John Goodish, chief operating officer, United States Steel Corp.
IW: What are the key challenges U.S. steel makers must address to remain competitive?
From a competitive perspective domestically here in the U.S. we pretty much have an even playing field. Where we get concerned about staying competitive is in areas such as China where you have closed markets. The economies are nonmarket economies. A lot of what they do is done to generate exports to ship outside the country, and I think as everyone knows much of it is government owned and directed, and that's where we have a problem. And the issue particularly in China is there's no foreign steel maker or foreign company who can own a majority interest in a steel company, and that's why we say it's closed from that perspective. We cannot compete against governments, especially those that provide their steel industries with both direct and indirect competitive advantages -- and also have a tendency to build excess capacity, as we see in China today. Those run counter to the balance of supply and demand.
|John Goodish, chief operating officer, United States Steel Corp.|
IW: What do you think are some of the key remedies?
Unless we can get our government to enforce the trade laws and to get the World Trade Organization and the OECD as they apply the climate change initiatives -- if those are not applied equally to everyone involved it's going to be very difficult to have the U.S. companies, U.S. manufacturing or even western European manufacturing be competitive. You just can't have government subsidies flowing into the steel producers. We know that the favorite steel companies in China -- government owned companies -- get favorable power rates, favorable water distribution rates. We know that there's export rebates that take place, and while they've removed a lot of those they have not removed all of them. There are still rebate taxes on Oil Country Tubular Goods and line pipe, so our government needs to be more forceful in making sure that those laws are followed and applied. And the currency imbalance that we talk about: While the U.S. dollar has weakened it's really helped U.S. manufacturing because it makes it more expensive to get imports into the country, the Chinese currency is still undervalued by approximately 30 to 40%, and that's a significant advantage that they have in the world economy over other economies, so those are the issues that our government has to enforce. To have trade missions go to China and come back empty handed again is just not something we can continue to do and support.
IW: A lot of foreign steel makers such as ThyssenKrupp are establishing more of a presence in the U.S. Do think this poses a threat to the domestic industry?
I think if you go back and look at the comments made by ThyssenKrupp, as well as there are other domestic producers coming on such as SeverCorr, their strategy was that they would take away tons not necessarily from existing manufacturers who are here today in this country but they were going to take away from imports that are coming into the country. That's a good theory and that would be fine if that's what happens. Again, I get back to my comment that U.S. Steel Corp. as a company we believe that we can compete with anyone in the world. We can't compete with governments. There is a significant amount of support for that facility [ThyssenKrupp] in Alabama -- government support, both from a perspective of infrastructure cost that go with it as well as significant training funds that have been committed to that, and I'll also point out that I believe a portion of that mill's production is going to go to stainless steel application, which is really not a competitor of ours.
IW: So do you view them as a threat?
They're going to be a competitor. The market is only so big. But we believe we can compete with them given an even playing field, and I believe that the other major U.S. manufacturers feel exactly the same way. It's a matter of there is significant support for that mill from the state of Alabama and others in that area who are going to supply them. As long as they give us the same support so we can be competitive -- fine. But we can't have the state pouring four or $500 million to ThyssenKrupp and then having them use that as a competitive advantage against us.
IW: How much of an impact has the skilled labor shortage had on the industry?
This is probably one of the most significant issues we have to face. The trade laws are extremely important to our long-term survival, climate change and how we react to that and maybe the third most or most important issue is the human resource perspective -- and not just from the representative workforce in the facility but also from a leadership perspective in the mill, and the industry has weathered some rough days in the recent past. The industry's former hiring patterns have now created an imbalance in the workforce in which the impending retirement of the baby boomers threatened to create a critical shortage of experienced employees. We're currently implementing aggressive recruiting programs to create a skilled and diverse workforce that will sustain U.S. Steel at the forefront of the global steel industry, and I don't believe we're alone at that. As an example, our Gary, Indiana, plant, which is our largest domestic facility, we're looking to fill about 250 job openings by the end of 2009. We have a technical training team who's looking at partnering with Ivy Tech Community College in Gary, Indiana, to develop customized training and educational programs that will produce graduates that have both the technical skills required to operate and maintain our steel production facilities. We also started about three years ago with what we refer to as management associate hiring programs where we hire young kids out of school to make sure we have talent moving through the organization to replace people as they retire. We have formal training programs that go with those. We've also instituted a series of blast furnace technology classes. We actually call it Blast Furnace Academy. We have a steel making and casting academy; we started a coke making academy, and we're now doing a quality engineering academy.
