Current Status of Supply and Use of Iron, Steel, and Ferroalloys

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<ul><li><p>This article was downloaded by: [The University of Manchester Library]On: 19 December 2014, At: 07:30Publisher: Taylor &amp; FrancisInforma Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer House,37-41 Mortimer Street, London W1T 3JH, UK</p><p>Mineral Processing and Extractive Metallurgy Review:An International JournalPublication details, including instructions for authors and subscription information:</p><p>Current Status of Supply and Use of Iron, Steel, andFerroalloysFREDERICK J. SCHOTTMAN aa Division of Ferrous Metals , U.S. Bureau of Mines , 2401 E Street, NW, Washington, D.C,20241Published online: 10 Jun 2010.</p><p>To cite this article: FREDERICK J. SCHOTTMAN (1988) Current Status of Supply and Use of Iron, Steel, and Ferroalloys, MineralProcessing and Extractive Metallurgy Review: An International Journal, 3:1-4, 45-54, DOI: 10.1080/08827508808952614</p><p>To link to this article:</p><p>PLEASE SCROLL DOWN FOR ARTICLE</p><p>Taylor &amp; Francis makes every effort to ensure the accuracy of all the information (the Content) containedin the publications on our platform. However, Taylor &amp; Francis, our agents, and our licensors make norepresentations or warranties whatsoever as to the accuracy, completeness, or suitability for any purpose of theContent. Any opinions and views expressed in this publication are the opinions and views of the authors, andare not the views of or endorsed by Taylor &amp; Francis. The accuracy of the Content should not be relied upon andshould be independently verified with primary sources of information. Taylor and Francis shall not be liable forany losses, actions, claims, proceedings, demands, costs, expenses, damages, and other liabilities whatsoeveror howsoever caused arising directly or indirectly in connection with, in relation to or arising out of the use of theContent.</p><p>This article may be used for research, teaching, and private study purposes. Any substantial or systematicreproduction, redistribution, reselling, loan, sub-licensing, systematic supply, or distribution in anyform to anyone is expressly forbidden. Terms &amp; Conditions of access and use can be found at</p><p></p></li><li><p>Mineral Processing and Extractive Metallurgy Review. 1988, Vol. 3. pp. 45-54Photocopying permitted by license only 1988 Gordon and Breach. Science Publishers lnc.Printed in Great Britain</p><p>Current Status of Supplyand Use of Iron, Steel,and Ferroalloys</p><p>FREDERICK J. SCHOTTMAN</p><p>Division of Ferrous Metals, U.S. Bureau of Mines, 2401 E Street, NW.Washington, D.C. 20241</p><p>After. nearly 30-yeor period of expansion after World War II, the iron and steelindustries in the older industrialized countries have suffered from overcapacity since1974. The overcapacity was caused by on unexpected change in the growth of demandfor most materials following the rapid increase in petroleum prices. Capacity has heenreduced by the major industrialized countries. New capacity continues to be installedin developing countries to produce steel for growing demand in those countries and forexport to the industrialized world. The bulk fcrroalloys industry in the major steelproducing countries has also declined because of overcapacity and because ofcompetition from new capacity in countries with local ore or low cost electric power.Although most iron and steel companies ore still financially unhealthy, their conditionis likely to improve as better balance is restored between supply and demand.</p><p>Iron and steel make up about nine-tenths of the metal consumed in the UnitedStates. Tbis poper is primarily concerned with the steel industry that produces rolledand forged steel products. Problems such as decreased demand, substitution. andimport competition have also affected the foundry industry that produces iron andsteel castings. The ferroalloy metals are those that have major consumption inproducing iron and steel. In most cases, they also have otber important applications,</p><p>All of the metals discussed here have been in more or less continuous oversupplysince about 1974. The primary reason has been a much slower growth rate in demand,Many older producers of the metoIs have also been hurt by new competitors. Twogeneral trends can be noted, One is the increased intemutionalization of markets. Thischange is particularly important for steel, which is a more or less finished product.lrnproved communication, in the sense both of movement of information and ofmovement of goods, has made it more practical to acquire goods such as steel fromdistant suppliers. Also, various barriers such as tariffs arc generally lower today, Asecond trend is the movement of metal producing industries from the olderindustrialized countries to the less developed countries.