Steel is fundamentally necessary for modern lifestyles, particularly in transportation and the construction of large buildings and infrastructure. Although the steel industry continues to employ thousands of American workers, the proportion of the world steel supply produced in the United States has significantly declined since the 1970’s.
Many historians use the term “second industrial revolution” to describe the modernization that occurred in the years from the U.S. Civil War to World War II. The foundation for this transformation can be largely attributed to the use of Bessemer-processed steel. From the 1860’s to 1945, the growth of the iron and steel industry in the United States was truly impressive. In 1860, the nation’s pig iron production was only 25 percent of Britain’s output; by 1895, it was 19 percent larger than Britain’s, and by 1906, it was four times larger than that of Britain. In 1945, the United States produced more than half of the world’s steel output. Since the 1960’s, however, the relative position of the U.S. steel industry has significantly declined.
Before the mid-nineteenth century, steel was too expensive to be used on a large scale. In the cementation process of manufacturing, bars of wrought iron and charcoal were heated together for about a week. The process required three tons of expensive coke (coal with volatile material removed by heating) for each ton of steel removed. About 1850, English inventor Henry
Recognizing that heavy railroad cars quickly pounded iron rails to pieces, a few British companies soon began using the Bessemer technique to make steel rails. In 1862, John Edgar Thompson, president of the Pennsylvania Railroad, purchased the expensive rails from Britain, and after a few years, he concluded that their durability justified the additional cost. In 1864, the Eureka Iron Works of Wyandotte, Michigan, became the first American company to produce Bessemer steel, and the following year the company began manufacturing steel rails on a small scale. At this time, nevertheless, many industrialists believed that the new way of making steel was only a passing fad.
Carnegie became the “King of Steel” for a number of reasons, including his emphasis on efficiency, his determination to undersell his competitors, and his choice of capable associates, particularly Henry Phipps and
When Carnegie began manufacturing steel, other producers entered into an agreement to price rails at $70 per ton, but Carnegie sold his rails at $65 per ton. Within two decades, Carnegie had reduced the price to $25 per ton. His business methods allowed him to sell enough rails to keep his plants in continuous operation, and he used most of the resulting profits to invest in new plants and buy out many of his competitors. His growing empire included the Homestead Steel Works, the Keystone Bridge Works, the Pittsburgh Bessemer Steel Works, and the Frick Coke Company. In 1892, the same year as the controversial Homestead Strike, he and his associates consolidated their holdings into the Carnegie Steel Company, which was initially capitalized at $324 million. By 1900, the company produced one quarter of the country’s output and earned a profit of $40 million a year, of which Carnegie himself received about $25 million.
In 1898, J. P.
Carnegie gave Schwab a penciled note with the figure of $480 million (over $10 billion in 2007 dollars). Morgan accepted the offer, and he then combined Carnegie Steel Company with other companies to establish the
Children walk in front of a steel mill in Homestead, Pennsylvania, in 1907.
Throughout its history, the steel industry has experienced turbulent cycles of boom and bust. From 1900 to 1940, production grew at an average annual rate of 2.9 percent, but it varied greatly from year to year. Demand for steel products fell during the Great Depression of the 1930’s, but demand soared during World War II, when steel products of many kinds became crucially important in fighting the war and making the United States the “arsenal of democracy.” From 1941 to 1945, the nation manufactured some 88,410 tanks, 12 million rifles, 8,812 major naval vessels, and 4,900 merchant ships. The total raw steel output reached 334.5 million metric tons, which was almost twice as much as that of Japan, Germany, and Italy combined. In 1945, the last year of the war, the United States produced about half of the world’s steel output.
During the next thirty years, American production grew at a rate of 6 percent a year. To most Americans, the steel industry seemed to have a secure future, and young workers began working in the mills with expectations of stable employment until retirement age. Gradually, however, the United States found it difficult to compete with foreign producers, particularly the Japanese, who often had more modern plants and a comparative advantage in labor costs. By 1959, exports have been exceeded by imports, and the imbalance grew rapidly during the 1960’s. Several countries expanded production much more rapidly than the growth in demand, frequently with their governments’ support.
