer labor hours, iron and steel mills
alone employ more than 133,000 workers in the United States. This employment and the
industry’s purchases of energy, materials, and supplies in the production of steel
stimulate economic output and employment in other sectors of the U.S. economy. Since
steel is the most prevalent material in our economy, the steel industry is highly
interrelated with other economic sectors.
In understanding the role of the steel industry in the economy, the first step is to
identify the industry’s purchases of inputs from other industries. A tabulation of these
transactions for 1997 is reported below in Table 5.37 To simplify the presentation, these
transactions are classified into several major categories for values greater than $100
million with sub-categories reported below each item. The largest category is materials,
such as scrap and iron ore, comprising nearly 36 percent of inter-industry purchases.
Wholesale trade, transportation, and energy are the next three largest categories. The steel
industry spent over $1 billion on computers and electronics in 1997 and another $2.8
billion on a range of financial and technical services. Hence, in addition to the traditional
demand pull that steel production creates on basic materials and energy industries, steel
37
These data are from the latest input-output table for the United States collected during the 1997
census. The 2002 table is not yet available. In addition, the analysis presented in this section is for the U.S.
Collection of input-output multipliers for Canada and Mexico is beyond the scope of this study.
production stimulates “upstream” industries, such as computers and a range of business
services.
Table 5: Inter-industry purchases by iron and steel mills in 1997
Industrial Category $ Mil Industrial Category $ Mil

Wholesale trade 5,225 Materials 15,684
Energy 3,110 Scrap 5,822
Power generation and supply 1,488 Iron ore mining 2,129
Natural gas distribution 851 Coal mining 1,782
Petroleum refineries 325 Ferroalloy 1,225
Petroleum lubricating oil 148 Primary nonferrous metal 1,094
All other petroleum and coal 98 Carbon and graphite product 840
Water, sewage and other systems 200 Lime manufacturing 599
Transportation 4,305 Industrial gas 392
Truck transportation 2,029 Nonclay refractory 275
Rail transportation 1,303 Ferrous metal foundries 242
Automotive repair 448 Primary aluminum 240
Air transportation 216 Other nonmetallic mineral 107
Water transportation 196 Misc. chemical products 107
Automotive equipment rental 113 Stone mining and quarrying 210
Computers & Electronics 1,013 Clay refractory and others 198
Electronic equipment repair 403 Other basic inorganic chemical 166
Semiconductors related devices 319 Aluminum sheet, plate, and foil 134
All other electronic component 291 Abrasive products 122
Services 2,768 Machinery & Repairs 1,407
Management of companies 946 Commercial machinery repair 668
Monetary depository credit 433 Machine shops 247
Professional services 357 Ball and roller bearing 222
Waste management services 277 Maintenance of buildings 159
Credit intermediation 200 Speed changers and mechanical 111
Data processing services 120 All other purchases 13,333
Securities, investments 120 Total Intermediate 43,735
Architectural engineering services 105 Total Value Added 13,672
Management consulting services 105 Compensation of employees 10,620
Scientific R&D Services 105 Total Industry Output 57,407
These interrelationships determine how activity in one sector affects output,
income, and employment in other sectors of the economy. Changes in final demand in an
economy, such as consumer purchases of automobiles, directly affect automobile sales.

These changes then generate indirect effects, such as related changes in steel demand
from a change in automobile sales. Finally, there are induced effects. To continue the
example, the indirect impacts on steel output and employment from changes in
automobile sales generates induced effects as households alter spending as their wages
and salaries adjust with changes in automobile sales.
Economists have a set of measures, called multipliers, to estimate these ripple
effects on the economy. Final demand multipliers for the steel industry appear in Table 6
below. Three sets of multipliers are presented in the Table. First, there are a set of
multipliers for output by industry. For instance, manufacturing output increases $1.51
from a $1 change in steel industry output delivered to final demand. Earnings increase
$0.66 for every dollar increase in steel output. Finally, the employment multipliers
indicate that for every $1 million change in steel output, 16 jobs in the U.S. are created.
Assuming the same multipliers in Canada and Mexico, for every $1 million change in
steel output in North America, 21 jobs are created.38 This last multiplier suggests that the
recent rise in steel sales during 2004 created over 130,000 jobs in the North America.39
The multipliers appearing in Table 6 are disaggregated by industry and sorted by
employment impacts from highest to lowest. The 4.3 jobs in manufacturing created for
every $1 million change in steel output is not surprising because steel is a key
intermediate material in the manufacturing the automobiles, equipments, containers, and
many other durable goods. The next largest category is retail trade with an employment
multiplier of 1.3. Steel mills presumably generate considerable local retail business
38
This estimate is calculated by multiplying the 16 jobs in the U.S. by the ratio of steel shipments in
Canada (16,393,983 tons) and steel production in Mexico (17,613,000 tons) to total North American
shipments in 2003, which was 139,980,983 tons (105,974,000 tons in the U.S.).
39
This assumes a $5.5 billion increase in sales from 2003 to 2004.
activity. The third largest category is health care and social assistance, which is
somewhat surprising, and yet another indicator of the high benefits paid by the industry
Table 6: Final demand multipliers by industry for iron and steel mills
Final Demand Multipliers

