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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.

Rise Of An Industry

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 world’s 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 gas—based directly reduced iron (DRI) and thin slab casting. Mini-mills’ smaller scale added to its flexibility and competitiveness compared to blast furnace—based 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 post-World War II (1939-1945) 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 (1961-1963) 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 industry’s 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.

Government Policy And Shifts In The Industry

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 industry’s 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 (1982-1992). 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.

State Of The Industry And Future Trends

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 world’s 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 world’s largest steel firm revenue-wise, located in Luxembourg. Arcelor itself is a product of a merger between Spanish Aceralia, French Usinor, and Luxembourg’s 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.

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