National Steel Corporation
National Steel Corporation
4100 Edison Lakes Parkway
Mishawaka, Indiana 46545
Fax: (219) 273-7379
Majority Owned Subsidiary of Nippon Kokan K.K.
Sales: $2.7 billion
Stock Exchanges: New York
SICs: 3312 Blast Furnaces & Steel Mills
The fourth largest steel producer in the United States, National Steel Corporation produces hot and cold rolled steel sheet and steel strip, tin mill products, and galvanized coated products. Selling its steel primarily to the automotive, container, construction, and pipe and tube industries, National Steel grew to become one the country’s largest, most efficient steel producers in the mid-1990s.
Exactly two weeks after “Black Thursday” sent the American stock market plummeting, precipitating a decade-long depression that would cripple industrial production and impoverish much of the country’s population, three steel companies banded together to form National Steel Corporation. In the two weeks bridging the stock market crash of October 24, 1929 and the merger of Weirton Steel Company, Great Lakes Steel Corporation, and certain subsidiaries of M.A. Hanna Company, United States securities were stripped of more than $40 billion of their value, sending the economy in a tailspin. In the coming three years, unemployment would swell from 1.5 million to 13 million persons—roughly one-third of the nation’s work force— while industrial production of primary products such as steel would plunge 50 percent during the same period. Such was the deleterious economic climate pervading National Steel’s birth, giving the $120 million steel producer an inauspicious start to its tenure as one of the largest steel producers in the country.
Difficult times were ahead, to be sure, but the amalgamation of the three steel operations gave National Steel a broad foundation from which to begin its climb into the upper echelon of the steel industry. Upon formation, the New York Times hailed National Steel as “a complete unit in the steel industry, [owner of] ore lands, vessels, coke ovens, and blast furnaces in addition to mills,” giving praise to the steel company’s complementary operations. Largest of the company’s facilities was Weirton Steel’s main steel plant which covered 295 acres of the company town created by Weirton Steel’s founder and president, Ernest T. Weir, in Weirton, West Virginia. Befitting the prodigious size of his steel plant and its sizeable contribution to National Steel’s operations, Ernest T. Weir was named National Steel’s chairperson, with the president of Great Lakes Steel Corporation, George R. Finch, selected as the new steel concern’s president, and George M. Humphrey, president of M. A. Hanna Company, selected to chair the company’s executive committee. Organized as such, National Steel embarked on its roller-coaster ride in the frequently capricious steel industry, supported initially by facilities in Detroit, Cleveland, and Pittsburgh.
Financially, the company’s first decade of existence was less than spectacular. From its formation in 1929 through 1932, National Steel’s annual earnings slipped from $17.3 million to $6.6 million, falling as the severity of the nationwide economic slump intensified. Nevertheless, National Steel’s management began expanding the steel concern’s operations with decided fervor from the outset, strengthening the company’s complementary and interdependent operations. By the beginning of 1930, the extensive expansion undertaken by one of M. A. Hanna Company’s subsidiaries, Hanna Ore Mining Company, had boosted National Steel’s iron ore holdings considerably, making National Steel the second largest holder of ore reserves in the country, trailing only the country’s preeminent steel company, U.S. Steel. Before the year was through, National Steel acquired the Michigan Steel Corporation, a $10 million steel concern organized in 1922 by National Steel’s president, George R. Finch. The acquisition of Michigan Steel, the first steel manufacturing company to be located in the Detroit area, bolstered National Steel’s role as a provider of steel to the automobile industry, a relationship on which the steel company would rely for over the next 60 years.
By the time America’s entrance into World War II in 1941 had formally put an end to the Great Depression, National Steel was generating roughly $140 million in annual sales. By the end of the 1940s, National Steel’s annual sales volume would be considerably larger, reaching nearly $450 million. This growth was largely attributable to the great discrepancy between the economic conditions characterizing the 1930s and 1940s: the 1930s were disastrous years for many businesses; the 1940s, in contrast, were exceptionally robust. During the war, the U.S. War Production Board exhorted the steel industry to step up production to meet increasing war-time demand, and, after the war, President Harry S. Truman appealed to the industry to increase production capacity, making for a decade of encouraging growth for National Steel. By the end of the 1940s, the scope of National Steel’s operations included nearly 400 coke ovens, six blast furnaces producing more than 3.25 million net tons of pig iron, steel mills, and sizeable iron ore and coal producing properties.
Over the course of its first two decades, National Steel had gained the reputation as one of the most profitable and efficient steel producers in the country, attributes National Steel’s management sought to strengthen further in the steel industry’s new, postwar era. The 1950s and the decades to follow, however, would bring increasing competition from foreign steel producers, as their production methods first equaled those of U.S. producers then eclipsed them in efficiency, and the new era would also witness the introduction of aluminum as a popular substitute for tin plate in the container industry. This latter development had direct ramifications for a company like National Steel, whose production of tin plate for the container industry ranked as its second largest source of income next to supplying the automobile industry with steel. To overcome both the insurgence of foreign steel producers and the emergence of aluminum as container material, National Steel would increase the efficiency of its operations and diversify into other business areas.