In 1971, U.S. consumption of imported steel reached a record level of 18.3 million tons, or 18 percent of the domestic market. With voluntary restraints, imports declined during the next four years, but then they grew to account for 35 percent of the market in 1998. Although U.S. production had reached a record high of 151 million tons in 1973, demand had plummeted the next year, resulting in the closing of hundreds of plants and the loss of a million jobs. In 1978, U.S. companies produced 137 million tons of steel, and four years later, production hit a low point of 73 million tons.
During the 1980’s, the United States produced 15 percent of the world’s output in steel. Output declined from 154 million tons in 1982 to 112 million tons in 1987 (a 25 percent drop). By then, imported steel had grown to 28 percent of consumption. The number of integrated steel companies declined from twenty companies in 1976 to fourteen in 1987. Reduced output combined with continuing modernization resulted in a significant decline in employment. Between 1973 and 1990, employment in the U.S. industry declined by 66 percent–from 500,000 steel workers to only 170,000 workers.
Steel producers managed to realize profits every year from the 1940’s to 1981. Since then, however, the industry has often registered huge losses, totaling billions of dollars. During the 1980’s, the industry lost about $12 billion, and twenty-five companies were forced to file for bankruptcy. The bankruptcies continued into the twenty-first century. Bethlehem Steel and seven other steel companies filed for bankruptcy in 2002 alone.
Since the 1980’s, all steel producers have experienced a severe cost-price squeeze. The industry’s most dynamic sector has been the mini-mills that primarily use scrap metal. In 1977, the mini-mill sector produced about 5 percent of the nation’s output. This gradually grew to 22 percent by 1991 and then exploded to almost 50 percent in 1998. In the twenty-two years to 1995, the capacity of the mini-mills grew from 5 million to 47 million tons, while the capacity of large integrated mills dropped from 154 million to 64 million tons. The leading mini-mill producer,
In 2007, the International Iron and Steel Institute reported that the world’s production of steel totaled 1,343 million metric tons. The United States, at 97 metric tons, was responsible for only 7 percent of this output, compared with 36 percent for China, 16 percent by the European Union, and 9 percent by Japan. Chinese imports to the United States quadrupled from 1998 to 1905. Despite the downsizing of U.S. firms, however, most of them were able to report good profits between 2004 and 2007, in large part because of the great demand for steel in China and other developing countries.
Hall, Christopher. Steel Phoenix: The Fall and Rise of the American Steel Industry. New York: St. Martin’s Press, 1997. The story of the downfall of the traditional steel industry and the emergence of the new industry dominated by mini-mills using scrap iron. Hessen, Robert. Steel Titan: The Life of Charles M. Schwab. Pittsburgh: University of Pittsburgh Press, 1990. Traces the steel baron’s career from day laborer to first president of U.S. Steel and founder of Bethlehem Steel, with attendant scandals and controversies. Hillstrom, Kevin, et al., eds. Industrial Revolution in America: Iron and Steel, Railroads, and Steam Shipping. 3 vols. Santa Barbara: ABC-CLIO, 2005. Each of the three volumes discusses three areas of the Industrial Revolution, considering origins, innovations, entrepreneurs, labor organization, and workers’ lives. Livesay, Harold. Andrew Carnegie and the Rise of Big Business. New York: Longman, 2006. A relatively brief and compelling biography of the captain of industry, with analysis of background topics such as capitalism, the emergence of big business, and the Gilded Age. Strohmeyer, John. Crisis in Bethlehem: Big Steel’s Battle to Survive. Pittsburgh: University of Pittsburgh Press, 1994. Pulitzer Prize winner’s account of how complacency and rigidity by management and labor resulted in the company’s decline between 1956 and 1984. Warren, Kenneth. Big Steel: The First Century of the United States Steel Corporation, 1901-2001. Pittsburgh: University of Pittsburgh Press, 2008. A comprehensive history of the behemoth organization that produced 30 percent of the world’s steel output in 1901 but only 1.5 percent a century later.
J. P. Morgan
Steel mill seizure of 1952
United States Steel Corporation