Steel Industry

views updated Jun 08 2018

Steel Industry





The steel industry has a rich history. It exhibited remarkable technological dynamism and entrepreneurship and enjoyed significant economic, political, and strategic importance. With globalization and emergence of high technology sectors the industry has lost its clout. Western nations no longer dominate the industry due to changing costs and diffusion of technology and favorable government policy by selected high growth developing countries.


The modern steel industry is inseparable from the second Industrial Revolution of the nineteenth century. From simple, small-batch production, new technologies such as the Bessemer process (developed in England in 1854) contributed to the mass production of steel. The industry diffused throughout Europe and the United States. The depression of the 1890s and subsequent mergers consolidated the American industry. In 1901 U.S. Steel, then the worlds largest company, was formed. Scale of production increased dramatically in the twentieth century with large-scale blast furnaces to melt iron ore, its reduction in open hearth furnaces, followed by larger and more efficient basic oxygen furnaces (developed in Austria in 1954), continuous casting of molten steel, and port-based mills (in Japan and South Korea), which relied on massive ships capable of transporting imported raw materials and exports of finished steel products inexpensively. In the United States in the 1980s Kenneth Iverson adopted German innovations in electric arc furnace (EAF) technology. These mini-mills relied on recycled scrap or natural gasbased directly reduced iron (DRI) and thin slab casting. Mini-mills smaller scale added to its flexibility and competitiveness compared to blast furnacebased integrated producers.

The geographical location of steel mills was dictated by the availability of coal and iron ore. For the United States in the mid-1800s coal fields in eastern states such as Pennsylvania, Ohio, New York, and New Jersey attracted major iron works. Similarly, the availability of iron ore and coal around Birmingham, Alabama, and later in the late nineteenth century in Minnesota and Michigan influenced the location of steel mills in the Great Lakes region with Chicago as a major market. Such patterns have been found in other countries such as Brazil and India where mills were located near mines. However, in East Asian countries such as South Korea, Taiwan, and Japan, devoid of raw materials, a new pattern of plant location emerged, targeting coastal locations to source raw materials from and export finished steel to the world economy.

The postWorld War II (19391945) American industry was characterized by oligopolistic competition at home, slow technological change, and little international competition. A handful of firms led by U.S. Steel dominated the industry. Supportive Keynesian policies propped up the U.S. economy, maintained industry profits, and accommodated high wages for steel workers. A major steel strike in 1959 paralyzed the economy, which was soon followed by brief controls of steel prices during the Vietnam War under the Kennedy administration (19611963) to stem inflationary pressures. John F. Kennedy asked steel workers to restrain their wage demands on the condition that steel corporations such as U.S. Steel would not raise prices. While workers kept their part of the bargain the companies did not as prices increased by $6 a ton. An infuriated Kennedy found such action as wholly unjustifiable and irresponsible defiance of the public interest (Kennedy 1962). Such price controls have been maintained worldwide through subsidies and public ownership because of the industrys dense intersectoral linkages. Not only are investments and employment encouraged in other industries but also economy-wide inflation is restrained. Steel is also a strategic industry with direct links to the defense sector.


Strikes in the steel industry were commonplace as conflict over wages and working conditions became paramount under rapid growth. The violent Homestead strike of 1892 in Pennsylvania turned into a complex battlefield with Andrew Carnegie using scab African American labor to crush the largest craft union, the Amalgamated Association of Iron and Steel Workers. In 1919 steel workers fought U.S. Steel and the movement was labeled a Red Scare, unleashing an anti-Bolshevik and anti-radical hysteria. In Europe and in India, pro-labor social democratic governments and public ownership of many steel mills protected workers, while in South Korea unions were either banned or co-opted by the government-controlled Federation of Korean Trade Unions (FKTU), which was also infiltrated by the Korean Central Intelligence Agency. In the early twenty-first century, steel unions persist but most have lost their clout due to global competition from developing countries, declining membership, and the relative insignificance of the industry in economies driven by services and high technology. Unionization of American workers as a whole declined from 50 percent in the 1950s to about 13 percent by 2004.

Reconstruction of Western Europe and Japan and the rapid adoption of new steel technologies around the world eroded the American industrys competitiveness. The industry has been protected and promoted by governments worldwide as it has dense backward (ore, coal, heavy equipment) and forward linkages (construction, machinery, automobiles, shipbuilding). Some of the leading steel firms in Western Europe, such as British Steel and French Usinor-Sacilor, have been state owned. In late industrializing countries state ownership was routine as part of their import substitution industrialization strategy. Steel Authority of India (SAIL) in India, Siderurgia Brasileira (SIDERBRAS) in Brazil, the highly successful Pohang Iron and Steel Corporation (POSCO) in South Korea, and China Steel Corporation (CSC) in Taiwan were all state-owned. The former Soviet Union, Eastern bloc countries, and China, though outside the capitalist world economy until the late twentieth century, also relied on the industry for national development. The American industry was caught off guard by new mills, often with newer technologies. Since the late 1950s, the United States has been a net importer of steel. By 1987 Japan and South Korea supplied 28 percent of U.S. imports, mostly in high value flat products, while Western Europe, saddled with excess capacity, had a similar U.S. share. In the mid-2000s imports constitute 21 percent of the U.S. market.

