U.S. Steel CEOs Confident, But Concerned(Pic)

On Jan. 9 IndustryWeek hosted a roundtable discussion at its Cleveland headquarters with CEOs from some of the country's largest steel companies. The executives came as members of the American Iron and Steel Institute (AISI), Washington, D.C. Participating in the discussion were Andrew G. Sharkey, president and CEO of AISI; Daniel R. DiMicco, director of AISI and vice chairman, president and CEO of Nucor Corp.; Louis L. Schorsch, vice chairman of AISI and CEO of Mittal Steel USA; John P. Surma, chairman of AISI and president and CEO of U.S. Steel Corp.; David S. Sutherland, director of AISI and president and CEO of IPSCO Inc.; and Ward J. Timken, director of AISI and chairman of the board of The Timken Co. What follows is a summary of comments on key points made during the two-hour discussion. State Of The Domestic Industry Sutherland: We are one of the larger producers of steel plate in North America, and we are one of the largest producers of tubular products in North America as well. With most of that, about 75 to 80% of the tubular products are [going] into the oil industry, either for gather or transmission activities. And so we sort of look at ourselves as being an energy and infrastructure [company], and it is not a bad place to be in today. The performance of our firm has shown that. It has been a wonderful couple of years. Sharkey: Last year our market programs totaled 60 partnerships with customers and government. It is almost a one-to-one funding leverage basis. For example with our auto steel partnership [promoting use of steel in automotives], for every dollar our companies put in, General Motors, Ford, Chrysler/Daimler-Chrysler put a dollar in because they see value in working in a collaborative way with us. Our investment as an industry in 2006 will be about $25 million here -- that's combined industry plus partner funding, so it is a very significant investment in advancing steel. Andrew G. Sharkey Labor Shortage Timken: People hired back in the '60s, '70s and '80s are retiring, and as we look at the American academic system today, there is a lack of qualified engineering students coming out of colleges. For this industry, the particular focus is metallurgists, but for our company it is engineering in general. If you look at the students graduating out of India and China, there is about a 10-to-1 ratio on the number of engineers we graduate versus those places. And that's a very significant concern of ours. All of the companies that are represented here are doing their part. [For information on AISI's program to increase the number of metallurgists in the United States, see the AISI Web site, www.steel.org.] But this doesn't get a lot of attention, and it should. If we lose our base manufacturing engineering knowledge in this country, we are in big trouble. Schorsch: We are, in a relatively short period of time, going to have a massive turnover in our staff, both at the salary and hourly ranks. How do you take that challenge, which I am sure is the case for the entire manufacturing sector, and turn it into an advantage for you? Louis L. Schorsch Energy Costs DiMicco: [Re: natural gas costs] That's a total lack of leadership and logic being applied to real world dynamics where, on the one hand, you create a shortage of material by saying everybody has to use it. You create an incentive so nobody builds a power plant unless it is natural gas fed, and at the same time don't allow for increases in supply and make us more dependent on [the] international [market]. So what are we doing today? Today we are paying $13, $14, $18 [per unit] for natural gas over the last six months while the rest of the world is paying $4 or $3 or $6. Timken: Despite the efforts of our legislators in Washington, I think we have failed as a country to guarantee a viable supply of affordable electricity and natural gas to the manufacturing industries. This is a significant issue, and as we look forward, I believe it will continue to be. Trade Surma: China, in our business of steel, has one advantage, and it is a large, relatively inexpensive and unsafe and unhealthy labor force. But do you know how much labor costs to make steel in China? We calculate 9%. Nine percent is the scope of their advantage. The rest of it -- they are disadvantaged in materials and energy. We are better off than they are. Yet, they would be glad to sell here at any cost, and any price, just to get the product to the market. That's why we keep our trade laws and anti-dumping countervailing duty [laws] strong . . . those laws are critically important to long-term viability in our industry and many others as well. John P. Surma DiMicco: [Re: Chinese currency manipulation] We understand why China has done it. We would have done the same damn thing if we were in their shoes. But it is time for them to stop it. It is time for them to stand on their own two feet. Do we expect them to go from a 40, 50% under-valuation to zero overnight? Absolutely not. But it should happen over the next several years, and they have not even taken a baby step. Timken: [In the domestic automotive industry] this whole generation came in with the purchasing side of automotive that had a cost-down, price-down mindset, and I think to a certain extent they are paying a price for it. If you go in and sit down with a Toyota or Honda or Nissan, they are hard negotiators, no doubt about it. They will drive you to deliver the best product you can. But at the end of the day, they recognize the value, and you get paid for it. So I am sitting here today and looking at resources, figuring out if I want to send a sales engineer to Toyota or GM. Who is going to pay me for the delivery of the technology? That's the question that all of us who have exposure to the automotive industry are asking ourselves in addition to the credit issues. Ward J. Timken DiMicco: As we have grown, we have had to get more involved in the issues of training and developing people with the skill set that we need. Even in rural communities where there is a good basis of strong work ethic and mechanical aptitude, you still have to work with the community colleges and universities to let people understand the type of skills that you need; because our steel plants -- over the last 50 years -- have evolved. . .We need people trained not only to weld and understand how to run electricity, but we also need people who understand the intricacies of computers and programming and process control systems. Daniel R. DiMicco Timken: There are certain products I cannot make in the United States any more, but at the same time, I am reinvesting in the United States, making sure we are pushing research and development, pushing the innovation of products so we can remain competitive and strong. David S. Sutherland