Output Earnings Employment
(1) (2) (3)
Manufacturing 1.511 0.231 4.333
Retail trade 0.082 0.028 1.322
Health care and social assistance 0.088 0.043 1.281
Transportation & warehousing* 0.149 0.045 1.167
Wholesale trade 0.170 0.055 1.132
Accommodation & food services 0.047 0.018 1.043
Other services* 0.070 0.023 0.914
Administrative & waste management
services 0.049 0.020 0.813
Professional, scientific, and technical
services 0.089 0.039 0.785
Finance & insurance 0.131 0.036 0.708
Real estate and rental and leasing 0.147 0.010 0.490
Management of companies and
enterprises 0.058 0.029 0.410
Mining 0.108 0.025 0.404
Information 0.068 0.019 0.303
Arts, entertainment, and recreation 0.016 0.007 0.295
Educational services 0.014 0.006 0.257
Agriculture, forestry, fishing, & hunting 0.024 0.003 0.233
Utilities* 0.084 0.015 0.150
Construction 0.011 0.004 0.115
Households 0.656 0.001 0.085
Total impacts 2.915 0.656 16.238
* Includes Federal government enterprises
Source: Bureau of Economic Analysis, U.S. Department of Commerce
(1) Each entry in column 1 measures the total dollar change in output in the industry
corresponding to each row that results from a $1 change in output delivered to
final demand by the steel industry
(2) Each entry in column 2 measures the total dollar change in earnings of
households employed in the industry corresponding to each row that results from
a $1 change in output delivered to final demand by the steel industry
(3) Each entry in column 3 measures total change in the number of jobs in the
industry corresponding to each row from a $1 million change in output delivered
to final demand by the steel industry
to current and retired workers. Transportation and warehousing, wholesale trade, and
accommodation and food services all have employment multipliers slightly over one. The
next three largest categories involve other services — administrative and waste
management services, and professional, scientific, and technical services. Even though
the steel industry is in the middle of the manufacturing value chain, the ripple effects on
employment and economic activity on other sectors of the economy are sizeable.
A geographical breakdown of these multipliers is presented below in Table 7. These data
clearly demonstrate the wide regional impact of steel production on the U.S. economy
with measurable multipliers in 41 states. Notice the total multipliers for the entire U.S. in
Table 6 are the same as the total impacts reported in Table 7. Hence, the three final
demand multipliers reported in Table 6 are simply disaggregated by state in Table 7.
Also reported in Table 7 are two direct-effect multipliers. The first is an earning
multiplier that provides the dollar change in household earnings in each state from a
dollar change in earnings by those employed at iron and steel mills. For example, for the
U.S. as a whole, for every dollar of steel industry earnings paid to workers, $4.5 in
earning are paid to all households. The second set of direct-effect multipliers involves
employment. Each entry in the last column of Table 7 measures the total change in the
number of jobs in each state that results from a change of one job in the steel industry.
For the U.S. as a whole, for every steel job created, nearly seven others are created
elsewhere in the economy. Once again, notice the widespread regional impacts of steel
employment and output on the U.S. economy.

