STATEMENT OF C. WILLIAM VERITY, JR., PRESIDENT, ARMCO STEEL CORP. Mr. Chairman and members of the Committee, my name is William Verity. I am president of Armco Steel Corporation, a fully integrated producer of steel mill products with headquarters in Middletown, Ohio. This statement is submitted on behalf of the 40,000 men and women employed by Armeo throughout the United States as well as approximately 75,000 persons who have invested in the common stock of the company. We appreciate this opportunity to request your favorable consideration of legislation for immediate limitations on the import of foreign steel. Very frankly, our concern about excessive foreign steel imports stem from our desire to maintain Armco as a company with a future-a future that can create new jobs for today's young people, offer greater advancement opportunity and other rewards for performance to present employees, and provide a reasonable return on investment to our shareholders. By January 1, 1970-about 18 months from now-Armco will have completed almost all of a six-year, 800-million-dollar program of capital improvements to steelmaking and manufacturing facilities in California, Kentucky, Maryland, Missouri, Ohio, Oklahoma, Pennsylvania and Texas, and to our coal mines in West Virginia. This represents the greatest capital improvements program in our history. By 1970, Armco will have nearly doubled-within just six years-its total investment in property, plant, and equipment (and will have become a commensurately higher contributor to Federal and local tax revenues). At the same time, our company's long-term debt load and lease obligations will be more than three times as heavy as they were in 1964. When Armco management made the decision early in 1964 to commit this enormous amount of capital to more productive and more versatile facilities, it represented the culmination of many exhaustive studies of market conditions and steelmaking technology. But it also was based in part on these two assumptions: First, that the total consumption of steel in the United States would continue to keep pace with general economic growth, i.e. a growth rate of about 4% annually. Second, that with these advanced and more productive facilities, Armco could at least maintain its current share of the market. It is now painfully apparent that our 1963 projections should have given greater weight to the fantastic growth of steel imports. Otherwise, current figures indicate that our assumptions were on the conservative side-the growth in apparent domestic consumption has been at an average rate of 5.2% since 1962, and Armco has slightly improved its relative position as a domestic steel producer. But too much of this growth in consumption went to foreign producers, during the period 1962-67, when steel imports grew at an average rate of 22.8% annually. We developed our projections during a period when foreign steel imports represented only 1 ton in 16 of apparent domestic consumption; today, that ratio is 1 ton in 8, and growing. We at Armeo still have faith in the strength and potential of the U.S. economy, but we no longer have assurance that the domestic steel producers, including our company, will be allowed to share proportionately in this growth. As I see it at this time, Armco can realize the benefits of its capital improvements and the additional jobs and revenues such improvements can bringonly if some equitable method can be worked out whereby our company can share in the growth of domestic consumption. The Iron and Steel Orderly Trade Act, in my opinion, will provide all steel producers, both United States and foreign, an opportunity to participate in the anticipated growth of our domestic steel markets. If no action is taken to restrain imports, I am convinced that foreign steel will take an even greater share of the domestic market. Under such circumstances, the debt burden Armco has already assumed for this capital improvements program could very well sap our financial resources to the point where it will be difficult to maintain a satisfactory rate of growth. Armco management has already reached the point at which we are reluctant to commit ourselves to further capital investment for steelmaking operations. As an example, we intended to ask our Board of Directors last Friday to authorize funds for two major additions at our steelmaking plants. But after reviewing the current situation, our Executive Committee decided to defer both recommendations. While I would prefer not to identify the facilities or the plants involved, I will say that the total capital expenditure involved was in excess of $100,000,000. In conclusion, Mr. Chairman and members of the Committee, we at Armco feel that our company is at a crossroads. Your decisions and actions will to a great degree influence our future direction. I strongly endorse the remarks submitted by Mr. Tom Patton on behalf of the domestic steel industry, and hope that this frank presentation of our company's concern will illustrate the dilemma