When it Comes to Big Steel, the More Things Change, the More They …

Over on Spend Matters sister-site MetalMiner Lisa Reisman recently did a great compare/contrast analysis about the musings from the steel industry during the 1960 recession with those from today. Using recent The Wall Street Journal reprints as the basis for her material, Lisa opines that "The parallels between these statements made back in 1960 vs. today are striking. 'Output levels' appeared ominous at 53.2% back in 1960 (domestic steel capacity numbers dropped to the upper 30's low 40's earlier in 2009)." And then as now, management and trade unions are crying foul to regulators and the Federal government to protect and prop up their industry as much as possible (however, thanks to globalization, the foreign product question is that much more germane to the discussion today than before).

The tactics steel producers used over forty years ago to get prices back up would not seem out of place today. In one article that Lisa quotes from, the authors site "drastic production cutbacks and plant closures" as two of the more popular approaches to reducing inventory in the market to drive up prices in an environment of reduced demand. However, back in the 1960s, "the plant closures considered 'drastic' included three steel plants closed over weekend, and holiday while other mills planned one week long plant shut-downs". Today, we're obviously talking a lot more capacity coming offline whenever Big Steel decides to flex their capacity muscles in a non-productive direction.

Then as now, steel companies and the unions representing workers inside many of them, represent the lowest common denominator of a supply market that would rather compete on the basis of government lobbying, market manipulation and historic collusion than on product innovation, customer intimacy or cost cutting. Perhaps it's not curious that as far back as the 1800s, steel industry players have been working together against the interests of their customers. Is there any good news in the current steel industry equation? Perhaps. In the above-linked academic paper, historians found in mid 19th-century Spain that "collusion was more likely to break down in periods of falling demand" and that "the presence of centralized sales agencies, similar degrees of vertical integration among colluding firms, and tariff protection are factors that facilitate collusion". In other words, the worse-off the economy is doing, the better off the steel-buying environment should be when it comes to avoiding manipulative producer policies.

Jason Busch

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