Table 7: Multipliers for output, earnings, and employment for iron and steel in 1997
Final Demand Multipliers Direct-effect Multipliers

Output Earnings Employment Earnings Employment
(dollars) (dollars) (jobs) (dollars) (jobs)
Alabama 2.1 0.4 11.7 3.0 4.9
Arizona 1.8 0.4 10.5 2.7 3.0
Arkansas 1.9 0.4 9.3 2.8 6.0
California 1.9 0.4 9.2 2.8 3.5
Colorado 2.0 0.4 9.6 2.9 4.8
Connecticut 1.7 0.3 7.0 2.4 2.7
Delaware 1.6 0.2 5.2 2.6 3.7
District of Columbia 1.2 0.1 1.3 1.1 1.4
Florida 1.7 0.4 9.0 2.5 3.7
Georgia 1.9 0.4 9.3 2.9 4.4
Idaho 1.7 0.3 9.5 2.5 3.9
Illinois 2.3 0.5 10.4 3.5 4.9
Indiana 2.1 0.4 10.9 3.0 4.9
Iowa 1.8 0.3 9.4 2.8 4.1
Kansas 1.8 0.3 9.8 2.6 3.3
Kentucky 2.1 0.4 10.5 3.0 4.9
Louisiana 1.8 0.4 10.2 2.6 3.8
Maine 1.6 0.3 8.3 2.3 4.8
Maryland 1.9 0.4 8.3 2.6 3.9
Massachusetts 1.7 0.3 7.7 2.5 2.5
Michigan 2.0 0.4 9.9 3.0 4.4
Minnesota 1.9 0.4 9.8 2.8 3.9
Mississippi 1.7 0.3 9.2 2.4 4.0
Missouri 2.0 0.4 10.7 2.9 3.7
Nebraska 1.8 0.4 9.5 2.6 4.5
New Hampshire 1.7 0.3 8.1 2.4 2.7
New Jersey 1.9 0.4 7.6 2.8 3.5
New York 1.7 0.3 6.8 2.3 2.6
North Carolina 1.9 0.4 10.4 2.7 3.6
Ohio 2.3 0.5 11.9 3.4 5.3
Oklahoma 1.9 0.4 12.4 2.8 3.8
Oregon 2.0 0.4 10.0 3.0 4.4
Pennsylvania 2.3 0.5 11.1 3.3 4.6
South Carolina 1.9 0.4 10.5 2.7 4.1
Tennessee 2.0 0.4 11.2 3.0 3.6
Texas 2.2 0.5 11.2 3.2 4.2
Utah 2.2 0.5 12.9 3.2 4.8
Vermont 1.5 0.3 8.6 2.1 2.5
Virginia 1.9 0.4 9.4 2.7 3.9
Washington 1.8 0.4 8.7 2.7 4.0
West Virginia 1.9 0.3 8.7 2.9 4.5
United States 2.9 0.7 16.2 4.5 6.7
Source: Bureau of Economic Analysis, U.S. Department of Commerce
VI. CONCLUSIONS
Between 1998 and 2001, the North American steel industry faced an onslaught of
steel imports that led to a steady decline in steel prices. With the recession of 2001, the
combination of falling sales and low prices led to record financial losses. From 1999 to
2003, cumulative losses in net income exceeded $13 billion. More than 30 companies
filed for bankruptcy protection during this period. As a result, the steel industry was
struggling to raise the capital necessary to invest in new technology to remain
competitive. Annual investment dropped from an average of $2.4 billion during the 1990s
to slightly more than $1 billion during 2001 and 2001.
After finding a surge in imports and economic distress in the domestic steel
industry, the Bush Administration imposed tariffs on imported steel in March 2002.
While steel prices did recover, the increase during this period was a modest 3-4 percent in
part because numerous exemptions were granted. Even though this trade relief program
lasted only 21 months ending in December 2003, this period provided the industry with a
window to make some fundamental changes, which was further enhanced by newfound
access to capital.
The financially solvent companies bought many of the bankrupt firms forming
more efficient enterprises. These consolidations brought substantial restructuring.
Management layers were dramatically reduced along with employment levels. Benefit
costs for both salaried and hourly workers were reduced. Most importantly, labor
contracts were renegotiated allowing more flexibility in work rules. Under the newly
organized companies, redundant or obsolete capacity was eliminated. These companies
also made commitments to invest in new plant and equipment to make the remaining
mills more competitive, promising to upgrade coke ovens, blast furnaces and rolling
mills. Despite these dramatic changes, energy efficiency and environmental performance
continued to improve. With higher productivity and lower cost, the stage was set for a
dramatic rebound in profitability.
Steel is a pro-cyclical business, with prices falling during recessions and rising
during economic recoveries. Given large movements of steel across international borders,
steel is also a global business with developments in one region affecting prices around the
world. Truly extraordinary growth in steel consumption is occurring in China. This
unprecedented growth has put upward pressure on prices for materials used to make steel,
such as metallurgical grade coal, coke, iron ore, and ferroalloys. Economic recoveries
underway in the U.S. and many other economies around the world are also increasing the
demand for steel. These cost pressures and higher demand have led to dramatically higher
steel prices during 2004. With a more efficient cost structure, North American steel
producers are enjoying after tax net income of more than $6 billion during 2004.
These higher profits are long over due because the industry has a considerable back-log
of investments needed to maintain and enhance the industry’s competitiveness. The North
American steel industry continues to seek and adopt new technology, employing
innovative iron and steel making technologies and rolling and finishing processes.
Overall, the North American steel industry has an efficient, low-cost, diversified portfolio
of scrap-based and virgin-ore-based mills that operate in a very competitive domestic
market.
In addition to adopting new process technology, the North American steel
industry is developing new products and expanding into new markets. These gains are
achieved by delivering a very competitively priced, high quality product. Steel producers
in North America are now making a range of high quality steels that are lighter, stronger,
and more durable than conventional steels. The industry now produces highly engineered
materials with less mass, designed to meet specific customer specifications. These
process and product innovations are obtained from the application of advanced
computing and information technology. This study finds that the steel industry not only
stimulates basic materials production but also purchases more than $4 billion of high
technology and related services each year. Moreover, the development of high quality
steels often in collaboration with designers and engineers in steel-using companies
suggests that there is a strategic value to having a vibrant, technologically advanced
domestic steel industry. These partnerships have and will continue to serve societal needs
for high quality, durable, and sustainable materials.
This recovery, however, is vulnerable to world steel market developments. Many
foreign governments are supporting a substantial increase in steel production capacity
equivalent to nearly a 25 percent increase of world capacity over the next five years.
These subsidies could contribute to excess steel capacity should world steel demand
slowdown significantly. As long as the environment is characterized by true market
forces, this industry has made the right decisions to maintain favorable momentum
moving forward. More efficient operations, strong financial performance, exciting
process technology, and attractive product innovations all suggest that prospects are
bright for the North American steel industry.