</p><p>Dow</p><p>nloa</p><p>ded </p><p>by [</p><p>The</p><p> Uni</p><p>vers</p><p>ity o</p><p>f M</p><p>anch</p><p>este</p><p>r L</p><p>ibra</p><p>ry] </p><p>at 0</p><p>7:30</p><p> 19 </p><p>Dec</p><p>embe</p><p>r 20</p><p>14 </p></li><li><p>46</p><p>BACKGROUND</p><p>FREDERICK J. SCHOn'MAN</p><p>Between the end of World War II and the early 1970's there wasrapid, relatively steady growth in the iron and steel industries.Production of steel in the market economy countries increased bya factor of five between 1946 and 1974, with only short-term down-turns. The United States emerged from World War II with an intact,and enlarged, steel industry. In the postwar period, the steelindustries of Japan and Western Europe were rebuilt and greatlyexpanded. By 1974, they were comparable in size to the industry ofthe United states and, on the whole, were more modern because oftheir more recent expansion.</p><p>Exports were important markets for the modern steel industriesof Japan and Europe. Developing countries, which lacked sufficientproduction capacity of their own, absorbed much of these exports.Although the United States was a major exporter of steel in theimmediate postwar period, imports of steel from Japan and Europebecame a matter of concern to the domestic industry in the late1960's.</p><p>In early 1974, which can now be seen as the last truly good yearfor the western world steel industry, demand was strong and theindustry was producing near its effective capacity of 500 millionmetric tons per year. Shortages were feared and prices were high, soexpansion projects were started or planned. Although the generaltrend of steel demand was downward after 1974, production capacitydid not peak in Japan and the United States until 1977, and in theEuropean Economic Community (EEC) not until 1980. However,continuing weak demand and financial losses forces reductions incapacity. By 1986, capacities in the EEC and the United States hadbeen reduced by about one-sixth and that of Japan by about one-tenth. Meanwhile, however, demand and production capacity con-tinued to increase in the developing countries.</p><p>DEMAND</p><p>After 1974, Western World steel demand stagnated. In very largepart, the demand weakness can be traced to the direct and indirecteffects of the jump in oil prices in the early 1970's.</p><p>Dow</p><p>nloa</p><p>ded </p><p>by [</p><p>The</p><p> Uni</p><p>vers</p><p>ity o</p><p>f M</p><p>anch</p><p>este</p><p>r L</p><p>ibra</p><p>ry] </p><p>at 0</p><p>7:30</p><p> 19 </p><p>Dec</p><p>embe</p><p>r 20</p><p>14 </p></li><li><p>SUPPLY AND USE OF IRON AND STEEL 47</p><p>Besides the direct effects of draining off income from non-oilactivities to the oil producers, the oil price increases worsened in-flation and thereby led to policies that dampened economic growthin order to restrain inflation. In addition, much of the internationaldebt problem of some developing countries is related to inflation, andassociated high interest rates, and to the weakened demand for goodscaused by the economic problems of the industrialized countries.</p><p>The oil crisis also contributed to changes in how materials areutilized. Higher prices led directly to demand for more energyefficiency. In the case of automobiles, this meant smaller automobilescontaining less steel.</p><p>The oil crisis also offered evidence for the idea that resourcedepletion was threatening the world. This and related ideas wereinvolved in attitudinal changes that tended to reduce materialsconsumption. There was a weakening of the belief in bigness itself asa virtue. In industry, there was stronger emphasis by managementand engineering on efficient designs and on minimizing the consump-tion of materials.</p><p>Other factors not related to oil prices also tended to affect steeldemand. These include the general trend toward services as a largerpart of the economy, substitution of other materials for steel, and,in the United States at least, a trend to import a larger share ofsteel-intensive manufactured goods. Overall, although some of thechanges resulting from higher oil prices may be reversed if the currentlower prices hold, steel demand will probably not grow as rapidly asthe economy.</p><p>CURRENT STATUS OF THE INDUSTRY</p><p>The steel industry can be divided into three sectors. The integratedmills start with iron ore and other raw materials and process themthrough to finished products. Minimills remelt scrap iron and steel tomake finished products. Specialty steel mills also usually remelt scrapas their raw material but produce certain high-quality, high-valueproducts such as stainless steels and tool steels. Steel companies maybe involved in more than one sector.</p><p>In the United States, the integrated steel companies have sufferedthe most damage since 1974. Several factors have made it difficult for</p><p>Dow</p><p>nloa</p><p>ded </p><p>by [</p><p>The</p><p> Uni</p><p>vers</p><p>ity o</p><p>f M</p><p>anch</p><p>este</p><p>r L</p><p>ibra</p><p>ry] </p><p>at 0</p><p>7:30</p><p> 19 </p><p>Dec</p><p>embe</p><p>r 20</p><p>14 </p></li><li><p>48 FREDERICK J. SCHOITMAN</p><p>them to reduce costs during this period of weak demand. Workers inmost integrated companies are represented by strong unions, usuallythe United Steelworkers of America, and have for decades receivedwages and benefits significantly higher than those of the averageworker. A history of adversarial attitudes between labor and manage-ment and the desire of the unions to maintain jobs have resulted inrigid job descriptions and work rules.