Although the company had spent substantial time and money to assure its facilities were the most modern and efficient, capital expenditures increased dramatically beginning in 1959 when National Steel initiated a four-year, $400 million expansion and modernization program. When the program was begun, National Steel ranked as the fifth largest steel producer in the United States; when the program ended in 1963, National Steel ranked as the fourth largest steel producer, accounting for seven percent of total finished steel shipments in the United States and generating nearly $850 million in annual sales. Up to this point, the company had never failed to show a profit during its 35 years of existence, and it had paid dividends without interruption for the same span, a remarkable record in the cyclical steel industry and a record no other major U.S. steel producer had achieved. In 1965 National Steel eclipsed the $1 billion dollar sales plateau, recording $1.1 billion in sales and producing 8.5 million tons of raw steel, prodigious sums for a prodigious force in the U.S. steel industry.
By this point, National Steel was no longer regarded as merely one of the most efficient steel companies in the nation; it stood alone as the industry’s most efficient operator. Consistent attention to capital expansion and modernization had greatly contributed to the company’s ascension, but much of its success was also attributable to the strategic location of it plants. The company’s Detroit plant, which made sheet and strip steel for the city’s auto industry, used its prime location to generate 40 percent of the company’s total sales. The company’s Weirton, West Virginia, plant produced tin plate for the container industry, accounting for 25 percent of sales volume, and the company’s Chicago plant served the appliance and packing industries in Illinois and Indiana.
With these facilities supporting National Steel’s solid position in the steel market, plus additional iron ore and coal holdings giving the company a vertically integrated approach to steel production, the company represented one of the leading forces in the industry. By the late 1960s, however, it had become apparent to the company’s management that no matter how efficient its production facilities were, they could no longer flourish in the face of the steel industry’s new challenges. Tin cans were rapidly losing ground to aluminum cans by this point, and, in response, National Steel joined the competition rather than directly opposing it. In May 1967 National Steel acquired 20 percent of South wire Company’s common stock as part of an agreement between the two companies to jointly build an aluminum smelter. Southwire, a pioneer in the production of wire, was seeking to vertically integrate its production processes but lacked the financial wherewithal to build a smelter on its own, so National Steel footed much of the construction bill, and, through the jointly formed National-Southwire Aluminum Company, an aluminum plant was constructed. Located in Hancock County, Kentucky, the aluminum plant was completed in 1970, giving National Steel a foothold in the burgeoning market for aluminum.
That year, National Steel agreed to acquire Pittsburgh Aluminum Alloys Inc. and its sales affiliate, S & S Sales, for an undisclosed sum, further strengthening the company’s stake in aluminum production. However, the diversification begun in the late 1960s never supplanted the company’s production of tin plate nor its manufacture of steel for the automobile industry. A decade later, when National Steel embarked on a much more divergent diversification program, the company only derived a modest seven percent of its total sales from non-steel products, which included its interests in aluminum. Instead, the production of steel continued to be the company’s mainstay business, and in 1971 that business became appreciably larger. With the acquisition of Granite City Steel Company in August 1971, National Steel surpassed Republic Steel Corporation to become the third largest steel producer in the United States and a secure member of the industry’s elite.
Being one of the steel industry’s largest companies also meant National Steel inherited some of the industry’s ills. Mounting foreign competition, particularly from Japanese steel producers, had eroded the profit margins of domestic steel producers, making survival in the industry a difficult task. National Steel was not excluded from this debilitative development, positioned, ironically enough, as the most efficient U.S. producer yet dogged by shrinking profits. During this time, other major producers sought relief by diversifying into non-steel businesses, hoping to insulate their exposure to the contentious and cyclical industry forces. Armco Inc., for example, diversified into insurance, oil equipment, and engineering services, while another enormous steel concern, U.S. Steel, moved into petrochemicals. National Steel elected to enter into the financial services business. In 1979, when National Steel reported $4.2 billion in sales and earnings of $126.5 million, the company spent $241 million to acquire San Francisco-based United Financial Corporation, the seventh largest savings and loan holding company in the nation and parent of the 88-branch Citizens Savings & Loan. Two years later, National Steel increased its interests in the savings and loan industry, acquiring two troubled East Coast institutions, New York’s $2.6 billion West Side Federal and Florida’s $1.3 billion Washington Savings & Loan.