REFERENCES
American Iron and Steel Institute (2003) “An Investment in Steel’s Future,” AISI Market
Development, 2002-2003 Progress Report, 56 pages.
Benrdt, E.R, Z. Griliches, and N. Rappaport, (1995) “Econometric Estimates of Price
Indexes for Personal Computers in the 1990s,” Journal of Econometrics, vol. 68,
no. 1, July, 243-268.
Canadian Steel Producers Association (2004) “Canadian Steel – Achievements,
Challenges, and Opportunities,” January, 18 pgs.
Considine, T.J. (1991) “Economic and Technological Determinants of the Material
Intensity of Use,” Land Economics, Vol. 67, No. 1, 99-115.
Fruehan, R.J. (2001) “Investments Required by the Flat Rolled Steel Industry to Remain
Competitive,” report to Skadden, Arps, Slate, Meagher, and Flow LLP, 16 pgs.
Larson, E.D., Ross, M.H., and Williams, R.H. (1986) “Beyond the era of materials,”
Scientific American, Vo. 254: 33-41.
Kaplan, S. and D. Riker, “Econometric Analysis of the Effects of the 201 Tariffs on
Domestic Flat-Rolled Prices,” Exhibit 5 in U.S. Steel submission Re: Steel
Monitoring Developments in the Domestic Industry, Inv. No. TA-204-9, U.S.
International Trade Commission.
Hagenbaugh, Barbara (2004) “Steel prices soar 66% in a world market ‘gone mad’,”
USA Today, Money, February 20.
International Trade Commission, (2003) Steel: Monitoring Developments in the
Domestic Industry,” Investigation No. TA-204-9, Volume 1 & 2.
MacFadden, Ken, (2003) “Deals of the year: Middle Market,” Buyouts,
www.ventureeconomics.com.
Mining Matters, (2004) “Mesabi Nugget is in the home stretch: vote gives innovative
project a boost,” September, http://www.taconite.org/placed/story/10-21-
2004Min_Matter.html.
North American Steel Trade Committee, The “NAFTA Steel Industry Pulse”, November
2004, http://www.steelnet.org/new/20041115.htm.Scientific Certification
Systems, (2000) “Analysis of Galvanized Steel Production Suitable for
Residential Construction Based on Life-Cycle Stressor Effects Assessment: A
U.S. Case Study,” prepared for Steel Recycling Institute, American iron and Steel
Institute, and U.S. Steel Corporation.
World Resources Institute (2000) Weight of Nations: Material Outflows from Industrial
Economies, ISBN 1-56973-439-9.

