   Wall Street Journal, August 26, 1997, pp. A1, A11.


   Hot Metal

   Steelmakers Scramble In a Race to Become Global Powerhouses

      Now Flush With Funds, They Follow Customers, Flock Into
      Emerging Markets

      A Mill Moves Across the Sea 

   By Chris Adams

   On a small island in southern Alabama the steel industry is
   going global, piece by piece.

   There, workers for British Steel PLC have nearly finished
   reassembling what had been a huge mill 4,243 miles away in
   Hunterston, Scotland. The mill had been cut into 27,000
   pieces, loaded onto eight ships and carried across the
   Atlantic through the Gulf of Mexico and up Mobile Bay. Once
   up and operating, it will annually produce one million tons
   of an iron product that could feed one minimill that
   British Steel owns 200 miles away in Tuscaloosa, Ala., and
   another in Decatur, Ala., in which British Steel, LTV Corp.
   of Cleveland and Sumitomo Metal Industries Ltd. of Japan
   all have stakes.

   Although Alabama is hardly the cornerstone of British
   Steel's empire, it has become its U.S. base and a critical
   element in its bid to emerge as a global powerhouse in an
   industry that has never had one.

   Many Companies Active

   Other companies also are scrambling in a globalization
   drive broader than any in the past. Ispat International NV,
   a Netherlands-based steelmaker with roots in India and
   mills in a half-dozen countries, completed an initial
   public offering on the New York Stock Exchange earlier this
   month; it sold off a 20% stake and raised $675 million for
   acquisitions and other purposes. Luxembourg's Arbed SA beat
   out a French rival to buy a large interest in Spain's
   state-owned steelmaker. The steel division of Australia's
   Broken Hill Proprietary Co. recently announced or opened
   projects in Washington state and Ohio and has a big
   presence in Southeast Asia.

   And two U.S. steelmakers, Inland Steel Industries Inc. of
   Chicago and Nucor Corp. of Charlotte, N.C., say they are
   considering buying or building steel mills in South America
   - a rare departure because the U.S. industry has barely
   glanced overseas. "We are clearly casting our eyes much
   more broadly than we did just 10 years ago," says Robert J.
   Darnall, Inland's chief executive.

   The current wave of globalization is building on an earlier
   one, industry executives say. In the 1980s, Japanese auto
   makers were setting up shop in the U.S. and were being
   followed by their suppliers, including Japanese
   steelmakers. A few of the steelmakers established ventures
   with U.S. companies.

   A Broader Upheaval

   What is happening now is much broader; it involves
   steelmakers all over the world. After drastic cost-cutting
   in the 1980s, they have the money to buy or build overseas.
   Moreover, it isn't just auto makers they are following.
   Producers of appliances, heavy equipment and machine tools
   are globalizing their operations and challenging suppliers
   to come along or lose business. Whirlpool Corp., of Benton
   Harbor, Mich., is building a plant in India to make
   frost-free refrigerators, its second in that country. After
   deciding in the late 1980s that it had to go global,
   Whirlpool now is manufacturing in 13 countries. It has four
   joint ventures in China alone.

   At least as important are the structural and cultural
   changes in the steel industry. Government-run mills have
   been privatized and are being bought up by steelmakers
   seeking to operate world-wide. Moreover, tradition-bound
   steel executives, especially in the U.S., have been rudely
   awakened by minimills, such as Nucor's, which, rather than
   starting from scratch, remelt scrap metal to roll new steel
   products. Such executives have found they must innovate and
   find new markets to survive. Minimills, once dismissed as
   minor players, have gained respect by adopting new
   technology, and their share of the domestic market is
   expanding. They, too, are looking overseas.

   The Americans had better move quickly. Although the U.S.
   steel market remains the largest in the world, the fast
   growth will come elsewhere, in markets such as Asia and
   South America where U.S. steelmakers have little presence
   and are losing out. China, for example, is now the world's
   biggest steel producer, but much of the high-quality steel
   used to encase washing machines is imported.

   Changes Coming in China

   That will change, however: Japanese steelmakers are
   plunging into China, and Christopher Plummer, a
   steel-industry consultant in Exton, Pa., says big
   manufacturers have made it known they want their Chinese
   plants supplied by mills in China. "If U.S. companies want
   a piece of the action, they won't be able to do it from a
   U.S. base," he says.

   One of the steelmakers taking the changes seriously is
   Ispat International, which, in many respects, doesn't even
   have a home base. Ispat was founded in 1976 by Lakshmi N.
   Mittal, a native of Calcutta, India, who started his first
   mill in Indonesia. Today, from his base in London, the
   company owns mills in Mexico, Germany, Canada, Trinidad,
   Ireland and Kazakstan; when Ispat bought them, nearly all
   were decrepit, state-run facilities.

   Although Ispat was rebuffed in an earlier attempt to buy a
   U.S. mill when the company and the United Steelworkers
   failed to reach a labor agreement for a Bethlehem Steel
   Corp facility in Johnstown, Pa., Ispat is still on the
   prowl, running its North American operations from
   Charlotte. "The U.S. industry needs to start consolidating,
   and we expect to be there when it does," Mr. Mittal says.

   Just with existing operations, let alone any future
   acquisitions, Ispat expects to expand its annual shipments
   by the end of the decade to 10 million tons from the
   current six million. That growth would lift Ispat, now the
   world's 16th-largest steelmaker, into the top 10.

   "Every time I turn around, Ispat is doing something new,"
   says David Phelps, executive director of the American
   Institute for International Steel, a trade group. "It's
   absolutely mind-boggling."

