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The separation would be a sign of the times in a changing market where larger producers are slimming down to battle foreign competitors and specialized firms that are claiming a growing piece of the steel market.
PITTSBURGH - If takeover strategist Carl Icahn gets his way, the steel company of USX Corp. will be separated from its parent company to stand alone in a leaner, meaner industry 89 years after it became the first billion-dollar company.
The Associated Press
"Once upon a time in dim history, steel mills made things, stuck them in a warehouse and said, 'Come and buy them,'" said Sheldon Wesson, spokesman for the American Iron and Steel Institute, a Washington trade union.
USX should exit steel industry, Icahn says
Icahn, USX's largest shareholder with a 13.3 percent stake, wants USX to exit the steel business because he contends it's a potential liability to the company if there's a problem in the steel business. Icahn wants USX to concentrate on its energy businesses.
Shareholders will vote May 7 at the company's annual meeting in Findlay, Ohio, on Icahn's non-binding proposal that USX spin off at least 80 percent of the steel industry. The company called us STL, Steel Corp., the name used by USX until 1986.
"That is no longer true," he said. "The whole trend is to tailor-make product, quality and quantities that customers want and when they want it. It is an entirely different philosophy and an entirely different business orienta-
Icahn said his proposal was no indication that he had best faith in the profitability of the U.S. steel industry.
"I think the long-term future is good for steel," he said.
"The infrastructure of this country has been neglected for so long, sooner or later we're going to need steel to rebuild our roads and bridges."
Scrambling for markets
U. S. steel shipments increased steadily through most of the 1800s. Last year, 94.1 million tons of steel were shipped by U.S. makers, compared with 61.6 million in 1982.
But analysts said that as the U.S. economy moved away from manufacturing and toward more service-based businesses, demand for steel and the industry's strength could erode.
Moreover, because today's steel is lighter and stronger, less will be needed in new cars, bridges and
"It's not so much a question of steel declining as it is a question of other segments of the economy growing more rapidly," said Donald F. Barnett, an independent consultant in McLean, Va. "Steel will continue to perform an essential service, but it's not going to be one of the most radiant growing segments of the economy."
Analysts said Icahn's proposal, if carried out, would be just another restructuring in an industry that has gone through wrenching unbeavals for years.
The nation's steel industry blossomed in the 1870s, when industrialist Andrew Carnegie and seven associates built the Edgar Thomson Works near Pittsburgh to make steel for industrial expansion.
"The industry is continuing to fragment," Barnett said. "USX is a large company that could become smaller. The restructuring process doesn't seem likely to end in our lifetime."
Carnegie increased his market share by expanding and acquiring competitors and finally sold his steel interests
in 1901 to J.P. Morgan to form the United States Steel Corp.
The company's focus remained on steel until March 1982, when U.S. Steel merged with Marathon Oil Co. in what then was the second-largest corporate merger in U.S. history.
"USX has been a leader," said Charles A. Bradford, an independent steel analyst. "It used to be a policeman of the industry on a pricing basis. They could be brutal if they were undercut."
Slight recovery
The industry was especially hurt by the 1981-82 recession and a flood of imports. U.S. steelmakers lost about $11.9 billion from 1980 to 1986, the American Iron and Steel Institute estimates.
The company remains the nation's largest steel producer, but Bradford estimates its capacity has decreased to less than one-fifth of the industry from about two-thirds in the 1920s.
Steel companies suffered loss after loss in the first half of the 1980s, when hundreds of mills closed and more than 200,000 workers nationwide left the payrolls.
The picture is brighter now. Steelmakers made $1 billion in profits in 1987 and $3 billion in 1988, partly because they closed inefficient mills, modernized others and invested in imports. Import restraints the bearer dollar also helped.
"Everybody looks at USX as if it's the big part of the industry," he said. "It's the shrinking part."
The U.S. steel industry takes an average of $5\frac{1}{2}$ manhours to make a ton of steel, less time than any other producer in the world and nearly half the time it took in 1980.
"The American steel industry is much more viable than it was before," Barnett said. "There certainly is still a need for the industry, but the industry is going to continue to change."
The number of imports, in the form of raw steel and products containing steel, has grown. About 26.4 million tons of steel were imported in 1984, the all-time high.
Specialties for the future
The weaker dollar and import quotas imposed in 1986 under Voluntary Restraint Agreements negotiated by the Reagan administration turned back some of the import tide. In 1989, 17.3 million tons were imported.
"The international competitiveness of the industry has much improved," Bradford said. "The weaker dollar was the biggest factor."
Bradford said the relative value of international currencies, more than anything else, would determine how much capital a company would have.
"It looks very ominous because the dollar has been strong. This is an industry that needs a weak dollar because it does compete in an international environment. If that dollar keeps soaring, these guys are in trouble."
Up to 25 percent of 1988 shipments were made by so-called mini-mills, which use electric furnaces to make more specialized products for specific regions or markets. Barnett said.
Mini-mills have become more like large producers, expanding and making products historically made by integrated makers. At the same time, larger makers have become more like mini-mills, becoming more entrepreneurial and in some cases closing coal mines or coke eaux to focus on specific products at each plant.
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