Economic Issues & Market Analysis Brief: Steel

International competition and a complex global market have resulted in the United States steel industry, over the past few decades, significantly modernizing its manufacturing processes. Benefits include:

• The number of man-hours to produce a ton of steel has fallen by 60% over the past 15 years. Employment has also fallen significantly, from over 600,000 in the 1970's, to an estimated 234,000 in 1994. About 3 employee-hours per ton are required with the newest mills operating at less than one hour per ton.
• Since 1975, energy use (on a per ton basis) has been reduced nearly 45% through investment in continuous casting (eliminates soaking pits and some reheating), other process improvements, and consolidation of older facilities into newer ones. The steel industry consumes an average of 18 million Btu (Mbtu) per ton and is projected to reduce overall energy consumption to between 14 and 15 Mbtu over the next decade.

New capital equipment investment has helped solidify the ability of U.S. steel firms to compete. One of the most significant changes since the 1970s was the development and continued improvement of the electric arc furnace (EAF). EAFs convert (or recycle) scrap metal from many sources such as old bridges, refrigerators, and automobiles into steel. Frequently, firms producing steel using EAFs are referred to as "Mini-mills". The term Mini-mill originated from the relatively small size of these mills when they first appeared, generally less than 300,000 tons per year, compared with traditional integrated mills that average between 1 and 4 million tons per year or more. Today EAFs are also operated at integrated mills. The smaller initial capital investment required to start and operate an EAF has helped drive its growth. Moreover, scrap metal is found in all parts of the country; so EAF facilities are not tied as closely to raw material deposits as are integrated mills and can be more flexible in choosing locations. EAFs now comprise half of American steel production and their share is expected to continue to grow in coming years.

Despite successful efforts to reduce costs, steel manufacturing firms face stiff competition. By late 2001 increased imports, price cuts, and loss of market share resulted in the bankruptcy of over two dozen steel firms. The steel industry obtained tariff protection in 2002 designed to allow additional investment in equipment and technologies. These investments are large. Industry sources expect the U.S. steel industry needs to spend roughly $12 billion in the next few years to remain competitive.