Salvatore Miraglia, president, The Timken Co. Steel Group
IW: What are the key challenges U.S. steel makers must address to remain competitive?
There are probably three primary issues that would be directly related to the conduct of business that everyone in the industry is groping with now. They all have to do with the availability and cost of something. One of them is raw materials. This is probably the most obvious one - everything from whatever kind of iron unit someone is incorporating in their operations today to alloying elements that are required for manufacturing specific grades that people want - virtually all of the consumables we use in the manufacture of the products we sell. We electric-arc furnace folks are finding incredible cost escalations in our electrodes. The integrated mills are finding the costs of other carbon products like coke and coal and lime and other consumables just going crazy. Refractory costs are just going crazy. Maintenance costs: You appreciate how many new or rewinding of motors need to go on in the maintenance of a steel plant and its attendant shops. The price of copper has made those extraordinarily expensive. Machine parts for rebuilding equipment are going through the roof, so any and all kinds of raw materials - consumables or directly related to our products are just going crazy.
|Salvatore Miraglia, president, The Timken Co. Steel Group|
And finally, freight. Freight costs are nuts with 80- and 90- and 100-dollar oil. Just the pure and simple fuel costs have escalated beyond site. Then if you look at anybody who is looking to import or export some component of their supply chain, either brining raw materials in or attempting to participate in the global market environment with the global export of their products, the availability of shipping space on vessels, on cargo liners is in very short supply, so there's a magnifying effect in this freight arena that goes beyond just the fuel costs and incorporates the element of the supply of the freight space that's really problematic. That's fundamental to the actual operation to the business today that we're seeing these kinds of pressures in a more political arena or perhaps a more competitive arena.
The other big issue is the extraordinary growth of steel-making capacity in China. Maybe some other countries as well, but in the current environment that hasn't been highly troublesome. But that's an environment where demand has been very strong. Many of us are concerned about what will happen with that capacity as we see either weaker or more reasonable markets return, but we're also curious about when that might be in terms of the way the current environment happens to be.
IW: How are you dealing with the raw materials situation?
If you look at North America probably the things the steel companies are doing the most are in some way managing the supply chain more effectively and efficiently. Certainly any and everyone is dealing with the dimension of attempting to improve yield. That is, get the material efficiency up so we're wasting as little as possible in a variety of areas -- so operational improvement and continuous improvement ideas to maximize yield, which has always been a focus because of the pure money that it means to the company, but it's even more so now that the stress is on the raw materials side even in an availability point of view. So there's lots of activity there in our organization and elsewhere. Supply chain partnering and/or in some way attempting to tighten the linkage with the local suppliers of raw materials is probably seeing a great deal more of attention than it did before, especially for those who are scrap users like we are where supply comes from the prompt industrial scrap that is generated in regions and has a lot of territorialism to it. We've had strong relations with a local partner that continue to strengthen over time. I'm certain most other people are doing the same but also attempting to look for where else there may be ways to get back up or for that supply should the local supplier simply run dry. To date, we haven't seen it run dry, but we certainly have seen the prices go up. Customer collaborations: Here's a place where we probably have more freedom than many other companies do just because of the kinds of products we make. Ours are a much more differentiated style product, much less standard in nature, so collaborating with customers to find recipes or grades or chemical compositions which still meet the final engineering need of the customer with lesser-expensive ingredients is a high area of attention for us and a high area of dialogue that we've got with customers at the current time, so I'd say those three things on simply attempting to manage the supply chain side are getting a lot of attention.