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THE TRANSFORMATION OF THE NORTH AMERICAN

STEEL INDUSTRY: DRIVERS, PROSPECTS, AND

APRIL 21, 2005

EXECUTIVE SUMMARY ........................................................................................................................III

LIST OF FIGURES.................................................................................................................................. VII

LIST OF TABLES.................................................................................................................................... VII

II. STEEL & MATERIALS IN THE U.S. ECONOMY .................................................................. 5

III. A RESTRUCTURED STEEL INDUSTRY ............................................................................... 14

IV. THE GAINS FROM RESTRUCTURING................................................................................. 27

V. STEEL AND ECONOMIC DEVELOPMENT ......................................................................... 38

VI. CONCLUSIONS .......................................................................................................................... 44

American steel industry is experiencing a rebirth. Shipments, productivity, and

profitability are up sharply. The industry is also pioneering an environmentally

sustainable path by adopting innovative process technology that improves energy

with this transformation.

The North American steel industry endured an enormous contraction in

manufactured goods, including automobiles, bridges, buildings, containers, and

material at competitive prices.

The North American steel industry has undergone significant restructuring in

These changes are extending impressive gains in productivity and environmental

also has reduced unit energy consumption significantly.

efficiency of manufacturing steel, higher quality steels generate a wide array of

more durable and hazard resistant structures.

economic development. More generally, steel is an integral component of the

manufacturing sector. A financially strong, technologically-advanced, and

environmentally-sustainable steel industry located in North America is essential in

serving the material needs of our society.

competitive steel industries in the world:

FIGURE 3: MATERIAL INTENSITIES OF USE IN THE U.S., 1960 TO 2002 .......................................................... 13

FIGURE 4: NET INCOME AND CAPITAL EXPENDITURES ................................................................................... 14

FIGURE 5: STEEL INDUSTRY EMPLOYEE BENEFIT COSTS PER HOUR ................................................................ 20

FIGURE 6: SCRAP IRON AND STEEL PRICES IN THE U.S., 1990-2004............................................................... 23

FIGURE 7: PRICE INDICES FOR VARIOUS MATERIALS ...................................................................................... 25

FIGURE 11: STEEL USE IN AUTOMOBILES, 1992 – 2003.................................................................................. 35

TABLE 2: BANKRUPTCY FILINGS IN THE NORTH AMERICAN STEEL INDUSTRY, 1999-2004............................ 16

TABLE 3: NORTH AMERICAN STEEL INDUSTRY CONSOLIDATIONS, 2002-2004 ............................................. 18

TABLE 4: STEEL COMPANY INCOME AND INVESTMENT IN MILLIONS, 2003-2004........................................... 28

TABLE 5: INTER-INDUSTRY PURCHASES BY IRON AND STEEL MILLS IN 1997 ................................................. 39

computers and the widespread adoption of information technology have spurred

been efficiency improvements in basic manufacturing industries, such as steel.

between economic growth and material use remains strong.

is an integral part of containers, machines, automobiles, appliances, structures, and

of products, manufacturing systems, and infrastructure.

In addition to product innovations, the North American steel industry has

shipped, and is committed to another 10 percent reduction by 2010. Scrap consumption

forces promoting sustainable development.

industry is much further along in achieving a closed-loop industrial ecosystem. Unlike

and developing new markets.

Many companies have simultaneously worked to improve process efficiency,

the widespread adoption of advanced computing and information technology.

development is placing pressure on world resource supplies. These developments have

also decline from a reduction in demand brought about by a downturn or slowdown in

affecting the steel industry.

II. STEEL & MATERIALS IN THE U.S. ECONOMY

daily lives than most anyone realizes.

materials is relatively high as society builds infrastructure, such as railroads, highways,

As economies progress and basic infrastructure projects near completion, higher

knowledge based service economies employing advanced computer and information

These technologies enable productivity advances across a broad swath of the

economy, particularly in manufacturing. As efficiency gains generate even higher levels

sustainable. Resiliency to natural and man-made hazards is another important societal

considerable promise in earthquake and hurricane-prone areas. Light weight, high