</p><p>A second problem of the integrated producers is the relative ageand obsolescence of their facilities. Many integrated mills were builtbefore more recent technical innovations such as the basic oxygenfurnace and continuous casting. Although management recognizesthe need to modernize, weak demand and low prices have oftenmade it financially impractical to do so. In addition, many integratedmills were built in locations that are now uneconomical because oftransportation costs.</p><p>A third problem for the integrated mills is their cost of rawmaterials. To a large extent, the companies are integrated back totheir raw materials and cannot avoid the fixed costs associated withthese operations. Even if low-priced raw materials are available fromoutside sources, in many cases it is preferable for them to use theircaptive supplies.</p><p>The integrated sector of the steel industry has been changeddrastically by its financial problems. Plants have been closed andcapacity cut back. Both hourly and salaried employment have beenreduced even further than capacity. Corporate structures have beenchanged by mergers and sales. In two cases, plants owned by majormultiplant companies have been spun off as independent companies,in both cases with lower cost labor contracts.</p><p>For over 30 years, the leading steel companies conducted labornegotiations as a group. The negotiating group had been losingmembers and was finally disbanded in 1985. The separate contractsbeing negotiated in 1986 will be more diverse and will be tailored toeach company's financial condition. New contracts made public sofar have included a moderate hourly cost reduction and increasedwork rule and job assignment flexibility in exchange for greater jobsecurity. In one case, the contract includes a no-layoff policy forcurrent employees. Some sort of profit sharing plan will probablybe included in most contracts.</p><p>Two changes have further internationalized the domestic industry.</p><p>Dow</p><p>nloa</p><p>ded </p><p>by [</p><p>The</p><p> Uni</p><p>vers</p><p>ity o</p><p>f M</p><p>anch</p><p>este</p><p>r L</p><p>ibra</p><p>ry] </p><p>at 0</p><p>7:30</p><p> 19 </p><p>Dec</p><p>embe</p><p>r 20</p><p>14 </p></li><li><p>SUPPLY AND USE OF IRON AND STEEL 49</p><p>First, foreign companies, principally Japanese, have invested in theU.S. industry, either by buying an interest in an existing companyor by entering a joint venture with a U.S. company to build a newfacility. Second, there have been increased imports of semifinishedsteel, which is then further processed by a domestic mill. In a recentdeal, the United States Steel Corp. sold one-half interest in itsPittsburg, California, rolling mill to Pohang Iron &amp; Steel Co., Ltd.,of the Republic of Korea. At the end of 1989, steel production atGeneva, Utah, which currently supplies Pittsburg with semifinishedsteel, will probably be cut back, and Pittsburg will process coil boughtfrom Korea.</p><p>In contrast to the integrated mills, the minimill sector has beendoing well since 1974. Although some minimills have failed duringthis period, as a whole the sector has expanded.</p><p>The minimills have an advantage corresponding to each disad-vantage of the integrated mills. First, many are not unionized andgenerally have lower hourly labor costs, although the costs are stillrelatively high compared with those of other industries. Good laborrelations and flexible management have resulted in high productivity.Second, most of the plants are relatively new and the companies havegenerally been profitable enough to maintain investment. Capitalequipment costs are also relatively low, making it easier to expand ormodernize. Third, scrap, the sector's principal raw material, has beenreadily available at costs below the cost of producing iron from ore.</p><p>Despite their relative health, minimill companies have sufferedfrom competition from imports and from expanded domestic capac-ity. One strategy to avoid this competition has been to diversify therange of products. Although the minimills dominate the U.S. marketfor lower quality bars and smaller sections, some minimills havemoved into higher priced products such as high-quality bars and pipeand tube. Some are also trying to develop technology that will givethem the ability to economically produce sheet, strip, and plate.</p><p>The specialty steel mills have had difficulty because of overcapacityand imports. They have reduced costs where possible through lowerlabor rates and improved productivity. The most successful com-panies have produced many nonstandard products for which pre-mium prices are charged.</p><p>The weakness in demand for steel in the United States has beenaggravated by increasing imports. The domestic industry responded</p><p>Dow</p><p>nloa</p><p>ded </p><p>by [</p><p>The</p><p> Uni</p><p>vers</p><p>ity o</p><p>f M</p><p>anch</p><p>este</p><p>r L</p><p>ibra</p><p>ry] </p><p>at 0</p><p>7:30</p><p> 19 </p><p>Dec</p><p>embe</p><p>r 20</p><p>14 </p></li><li><p>50 fREDERICK J. SCHOTTMAN</p><p>to the loss of market share by filing trade complaints under varioussections of the trade laws. Currently, restraint agreements have beennegotiated with most major exporting countries not to exceed a...</p></li></ul>


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