In periods of high economic growth steel unions in the United States secured high wages, exceeding the average industry wage. Employment in the industry ensured working-class members middle-class living standards. However, by the 1970s technological obsolescence in the United States, excess global capacity, and lower operating costs in East Asia and Brazil made American steel jobs insecure. As foreign companies targeted the large U.S. market in cyclical downturns, the United States adopted a variety of protectionist policies. It started with voluntary restraint agreements (VRAs) in 1968, then the Trigger Price Mechanism (TPM) during the Carter administration (1977), and additional VRAs during the Reagan, Clinton, and the Bush Sr. administrations (19821992). The TPM was designed to penalize countries selling below cost, while VRAs forced foreign firms to restrain exports to a preset market share. Plagued by cumulative losses, including large debts and pension fund obligations, these policies merely deferred restructuring but did not prevent plant shutdowns and investments in non-steel sectors. The ensuing production imbalances compelled U.S. producers to obtain new technologies from capital surplus Japanese producers to supply better quality steel to auto producers in the United States, including Japanese auto transplants, while debt-ridden countries such as Brazil sought foreign investments for steel exports. Unable to maintain the high-wage workforce, the American steel industry shed nearly 300,000 steel jobs over the past quarter century and consequently improved labor productivity considerably. U.S. productivity also increased due to the diffusion of mini-mills. With lower capital and labor costs than the integrated segment and the hiring of nonunion workers in the southern United States, about 54 percent of American steel is produced with mini-mill technology.


In the mid-2000s the major steel-producing countries are China, Japan, the United States, Russia, and South Korea with 272, 113, 99, 66, and 48 million metric tons respectively. Major exporters are Japan, Russia, Ukraine, Western Europe, South Korea, and Brazil. The most noteworthy development is the unprecedented growth of the Chinese economy since economic liberalization in 1979. Not only does China produce two-and-one half times more steel than Japan, but between 1998 and 2004 Chinese consumption of steel increased from 111 to 265 million metric tons. High demand in China moderates competition arising from excess global capacity and could prompt occasional shortages. While there is considerable intra-European steel trade, Russia, Japan, and South Korea have found the Chinese market attractive.

Globalization and neo-liberal policies have increased steel trade, cross-national investments and mergers, and privatization of state firms. Mittal Steel, founded by an Indian entrepreneur, has become the worlds largest steel company through its acquisition of mills in the United States, Europe, Central Asia, and Mexico. In 2006 after many rebuffs, Mittal Steel acquired Arcelor, the worlds largest steel firm revenue-wise, located in Luxembourg. Arcelor itself is a product of a merger between Spanish Aceralia, French Usinor, and Luxembourgs Arbed. Arcelor-Mittal is the largest steel venture with considerable expansion plans in India and elsewhere. In 2005 POSCO of South Korea, with several steel ventures in Asia and Latin America, announced a $12 billion iron and steel project in India. With declining steel intensity (share of steel to gross domestic product) in mature economies such as the United States, the growth of services, high technology industries (the new economy), and material substitutions, the steel industry is unlikely to witness a major resurgence in OECD economies. Both investment requirements and environmental concerns have dampened construction of large steel mills. The Clean Air Act implemented by the U.S. Environmental Protection Agency has made substantial improvements in steel plant emissions. Smaller plants using alternative technologies are feasible, but the supply of scrap, natural gas, and electricity may limit their diffusion in developing countries.

As long as mature economies are saddled by excess capacity, trade conflicts will persist. The use of Section 201 to assist American steel workers allegedly injured by subsidized steel imports is perceived by foreigners to be hypocritical since trade barriers and bailouts of firms of their pension obligations slow industrial adjustment. Higher steel prices resulting from protection could lead to job losses in steel-using industries, benefiting shareholders rather than workers. In the end, shared global prosperity is likely to ease the adjustment process, while any slowdown in China will exacerbate the excess capacity problem. High growth developing or exporting countries such as China, India, and Brazil are good candidates for the future expansion of the industry, while Japan and South Korea will remain important global suppliers of steel and steel technologies.

SEE ALSO Industry; Railway Industry; Transportation Industry


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DCosta, Anthony P. 1993. State-Sponsored Internationalization: Restructuring and Development of the Steel Industry. In Trading Industries, Trading Regions: International Trade, American Industry, and Regional Economic Development, eds. H. Noponen, J. Graham, and A. R. Markusen, 92139. New York: Guilford Press.

