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Six steel industry executives share their take on the hottest issues of the day

 

 

This time last year, the US steel industry's capacity utilization was south of 50 percent and major markets were in full retreat. Twelve months have made a difference but 'we still have a ways to go,' says AK Steel's James Wainscott, one of six executives who sat down with AMM at the AISI's annual meeting in May to address a list of topics headed by the lack of a national manufacturing agenda.

 

What is the state of the industry coming out of recession? Most indications are that recovery is going to be slow and take as many as three to four years. Have you seen anything that indicates a recovery might develop more quickly?

 

Louis Schorsch, president and chief executive officer, ArcelorMittal Flat Carbon Americas: The one thing I am positive about is that we were so damned wrong about the downturn coming in that we can all be a little more humble about "Are you a good prognosticator?" Also, the market was probably a little better than we expected in the first quarter.

 

James L. Wainscott, chairman, president and chief executive officer, AK Steel Corp.: What we've seen, when we were on the road talking to customers, is that they were buying at a fraction of what they had been, yet shipments were not down that far. That process of destocking ended. We don't know exactly when it ended, but it's over. The order intake rate we've seen has improved. The encouraging news is that shipments are up. The number of days in inventory is in decent shape. It does not appear to us that restocking has really occurred. It's a fair question, but it has not occurred in auto, where the number of days in inventory was in the mid-80s but now it's in the mid-50s. That's a positive sign as well. Maybe restocking is happening in a pocket or two, but it does not appear to be widespread. This does not mean we're all the way back. Sixteen million vehicles is one thing, 9 million to 10 million is another and 11 million to 12 million is still another. It's certainly not great. We're happy for the progress, but we still have a ways to go.

 

David Britten, president, SSAB Americas: I think a lot of people were hit right between the eyes with this. A lot of them seem to have a better business model now, they're turning inventories over and you don't see a lot of speculation out there. The first-quarter results were starting to strengthen. Some of that may be due to the rising price environment, but one of the things we are seeing is people operating with lower inventories.

 

Daniel R. DiMicco, chairman, president and chief executive officer, Nucor Corp.: There is a lot more that has to happen in terms of the economy itself. We're tied to real demand and that will go up and down based on a number of factors, but one of them is based on how the economy is doing. Construction is worse than it was last year. Flat-rolled is significantly better. But for the economy to get where it needs to get to, we need to do the right things in Washington. The public sector and private sector have to join forces to stimulate the economy, economic growth and the tax base and get GDP (gross domestic product) growing again. What has been done has been short-term in nature. What is unknown is, when stimulus spending stops having an impact will the engine of economic growth take off on its own? We're still trying to figure out whether that will happen in the next three to six months. But it is not going to happen if there are more tax burdens placed on the private sector.

 

Wainscott: It all starts with having a job. You're probably not out buying durable goods if you don't have a job. Being out of work is debilitating financially, emotionally and spiritually, and there are millions in that situation. It is very challenging. It takes a focus on creating good, sustainable jobs, good-paying jobs that allow a person to support a family and buy things. Until we see some of that, it's really difficult to get our heads around when housing or construction will improve meaningfully.

 

The federal stimulus package was supposed to do some of that and to increase steel usage. Why did that not happen? What needs to be done to correct what went wrong?

 

DiMicco: Look at what China did. They put $700 billion into real stimulus, creating jobs and improving their infrastructure and their competitive position in the world. We had an $800-billion stimulus package, now growing to $900 billion, and under the best of circumstances $60 billion or $70 billion of that went to improving our infrastructure and to job creation. The rest went to helping people through tough times, and while that was important it really did not do anything to prime the pump of job creation. That has to come from the private sector. China got 10 to 12 times what we did to pull themselves out of recession, and in some respects to help the rest of the world pull out of recession. We basically just spit in the ocean.

 

Thomas J. Gibson, president and chief executive officer, AISI: There were requirements in there to spend quickly. Money had to be contracted and spent quickly. That was not helpful to long-term capital improvements that required a lot of steel.