facing our industry today. STATEMENT OF NICHOLAS P. VEEDER, CHAIRMAN OF THE BOARD AND PRESIDENT OF GRANITE CITY STEEL Co. The steady increase in imports of foreign steel is a matter of local as well as national concern. My comments will be about the local aspects of this problem and, specifically, about the impact of steel imports on our company and the Midwest community where our plant and offices are located. I hope to give the Committee on Ways and Means a fresh perspective on the extent to which unemployment and economic hardship could ultimately develop in industrial communities such as Granite City, Illinois. Certainly, the outlook for the future is bleak as long as our government continues to allow the steel industries of Europe and Japan to ship unlimited tonnages of their excess steel to American markets. Let me make one point clear at the outset. The size of my company has not increased our vulnerability to import competition. Granite City Steel is a small company in comparison with most of the other integrated U.S. producers of flat rolled steel products. However, all our production facilities are concentrated in a single large plant. We are able to realize the operating efficiences which come with size in the steel industry. Our profits have been above average for our industry in most past years. Our plant is modern throughout and we are able to take care of ourselves as far as normal competitive pressures are concerned. Import competition is another matter, even for Granite City Steel which has an unusually heavy investment in large, highly automated facilities. The average capital invested per each employee at our company amounts to $52,447. This is substantial even by the standards of the flat rolled steel industry which is accustomed to using some of the largest and most costly production facilities to be found in modern industry. We have invested more than $350,000,000 in plant expansion and modernization since 1950 to transform a once marginal and semiintegrated producer into a modern, efficient steel company integrated all the way back to the iron ore mine. It is occasionally stated that American steel companies have been afraid to go into debt heavily enough to finance the investment required for them to take full advantage of new technologies. Our company would not exist today if several generations of management had not been willing to go into debt very heavily indeed when there was an opportunity for profitable growth. Our heaviest capital investment has been made during the last 31⁄2 years. Granite City Steel's net worth when we began this program was $113,027,000. We have since then invested well over that amount-a total of $135,000,000-in expansion and modernization of our Granite City plant and the development, jointly with Hanna Mining Company, of an iron ore mine and pellet plant only 85 miles from Granite City. Today our company is stronger competitively than at any time in its history. However, depreciation and interest charges have increased tremendously and our long-term debt is at an all-time high of $148,189,000. This is the price of growth and we knew what to expect when we began to plan this program. Our decision to go ahead was based on the increasing demand for steel in our 25state regional market. There was every reason to expect that we would be operating at much higher levels after our new facilities were completed. We would not have embarked on this program if we had not counted on higher volume, consistent with the growth in our market, to pay for it. The current demand for steel is artificially heavy as a result of strike hedge purchasing. Leaving that aside, we have found that the growth in demand for steel in our market area has taken place as expected but that the additional volume is being siphoned off by imported steel. Total imports of flat rolled steel in 1964, the year we arranged financing and committed ourselves to our latest expansion and modernization program. amounted to only 1.700.000 tons. Now, with more than three years of construction and breaking in behind us, we see imports of flat rolled steel at a level which is expected to bring the total for 1968 to almost 10,000,000 tons. The consequences are obvious. Even the 5,500,000 tons of flat rolled steel which arrived in the United States in 1967 had a severe impact on our company and on that part of the bi-state St. Louis area consisting of the industrial district where our plant is located. We have made several calculations based on the assumption that Granite City Steel's share of the American market lost to foreign flat rolled steel last year would have been the same as our share of the total American market for flat rolled. On that basis, we can report as follows: 1. Our company employed an average of 5,133 men and women in 1967. We would have employed better than 10% more people except for imports. As it was, those jobs went to steelmakers in Europe and Japan. 