Tim Worstall, a contributor to Forbes magazine, recently wrote an opinion piece, “It’s Not China Or Trade That Killed The Steel Jobs But Recycling.

The crux of the piece was that the job losses in the steel industry over the past half-century can be attributed to the rise of more efficient minimills capturing business that was once held by integrated mills.
I think this is an oversimplification of the issues and market dynamics at play.  My posted response follows…

I think you are glossing over some important considerations.

Most of the job losses you cite came in the early to mid-80’s when a vast number of obsolete integrated mills shuttered.  Yes, there were an increasing number of minimills built, but except for a few cases, the capacity of each one was 10-100 times smaller than the number of tons that could be produced out of an integrated mill.

It might be more useful to concentrate on the changes of the last 2 decades.  20 years ago, there were names such as Bethlehem, National, Rouge, Inland, and LTV Steel (where I used to work), with only US Steel larger than them.  USS absorbed National, and what became the world’s largest steelmaker for a time, ArcelorMittal, took over Bethlehem, National, Inland, and LTV (among others).  In all cases, there were tremendous job losses as “redundancies” were eliminated.  However, the only losses were in people – very little capacity was permanently removed from the market.  This led to improvements in “man-hours per ton,”  as did more efficient processes and practices.

Concurrent with this, the now-larger companies had fewer competitors (since they bought them) and as such were able to exercise greater pricing discipline, transitioning from chasing more tons that would lower fixed costs to going after more profitable tons associated with a greater percentage of value-added products like those used by auto and appliance OEMs.  In the past, with 10 potential competitors, getting significant tons from the largest customers usually meant lowering the price to critical levels.  With only one or two competitors, other factors became important to OEMs, like ensuring they were able to purchase enough tons of the advanced grades to satisfy their auto/appliance production levels.  Up until the past few years, the advanced grades were essentially the domain of the integrated steelmakers.

These advanced grades, either from a high strength/high formability perspective or from a surface quality perspective, are difficult to purchase from overseas steel companies in a cost-effective manner where just-in-time delivery is critical.  So this business is not being lost by domestic steel makers.  What is at risk is the lower end – the high-volume lower-cost products that do lower mill fixed costs.   You don’t need great strength or a perfect surface to make the rebar product you cite in the article.  Steelmakers around the world have the ability to make these grades, so any governmental actions to artificially adjust cost of production or sales price can distort free-market balances.

Finally, most integrated mills add around 25% scrap charge to all their melts, and minimills are investing in new technologies that will allow them to reduce the amount of scrap they need to use in their product.  This will allow them to improve ductility and surface, and reduce their exposure to the international scrap market fluctuations.

Danny Schaeffler
Engineering Quality Solutions, Inc.       4M Partners, LLC
http://www.EQSgroup.com           http://www.Learning4M.com