 

You mentioned China. The steel industry is seeking to have China named a currency manipulator. Is there any progress in talks with China?

 

Britten: I don't know if it qualifies as meaningful progress, but at least there is dialogue. There is more going on in China itself. We (SSAB) have an office over there and one of my colleagues tells me it's in the media quite a bit. People are talking about it.

 

DiMicco: The fact that they are talking in China is progress, but talk has been going on for 10 years. We've been telling folks that this is something that needs to be dealt with, not just talked about. China continues to be given a free ride at our expense. Currency manipulation is just part of it. There is legislation in Washington designed to make currency manipulation a subsidy—to make it countervailable, if that's the right word—and that needs to go through. The Chinese are not going to do it out of the goodness of their hearts. If I were them, I wouldn't do it either. The problem is that we are not doing what is in our best interests. We've got to take action. Our strategy cannot be to wait for others to take action when we need to take it ourselves. If import certificates deal with this trade imbalance, I personally would be all for it. But that is another issue that would have to be debated. We have legislation right now that can be helpful and needs to be enacted.

 

Ward ("Tim") Timken Jr., chairman, Timken Co.: For the first time in the papers over there (in China) they are reporting a small number of Chinese businesses are responding to a survey saying that currency manipulation is a problem for their own business. I don't know if that counts as progress, but they are talking about it.

 

Gibson: But now we're again waiting until the June economic summit before anything can happen. It seems this issue gets held hostage until the next bilateral agreement or the next big meeting with China, whenever that happens to be.

 

How did the AISI as an organization manage through the recession? Were members able to pay their dues and support initiatives, or did some things have to be cut or eliminated?

 

Gibson: We had to be sensitive to our members' needs through what has been a difficult time. We looked at all our expense classes and we came in well under budget for fiscal 2008 and for fiscal 2009. We conserved our resources and we ramped up with a flat budget. We were in a difficult place in bad times and you want to make sure in bad times that members can use these resources. We got on top of our costs right away.

 

Wainscott: By and large everybody hung in there and continued to support the organization and its mission. Tom (Gibson) and his staff did an excellent job of navigating the waters, so to speak. We have transitioned to more of a policy-based organization and the team that has been assembled has been focused in that direction. That is appropriate with everything going on in Washington that affects manufacturing. The political arena is not a spectator sport. You have to be in there. Our members were well-served notwithstanding the challenges.

 

Manufacturing is a key part of your policy agenda, with stronger trade policy and energy strategy. But manufacturing—preservation and growth of the manufacturing base—is the over-arching issue. What kinds of goals do you have in mind? What needs to happen for you to be successful?

 

DiMicco: AISI put together a well-thought-out approach to the issues that need to be dealt with. It involves a cooperative effort between the public and private sectors. The government needs to establish a national manufacturing agenda. We need to keep educating our leaders in Washington and educating the business community. There are those of us working to create those opportunities, and we have found people who are interested in establishing a national manufacturing agenda that will drive exports and enable us to be successful. There will be meetings in the next month or two to discuss the future of manufacturing and what we need to do. Vice President (Joe) Biden met with business leaders, academics and labor leaders to discuss manufacturing in the middle class. There's been a report issued on that, and the Commerce Department has a manufacturing council that issued a report with similar recommendations. The problem is that there hasn't been any action. There are a number of chief executives who want to discuss with the administration the need to take action—not just to recognize this as an issue that needs to be discussed. The bullet points in the report are the same as those in the AISI agenda—trade issues, development of a national energy strategy and work to help us become more competitive instead of less competitive based on more tax burdens and increasing costs.

 

What is your sense of the stance of the Obama administration with regard to manufacturing? Does he appear to be a friend of manufacturing and of steel at this point?

 

DiMicco: I don't think the discussion has gone far enough to determine where the President might be on this. He has appointed (former United Steelworkers union executive) Ron Bloom as an adviser to the administration on manufacturing, and the Commerce Department is actively working on some of these issues. (Commerce Secretary) Gary Locke has been working with the manufacturing council and with the chief executives of 15 small to mid-size manufacturing companies, so there has been some discussion and I think some recognition that we need to change the way we have been doing things. Unfortunately, we have not seen the talk matched with any walk.

