The US steel industry experienced severe contraction after 1973, with demand peaking and not reaching the same levels for over 20 years. While integrated steel firms faced high exit barriers, minimills were able to gain market share through new technologies allowing them to use scrap steel. The integrated steel industry saw many bankruptcies and plant closings from the 1970s through the early 2000s as it struggled with declining demand and increased imports. Mergers in the industry generally did not create efficient competitors able to survive, with the last integrated steel plant closing in 2001.

1. Mary E. Deily
Department of Economics
Lehigh University
Bethlehem, Pennsylvania
USA
1

2.  Industry experienced severe contraction
 Demand peaked in 1973; did not reach that peak again for over 20 years
 New supply sources developed
 In 1970: 19 firms in integrated steel; 17 in the Fortune 500.
 By the early 2000s most had either been liquidated or had migrated to
another industry
 Exit barriers
 Specific and durable assets (e.g., blast furnaces; coking ovens)
 High closing costs (e.g., severance pay; pension liabilities; environmental
remediation)
2

3.  Despite stagnating demand and increased imports, there was
significant entry by minimills
 Minimills produce steel products by melting steel scrap; scale is
much smaller that for integrated firms
 Market share grew from 15% in 1970 to about 45% in early 2000s
 Growth made possible by willingness of firms to invest in new
technologies that broadened their product range
 In sum, exit barriers faced by incumbents may not affect entry
or investment in R&D if entrants use different technology
3

4.  Bethlehem Steel built the last new integrated plant in the late
1960s
 After that, plant closings and bankruptcies occurred in the
1970s, 1980s, 1990s, early 2000s): a long stretch
 Why?
4

5.  Difficult to distinguish between cyclical and secular effects
 For steel, particularly difficult because there were several recessions in
1970s and early 1980s
 Forecasts made even in the late 1970s for U.S. demand in the 1980s were
quite wrong
 There is evidence that firms were reassessing their future in the late
1970s and early 1980s
 Postponed and eventually cancelled expansion plans of early 1970s
 More emphasis in Annual Reports that “all divisions” need to be
profitable
 Changes in nature of leadership
5

6.  Eventually firms began pressing labor for concessions, closed
plants, accelerated their use of contracting out, and in 1986
disbanded their joint bargaining committee.
 Is it different now in world more used to “disruption”?
 Some firms will focus on core and try to survive
 Staying specialized in steel was a failure: all firms that followed this
strategy ended up bankrupt and liquidated; last was Bethlehem Steel
in 2001
6

7.  Reorganizations helped some firms survive for some time
 LTV: 14 years
▪ Bankrupt in 1986; reemerges 1993
▪ Bankrupt again in 2000; assets purchased by Wilbur Ross
(International Steel Group)
 Wheeling Pitt: 17 years
▪ Bankrupt 1985; reemerges 1991
▪ Bankrupt 2001, emerges 2003
▪ Bankrupt 2012; assets sold
7

8.  Liquidations generally resulted in sale of some assets, frequently
contingent on wage negotiations
 Liquidations did allow creation of new firms; mostly smaller
pieces of bankrupt firms but sometimes collections of plants:
ISG
 If an industry is declining, reorganization bankruptcies slow
capacity reduction
8

9.  FFD exemption for merger makes most sense in an industry
that is fundamentally stable or growing
 In declining industry, capacity needs to exit so that price can rise
a bit and survivors can cover costs
 Nevertheless, pressure for exemptions likely greatest when entire
industry is under existential pressure
9

10.  Best hope: synergies allow merged firm to become efficient
competitor
 Failed to do so in case of LTV Steel
 LTV (Jones & Laughlin) acquires Lykes (owner of
Youngstown Sheet & Tube) in 1978
 LTV merges with Republic Steel in 1984
 LTV at that point owned 3 of 8 largest steel firms in 1970
 LTV bankrupt in 1986; emerges 1993; final bankruptcy in 2000
10

11.  Non-horizontal mergers? Study of different corporate strategies
showed:
 Diversify with conglomerate merger – USX -- very successful
 Steel firms trying to migrate out by buying into new businesses and
reducing stake in steel – mixed success
11

12.  Little evidence that incumbent exit barriers affected new
entrants; maybe because their exit barriers were lower
 High exit barriers did delay exit; aggravated by slow adjustment
of expectations and reorganizations
 Horizontal mergers did not create an efficient, viable competitor
12