   The challenge to Ispat, of course, is making the old mills
   efficient; its Kazakstan plant already has run into
   problems. Ispat will also remain in the shadows of
   much-larger British Steel, which was the world's
   third-largest steelmaker last year and seeks to become even
   bigger.

   Today, about 8% of British Steel's steelmaking capacity is
   outside the United Kingdom; within about five years, the
   company expects that figure to rise to 25% or more. Once a
   state-run, inefficient dinosaur, it has announced plans to
   build a steel plant in India and wants to expand further by
   building or buying in other Southeast Asian nations.
   British Steel, with more than $2 billion in the till and
   low long-term debt, has the money to make it happen.

   "Whenever anybody starts talking about somebody being sold,
   we're at the top of the list of possible buyers," says Sir
   Brian Moffat, its chief executive.

   British Steel is looking around, even though its mill in
   Mobile is a major undertaking. The plant was built in
   Scotland 20 years ago, but even before it was completed, it
   was uneconomic. The price of the natural gas to be used in
   it skyrocketed, pushing up its projected operating costs.
   Meanwhile, steel demand slackened in the U.K., cutting into
   potential sales. British Steel decided to close it before
   it ever produced a pound of its product direct-reduced
   iron.

   The plant was mothballed until last year, when the company
   discovered a new market: The American South, where several
   minimills that need direct-reduced iron have recently
   started up. Although moving the plant was expensive and
   difficult, the $100 million tab was half the cost of
   building a new one. Hugh Brown, the company's supervisor on
   the project, says his people snapped 3,000 photographs of
   the plant, dismantled it and loaded the pieces onto ships.
   They saved about 99% of the plant; just about the only
   parts left behind were electric motors, which run on
   different voltages in the U.S.

   U.S. producers have moved more slowly, after being burned
   in the past. In the 1950s and early 1960s, a few U.S.
   steelmakers, including U.S. Steel, had equity stakes in
   overseas markets. They pulled back, however, in the late
   1960s and 1970s when the local companies were nationalized
   or the investments no longer made economic sense.

   Since then, the U.S. producers have developed a reputation
   for fearing to venture abroad. They traditionally viewed
   the world outside the U.S. only as a source of raw
   materials and not as a market, says Christopher Hall, a
   consultant who wrote a recent book, "Steel Phoenix: The
   Fall and Rise of the U.S. Steel Industry." But, he adds,
   "as foreign investors came into U.S. industry, a new
   generation of managers were exposed to global thinking in
   a way they never were on the golf courses of Bethlehem,
   Pa."

   The Minimill Challenge

   The new generation also came head-to-head with minimills.
   For the first time, they were competing with companies that
   made and sold steel a different way. Minimills didn't have
   the same high labor costs and were more aggressive and
   nimble on pricing and technology. Steel executives realized
   they were vulnerable to new competitive forces, initially
   those within the U.S. but increasingly those outside it.

   Now, going global is almost all they talk about. At a
   recent conference of the American Iron and Steel Institute,
   the audience at one panel discussion was asked what forces
   would drive the industry in the next two decades; tied for
   first on the list were the need to compete in a global
   environment and the closely linked threat of competition
   from foreign steel.

   "The market in the United States is what it is. It's 100
   million tons now, and that will vary up and down," says
   Paul Wilhelm, president of the U.S. Steel Group of USX
   Corp., the nation's largest steelmaker. "But if you're
   really looking for growth opportunities, it's outside this
   country." Indeed, with trade restrictions easing around the
   world and emerging economies growing, steel trade - the
   percentage of steel crossing national borders - hit 37% in
   1995, the latest year for which figures are available,
   according to the International Iron and Steel Institute.
   That is up from the mid-20% range in the 1980s and 10% in
   the 1950s.

   One of the primary benefits to running a mill in another
   country is that a producer can cut export shipping costs,
   which run $40 to $50 for a ton of steel that sells for $400
   or $500. Labor costs are usually far lower, too.

   Even so, U.S. steelmakers say they will proceed Cautiously.
   A big risk in going overseas is dealing with a new culture;
   that is why most U.S. producers say they will go into a new
   country only with a local partner. Inland, the nation's No.
   6 steelmaker, has dipped a toe in international waters but
   only to process and distribute steel, not make it. It is a
   50% partner in an Indian processing and distribution center
   and a 49% partner in a similar Chinese venture. Yet Inland
   believes that the steel-distribution facilities, though
   small, give it an inside track in what could be some
   high-growth markets.

   Many Overtures

   Nucor has been approached several times in recent years
   about doing a joint venture with steel companies in Iran
   Egypt and Malaysia. Nucor led the way in low-cost
   minimills, and foreign steelmakers have long wanted its
   technology. But over the years, Nucor Chairman Kenneth
   Iverson says, the company has passed on the foreign
   overtures. He explains that many foreign companies, which
   were or remain an extension of the government, want a big
   mill that produces all kinds of steel and lots of jobs.

   "A lot of Third World countries aren't interested in a
   steel mill that produces 1.5 million tons but only employs
   350 people," says John Correnti, Nucor's president and
   chief executive. "They want 3,500 jobs. So, the overall
   labor costs aren't going to be good, even if the labor is
   very cheap."

   But today, Nucor is contemplating building a mill in
   Brazil, in partnership with that country's largest
   steelmaker, Companhia Siderurgica Nacional. Although Nucor
   hasn't decided whether to proceed with the project, it says
   it has gone further on it than on any other foreign venture
   it has considered. Mr. Iverson indicates that eventually an
   overseas project will make sense. "We're interested in
   taking our technology and moving into other countries," he
   says. "But these things take time."

   [End]