 

Steel market development is an important part of AISI's work. How has progress been on that front, especially given a shift in focus to a more policy-driven organization?

 

Gibson: We've done a very good job of keeping our members engaged during difficult times by demonstrating value. The automotive program was challenged by the condition of the Detroit-area Big Three, but we continue to make a lot of progress in the area of mass reduction in vehicles. Over the past year, the Steel Market Development Institute has done a good job of linking up with policy issues that affect what is going on in the markets. That has resulted in very good dialogue with the EPA (Environmental Protection Agency), in particular that part of the EPA that regulates motor vehicles. We've taken a more aggressive approach with regard to competing materials. The other guy always has an offense, and we need to understand how their offense works. Our team is close to the markets and close to the opportunities that are being presented and is working with our member companies to solve problems that come up.

 

Schorsch: The real role of the AISI is to focus now on policies. Market development really was a subset within AISI, and when it was in that position I think it somewhat diluted the message of both enterprises. There is a clearer structure now. The market development mission was constantly shifting. It is very well focused now.

 

Gibson: There has been progress on steel utility poles, and the work we are doing with vehicles goes far beyond steel roofing. We are putting steels into vehicles that did not exist a few years ago. We have a marketing video where a '57 Chevy Impala is crashed into a Chevy built today. What do you think happens? The newer car crushes that '57 like it's a bad piece of work, and (the newer vehicle) is a much lighter car. Aluminum cannot meet the crash requirements. AHSS (advanced high-strength steel) is the fastest-growing material, by total weight, in a vehicle right now.

 

DiMicco: This is something that needs to continue to develop and to be a focus for us in good times and bad. In fact, it's probably more critical from a competitive standpoint in tougher economic times. When everyone is doing well with the things that have been developed to that time, sometimes it's easy to put less emphasis on this kind of thing. When you really shine through on things like this are when times are tough—when you are able to grow your market share at a time when the market is not your friend. That's when it's tougher to bring on new products and to face new issues. Companies in general need to prepare for good times during bad times and prepare for bad times during good times. Full-fledged market development serves us well in down times.

 

Gibson: We're working now in life-cycle analysis and working with the World Steel Association to make sure we have the facts on life cycles of steel vs. other materials. We are looking at the entire phase from generation to ultimate fate, which in the case of steel is recycling back into the system. That is critical to steel.

 

Wainscott: When the world, and our country, focus on energy efficiency, we really have the preferred material. It's the most recyclable material in the world and it has contributed, as Tom (Gibson) said in an earlier report, to a 30- or 31-percent weight reduction in vehicles. We continue to challenge ourselves to do more. Steel is the material of choice going forward. We will stay after that message. We've got a great product. It's what the world needs and we're trying to make it more energy efficient.

 

Two years ago, the industry came under a good deal of scrutiny for what seemed an unusually high fatality rate. That sparked a lot of study and discussion. What did you learn? Were there any indications of a common thread that contributed to these accidents?

Britten: The SMA (Steel Manufacturers Association) did a lot of work categorizing these accidents and fatalities. I don't know of a steel company that does not work diligently on safety. The one thing we found is that you can never do enough. Safety has to be part of the everyday culture of a company. You have to record every incident and learn from everything. Every employee has to be involved every day.

 

Wainscott: All of our member companies believe in their hearts that safety is the top priority. Ours is a business that can be dangerous and that has risks associated with it. There is no worse phone call than hearing that someone has been seriously injured or fatally injured. You have to learn from those things and commit to doing better in memory of those who are not here any more. You start fresh every day. You remind everyone of their obligations. We can set a tone at the top and we do. But it has to be internalized. It has to be something that each individual takes personally. When that happens and you have a good program overall, you have an opportunity for great results. The other thing we try to do is keep track of the near misses. We see them as an opportunity to redouble our efforts and to learn from what might have been.