DCosta, Anthony P. 1999. The Global Restructuring of the Steel Industry: Innovations, Institutions, and Industrial Change. London: Routledge.

Hogan, William T. 1994. Steel in the 21st Century: Competition Forges a New World Order. New York: Lexington Books.

International Iron and Steel Institute, World Steel in Figures.

Kennedy, John F. 1962. Statement on the Steel Crisis. John F. Kennedy Library and Museum.

Markusen, A. 1985. Profit Cycles, Oligopoly, and Regional Development. Cambridge, MA: MIT Press.

Anthony P. DCosta

Steel Industry

views updated May 23 2018


Steel is an alloy of carbon and iron that is harder and stronger than iron. While the first ironworks were established in British North America in Jamestown, Virginia (1621), the U.S. steel industry did not develop on its own until after the American Civil War (18611865). Up until that time steel was too expensive to manufacture by the methods then available. Its use prior to the American Civil War was confined primarily to high-value products, and the United States imported nearly all of its steel until after the American Civil War.

The coming of the steam age in the early part of the nineteenth century created a huge demand for iron. Up to this time most iron mines, forges, and blacksmiths were small operations. Steam created a demand for rolled iron to be used in making boilers. Using iron boilers, as the railroads and paddle-wheel river boats of the time did, was dangerous because the iron was not strong enough to contain the steam pressure and they often blew up, causing death and carnage. In addition, more than 30,000 miles of railroad track with iron rails were laid in the United States between 1830 and the beginning of the American Civil War. As a result iron mills became major enterprises, but the iron rails frequently warped because of temperature extremes, causing derailments.

Two inventions in the 1850s resulted in the rapid rise of the steel industry, which supplanted the iron industry by the end of the nineteenth century. One was the Bessemer process for making steel, developed by British engineer Henry Bessemer in 1856. The second was the Siemens-Martin open-hearth method, introduced in 1858. These processes, once perfected, greatly reduced the cost of producing steel. The first Bessemer converter in the United States was built in 1864, and the first open-hearth furnace, which was better suited to American iron ore, was built in 1868, and they both spurred steel production in the United States. By 1873 the United States was producing nearly 115,000 tons of steel rail, approximately one-eighth of all U.S. steel production. As the price of steel continued to drop, steel rails replaced iron rails. The "iron age" was over.

Between 1880 and 1900 U.S. steel production increased from 1.25 million tons to more than 10 million tons. The industry underwent consolidation as mill owners sought to benefit from economies of scale and to avoid what they called "ruinous competition." Led by Andrew Carnegie, Henry Clay Frick, Charles Schwab, and others, the modern steel industry took shape. It was a period of violent labor disputes, most notably the Homestead strike of 1892. The companies managed to hold off unionization until the 1930s. In 1901 financiers J. Pierpont Morgan and Elbert H. Gary formed the United States Steel Corporation. With a capitalization of $1.4 billion, it was the largest industrial enterprise in the world. By 1910 the United States was producing more than 24 million tons of steel, far more than any other country. Until well after World War II (19391945), the steel industry would be the measure of the nation's economy.

In 1969 U.S. steel production peaked at more than 141 million tons. It was a time when international competition, led by newer and more efficient Japanese and European steel plants and by lower labor and transportation costs, began to challenge the U.S. domestic steel industry. The industry underwent a major shakeout in the early 1970s, and by 1975 U.S. steel production had fallen to 89 million tons. The industry suffered a major depression from 1982 to 1986. By 1988 production was up to more than 102 million tons, with greater efficiencies resulting in a smaller but more productive workforce. Then in 1991 it slipped to less than 90 million tons as an economic recession set in.

During the 1990s, restructuring, increased automation, new production techniques and upgraded facilities made U.S. steel-makers more productive. In the early 1990s approximately three-quarters of all U.S. steel production was accounted for by traditional integrated steel mills, which undertook every step of the steel making process, converting mixtures of iron ore, limestone, and coke (made from coal) into molten iron using a blast furnace. The molten iron was then converted into steel using basic oxygen furnaces (BOFs), after which the steel was cast into ingots and shaped. Some mills utilized a process called continuous casting that bypassed the production of ingots. The top six firms accounted for $25 billion worth of steel, or 40 percent of all shipments in 1992.

A second, fast-growing steel producer, known as "minimills," accounted for one-quarter of U.S. steel production in the early 1990s. Minimills are nonintegrated mills that feed scrap iron or steel into an electric arc furnace (EAF) rather than a blast or basic oxygen furnace. By 1997 minimills had the capacity to produce in excess of 50 million tons per year of carbon, alloy, and specialty steelsmore than 40 percent of the total U.S. raw steelmaking capacity of 120 million annual tons. About 80 firms operated more than 100 scrap-fed electric steel plants in the U.S. in 1997. Minimills were projected to account for nearly half of all steel buyers' needs by 2000.