Although National Steel’s diversification away from steel had followed a pattern established by other leading U.S. steel producers, the manner in which it had done so was markedly different than the company’s competitors. In diversifying into non-steel businesses, Armco and U.S. Steel also withdrew a portion of their presence in the steel market. National Steel, on the other hand, did not retreat. The company coupled its move into financial services with an intensified reinvestment in steel production. Already the most mechanized domestic steel producer, National Steel boosted its capital spending in steel-related businesses 50 percent in 1980, pumping money into steel production automation to ensure a stable foundation from which to diversify.
Concurrent with its expansion and modernization program, National Steel also made a strategic shift, moving away from the steel market for cans and cars and into the markets for appliances, construction, railroad, and agricultural building products. Shortly after funnelling money into its steel businesses, however, National Steel’s management initiated talks in March 1982 with the employees and management of its Weirton steel division about selling the division to the employees. National Steel’s directors had decided to limit its future investment in the Weirton facility and instead invest in areas that offered a higher rate of return. Eight months later, in November 1982, Weirton Steel Corporation was organized to facilitate the spin-off of the division, and in May of the following year the Weirton employees acquired the division for $194.2 million.
After the sale, in September 1983, National Steel reorganized, becoming a wholly owned subsidiary of a holding company it had formed named National Intergroup, Inc. After restructuring, National Steel ranked as the sixth largest steel producer in the nation, having spun off the Weirton steel division, which had contributed 24 percent of the company’s total sales and 12 percent of its net income. Five months after forming National Intergroup, National Steel began attracting suitors intent on acquiring the company’s steel operations. First to bid for the company was industry giant U.S. Steel, which announced in February 1984 that it was willing to pay $575 million for the steel producing assets of National Intergroup. The following month, however, U.S. Steel abandoned the plan, withdrawing when it became clear that the federal government would attack the acquisition and perhaps nullify it on antitrust grounds. Next came a Japanese steel manufacturer, Nippon Kokan K. K. (NKK), which announced in April 1984 that it was in the process of purchasing a 50 percent stake in National Steel for $292 million. The deal was completed in August, giving NKK and National Intergroup dual control over National Steel.
Soon after NKK completed its acquisition of National Steel, however, business conditions soured and profitability plunged at National Steel. The mid- and late 1980s proved to be tumultuous years for the steel maker, as it struggled to combat production problems and low employee morale. Compared to NKK’s steel mills in Japan, National Steel, which had once rivaled the Japanese in efficiency and quality, recorded ten times as many unexpected shutdowns and rejected ten to 12 percent more steel.
During this time, National Intergroup decided to sell a 20 percent interest in National Steel and would eventually divest the remaining shares, as it began to focus on building its newly formed wholesale drug distribution business. Although National Steel continued to struggle in the early 1990s, it had retaken its fourth place position in the U.S. steel industry by 1993.
In 1990 and 1992, joint ventures with Dofasco Inc., in Windsor, Ontario, and with Bethlehem Steel Corporation in Jackson, Mississippi, to build steel coating facilities were expected to help the steel maker begin its turnaround. Despite its laggard performance during the 1980s and early 1990s and increasing competition from highly efficient steel mini-mills, National Steel was firmly established as one of the steel industry’s leaders, its long tenure in the industry providing encouragement that its future held more profitable times in store.
American Steel Corporation; NSL, Inc.; National Coal Mining Company; National Acquisition Corporation; Mathies Coal Company (86%); NS Land Company; Natland Corporation; Natcoal, Inc.; National Steel Pellet Company; National Caster Acquisition Corporation; National Caster Operating Corporation; National Casting Corporation; Hanna Furnace Corporation; National Mines Corporation; Del-ray Connecting Railroad Company; Mid-Coast Minerals Corporation; National Ontario Corporation.
Ansberry, Clare, “National Steel’s Troubleshooter Aims to Revive the Firm’s Lagging Fortunes,” Wall Street Journal, July 30, 1990, p. B8.
Chakravarty, Subrata, “Blast Furnace Banker,” Forbes, October 26, 1981, p. 95.
“Companies Take Merger Action,” New York Times, November 3, 1970, p. 55.
“Michigan Steel to Go to National,” New York Times, November 26, 1930, p. 31.
“National Steel Adds Ore,” New York Times, January 2, 1930, p. 46.
“National Steel: Building a Base Inside and Outside the Industry,” Business Week, March 3, 1980, p. 43.
“National Steel Charter,” New York Times, November 9, 1929, p. 28.
“National Steel Corporation,” Wall Street Transcript, July 9, 1973, p. 33,740.
“National Steel Profits Display Solid Strength,” Barron’s, June 1, 1964, p. 24.
O’Boyle, Thomas F., “U.S. Steel Corp., National Cancel Plan to Merge,” Wall Street Journal, March 12, 1984, p. 2.
Schellhardt, Timothy D., “Japan Firm Buying Half National Steel Seeks Orders From Foreign Auto Makers,” Wall Street Journal, August 23, 1984, p. 7.
“Steel,” Forbes, July 1, 1963, p. 30.
—Jeffrey L. Covell