 

Are there any common threads in what you have learned?

 

Gibson: We have collected some aggregate data to see if there is any common area. We really haven't found anything to suggest that there is.

 

Schorsch: We have had some collection of statistics and shared best practices and tools and looked at what worked. What it has done is reinforced that you never declare victory. In fact, while you would like to say there is a set of overall statistics and if you work on them and on OSHA (Occupational Safety and Health Administration) recordables and things like that and get that right, that you won't have a fatality or that it's unlikely you'll have a fatality. But you can't say that. You can never say you're done or that you have it under control. We have a great program in Hamilton (Ontario) at Dofasco Inc. It's been years since they had a fatality there. But we are always still looking at things to improve, at things we can introduce to get people out of their comfort zone with regard to safety.

 

DiMicco: At the end of the day (workers) are the only ones who are with themselves every second of every minute of every hour. You can never get complacent. Things never happen the same way. Something always pops up. You have to be aware of your surroundings at all times. We tell our people that they are rookies every day when it comes to safety. They have to keep in place the fundamental rules for working safe. If you don't work safely you will be held accountable for not working safely. Everyone wants to go home and see their families. There is no sicker feeling than getting a phone call (reporting a worker fatality). You try to learn from these things where you can. If you investigate, and you can't find anything, you just recommit everyone and keep everything focused. You never let up. Safety has to be part of the everyday culture. It takes everyone to succeed. We've all seen significant improvements, but that does not mean that there are not still some serious incidents.

 

Schorsch: Certainly a lot of us were concerned, given the downturn in the business. We knew people would be frustrated and a lot of facilities would be idled and people would be moving to new jobs. The question became, how do you make sure you do not have a spike in accidents as you ramp these things back up? We showed improvement in safety to a large degree.

 

Timken: We had our best safety year ever in 2009, and that was important given that we were operating in an environment where there was a lot of change going on. We were able to hit all of our metrics across the board. Unfortunately, we were one of those companies that had a fatality (in 2008). What that did was reinforce to all our people that safety has to be an everyday thing.

 

DiMicco: We experienced something similar at Nucor. The odds were greatly higher that an accident would occur, but we ended with our best year ever. So the trends were going in the right direction and that was because of the focus you create when you talk about this every day. There is an increased risk when you start and stop operations. That's when the greatest number of incidents takes place.

 

How do research and development efforts hold up in recessionary times? I would think that is an area that might suffer significant cutbacks.

 

Gibson: R&D is not a casualty of recession. There has been a lack of vision on the part of recent administrations to the point that we need to restore some (federal) funding for R&D. What the U.S. government puts in for R&D is pennies compared to the rest of the industrial, and even the developing, world. Some (businesses or industries) get partnership dollars from the Energy Department or other departments, but additional dollars have to be spent and we are going to strongly push Congress and the administration to support some of this research, especially with Congress' aspirations to deal with energy issues and greenhouse gases.

 

Dave (Britten), you mentioned earlier some $3.15 million set aside for steel-related projects in energy. Can you elaborate?

 

Britten: That is aimed at energy-efficiency issues. We know there are other programs going on in the world—Japan, for example, has a fully funded program—and $3.15 million is a drop in the bucket compared to Japan getting $100 million. Europe has a program that SSAB is part of where the numbers are getting upwards of 500 million euros ($660 million). There is a lot of money being spent by others.

 

DiMicco: The severity of any downturn and how it impacts each company will determine how they keep research going on both a larger and a smaller scale. It really depends on how much capital you have available. Typically, there is less available in a downturn. But it affects everyone in terms of what they are able to do, especially in a time like this Great Recession we've been in and we've not recovered from. There is a great impact from recession because you need to keep your costs as low as possible. Certainly R&D is one of the things that gets very close scrutiny. The stronger you are financially, the more you can do. But this is one of the things that we need government for. There are some things we need government to do and there are certain things we need to do on our own.

 

 

 
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