By the mid-1990s the U.S. steel industry was in good economic shape. From 1992 to 1998 it spent an aggregate of $50 billion to modernize its plants, and steel companies improved their financial position by reducing debt, underfunded pension plans, and other liabilities. After two strong years industry performance slackened slightly in 1996 as some plants suffered breakdowns after running at full capacity. Raw steel production during 1996 was 99.4 million tons, up from 97.1 million tons in 1995. Steel shipments rose in 1997 to 105.9 million net tons, then fell 3.5 percent in 1998 to 102.1 million tons.

Strong demand in the United States for steel in 1997 and 1998 resulted in a significant increase in imported steel of various kinds. Cheap imports from Russia, Japan, Brazil, and other countries forced the price of commodity grade steel down more than 10 percent in just a few weeks. To prevent other countries from dumping steel into the United States market, the U.S. steel industry could file antidumping petitions with the U.S. International Trade Commission, under the U.S. Department of Commerce, and the International Trade Administration. ("Dumping" refers to the practice of one country selling commodities or finished products in another country at below cost or fair market value.)

Since 1980 the steel industry used antidumping complaints as a tool to curb imports, and in 1998 it filed complaints against Japan, Russia, and Brazil. However, the wave of imported steel, coupled with a projected slowdown in the growth rate of the U.S. economy and excess world steel producing capacity, signaled that 1999 would see a decline in the U.S. steel industry.

See also: Bessemer Process, Andrew Carnegie


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Paskoff, Paul F., ed. Iron and Steel in the Nineteenth Century. New York: Facts on File, 1989.

by 1910 the united states was producing more than 24 million tons of steel, by far more than any other country. until well after world war ii, the steel industry would be the measure of the nation's economy.

Steel Industry

views updated May 29 2018

Steel Industry

Steel is a metallic substance made from the chemical elements iron and carbon. Until the nineteenth century, iron was the primary metal used in manufactured products. Development of the Bessemer and Siemens-Martin processes for making steel in the 1850s led to steel replacing iron as the primary industrial metal, paving the way for growth of the steel industry in the United States.

The Memorial Day Massacre

After forming in 1936, the Steel Workers Organizing Committee (SWOC) worked to be recognized by steel companies, including U.S. Steel Corp. At that time smaller steel companies were collectively called Little Steel. SWOC organized strikes to force the companies to meet with its representatives and discuss its demands. U.S. Steel Corp. recognized the union in March 1937, but Little Steel persisted in refusing to talk with the SWOC.

In May 1937 Chicago SWOC leaders called for a Memorial Day rally to protest how roughly police were treating workers on the picket lines. During the rally, strikers and police clashed. Ten strikers were killed, many shot in the back by police. Eighty other strikers were injured, along with twenty-two policemen. The event became known as the Memorial Day massacre.

Little Steel eventually met with the SWOC four years later, when the National Labor Relations Board ordered the companies to recognize the SWOC as the workers' legitimate union.

Before the advancements of the 1850s, making steel was expensive, so the United States imported the steel it required prior to the American Civil War (1861–65). From 1870 to 1900, annual U.S. steel production rose from around one million to ten million tons. As the price for steel dropped, demand rose, and production companies competed for business. Most steel companies were antiunion and reluctant to negotitate with union representatives. A major steel union called the Amalgamated Association of Iron, Steel, and Tin Workers, founded in

1878, was forced to dissolve after the violent aftermath of the Homestead Strike in 1892.

In 1901 financiers J. Pierpont Morgan and Elbert H. Gary formed the U.S. Steel Corporation. With assets of 1.4 billion dollars, it was the largest industrial company in the world. In general, the United States produced twenty-four million tons of steel annually by 1910.

In 1935 Congress passed the National Labor Relations Act, which gave workers a federal right to organize unions for bargaining with employers. The following year workers formed the Steel Workers Organizing Committee (SWOC). By March 1937 U.S. Steel Corp. had agreed to negotitate and work with the SWOC and signed a contract guaranteeing a forty-hour workweek and a minimum wage of five dollars a day for SWOC members.

At SWOC's annual convention in 1942, it changed its name to the United Steelworkers of America (USWA). The president of USWA, Phillip Murray, cooperated with President Franklin D. Roosevelt (1882–1945; served 1933–45) to prevent steelworker strikes during World War II (1939–45). The USWA continued into the twenty-first century as the main union for steelworkers as the American steel industry became one of the first of the major domestic industries to experience severe economic problems.

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