IW: On the policy side what are the most critical issues that need to be addressed?
The two that I think are fundamental are something to help innovation in the use of energy and the treatment of the environment, and the other is the necessity for there to be a cohesive and coordinated energy policy across certainly the whole of our country and Lord forbid some way for us to find a way for that to be comprehensive across the globe. It would be very, very useful because I think it would be much fairer in the way you go about treating everybody as we try to get the right kind of energy intensity and environmental impact everywhere, and it would be much fairer from the point of view of helping the development of innovation that would be positively applied to the use of that energy in an appropriate way. There are lots of corollaries to this. There are the corollaries that the need exists for us to find a much more balanced approach to the energy dilemma -- one that looks at not just renewable like solar and wind but improving the availability of fossil fuels. The one that I'm not real enamored with is the biofuels. I don't think they really deliver the extra BTUs for the investment that you have to make, but they certainly seem to be the darling child of the political field today. The one that seems to be ignored is the one that has the most potential to really have an impact without impacting the environment is the resurrection of nuclear power generation. I mean, yeah it's got its problems but yes we could use innovation and ways to develop and ways to deal with that. But I'll tell you solving this issue of not creating bigger and bigger carbon footprints while providing the energy that the world needs is going to be tough without an appropriate component of nuclear energy as a part of it.
IW: How much of a problem is finding skilled in the steel industry?
I would say that the steel industry has that problem in spades. The first issue is our demographics. Our demographics are terrible and I say that because we have been an industry in sort of shrink mode for such a long time that the workforce that we have today is much older in its construct than is the workforce of many other kinds of industries, so we not only have an issue of the future supply of skilled workers both professional and operational but we have that problem coming upon us very quickly as a consequence of the age of our workforce so we have what you might call a double whammy the same problem everyone else has got but it's going to hit us a little earlier. The easier side of that is the operations workforce. With respect to the operations workforce we have done things locally here for ourselves but we have also joined with the Ohio Steel Council to put together a sort of an Ohio-based look at what might be needed and given that we are predominantly an Ohio-based company for our steel business that makes a lot of sense for our workforce. You usually don't get steel operations people from a very large radius. They're usually relatively locally developed and the game plan we're following there is to expand co-op programs with local schools to do two things: One, give students at those schools a view of the kinds of skills that they need should they decide to work for the Timken Company and also give them exposure to working for the Timken Company that will at least give them an opportunity to decide if that's comfortable or not. We've always been looked upon as a desirable place to work by the local community; we probably have a little bit easier time there, but not an easy time. We probably have an image issue that we got to get through because steel still has this Rust Belt connotation to it, and we have to do our own marketing to overcome that.
IW: That actually leads to my next question, which is, How does steel overcome this image issue?
That actually touches base to the other one, which is the harder problem, and that is the professional workforce. And by professional in mind I think of everything from supply chain professionals to mechanical engineering professionals to material science and metallurgical professionals who help us develop the new products that we need to make to help solve customers' problems and interact with those customers to the people who help us improve our processes to improve their efficiency and energy consumption levels. And there are places where we are doing something similar, but we need to reach out because this is a case where you can draw from a much, much larger radius -- probably the whole of the country and maybe the whole of the world depending on the attractiveness of the company and the expectations or the ambition of any individuals who are a part of that. We are working with the schools that graduate the kinds of disciplines that are important for us to appreciate where their curricula now stand because it's changed quite a bit from when people were preparing people to work in the steel industry. They've moved away from that. So we need to help them reconstruct curricula or at least make available options for students to re-examine what they might want to learn in order to make decisions that would let them educate themselves and/or for us to help educate them to come work for us. We have recruiting days at campuses where we bring a good cross-section of people who work for the Timken Company to tell the Timken story to tell the opportunities to talk about the challenges we're facing and why those challenges can use bright, young capable innovators to help us resolve them, and in doing that we do attempt to get at addressing this negative image we talk about the high-tech construct of our machinery, how we've automated many issues, how that adds challenges for people to come deal with.