2. Our company paid $48,197,000 in wages, salaries and employee benefits in 1967 and most of it went to residents of Granite City and other nearby communities where we are the leading single employer. We would have paid almost $6,000,000 more into the local economy except for imports. The additional payrolls would have meant a lot to a community the size of Granite City, Illinois, which has a population of about 40,000. We would also, of course, have paid more state and local taxes except for the business lost to foreign steel companies. In summary, we were damaged by steel imports even at their 1967 level. Granite City Steel lost important orders last year and provided fewer jobs. The economy of Granite City, Illinois, was less active last year and retail sales and other local business activities suffered to the extent that we pumped less money into the economy as a result of imports. The 1968 import problem promises to be much worse and especially for flat rolled producers. The biggest growth in imports during the first four months this year compared with the same months in 1967 was in our products. Imports of all steel products were up 51% for the four months this year. Imports of flat rolled products were up 76%. If flat rolled imports continue at the present rate the rest of 1968, we will see 16% of the U.S. market for flat rolled taken over by imports. In some flat rolled products, imports will account for over 20%. If present trends continue, imports will ultimately capture so big a share of the market for some steel products that it will no longer be profitable to make them in the United States. We ask you, what can we do about this that we have not already done? We have a very modern steel plant. We compare favorably with the most technologically-advanced foreign flat rolled steel plants. However, we cannot compete with their low wage costs which enable them to undersell American steel producers at price differentials that exceed our total profit margins. We are running out of time. What is needed is action now, action in the form of quotas limiting the volume of steel imports. Any delay would only encourage the foreign steel producers, particularly the Japanese, to continue their tremendous expansion of steelmaking facilities on the assumption that they can use the United States as a market for their surplus steel. The real and present danger here is that we will see permanent damage done to a basic and vital part of our modern industrial economy, the American steel industry, before anything is done about the import problem. Should that happen, it may well be that we have exported steelworker jobs and imported not only steel but a lower standard of living for us all. STATEMENT OF PAUL B. AKIN, PRESIDENT, LACLEDE STEEL Co. Chairman Mills and Distinguished Members of the Committee, my name is Paul B. Akin. I am President of Laclede Steel Company, one of the smaller companies in the basic steel industry. Laclede headquarters are in St. Louis, Missouri, with steel mills in Alton and Madison, Illinois, in the St. Louis district and with warehouse fabricating plants in Texas, Louisiana, Tennessee, and Florida. Laclede Steel Company has about 4,500 employees. I appreciate the opportunity to offer a statement for the record in connection with hearings of the Ways & Means Committee on the subject of steel imports. Laclede's product line consists to a large extent of reinforcing bars, rods, and wire products. Our earnings started feeling the adverse effects of foreign steel imports as early as 1956. Enclosed is a chart that illustrates graphically this decline of earnings in the years that followed. In 1964 earnings fell to a level of 1 percent on net sales. We have undertaken a heavy modernization program since 1964, and we expect debt ratio to reach 40 percent this year. Although we have been able to improve our earnings on net sales to 3.2 percent last year, much of the improvement is a result of the investment credit earned on our construction program. Our new equipment is extremely modern, and we are justly proud of it; but the discouraging aspect of this program is the knowledge that the Europeans and Japanese are building just as fast and just as modern at a much lower cost. Forty-one cents of our sales dollar goes into labor. If we had the Japanese wage rate, only 82 cents would go into labor; and there would be lots of room for lower prices and profit. Obviously, they can and will continue to take more and more of the U.S. market as fast as their new equipment comes on line. I am proud of the fact that the United States has a high standard of living, but I see no way that Laclede will be able to compete for long with the Japanese and the European steel industry against such an economic inequity. It is my ardent hope that you will place a limit on the amount of steel that can be imported into the United States. LAGLEDE LACLEDE STEEL COMPANY SAINT LOUIS, MISSOURI 6 5 3 2 1 17043 Steel Industry on strike. Laclede had a contract extension. **Continued effect of 1959. Investment Credit. Hon. WILBUR D. MILLS, Chairman, Committee on Ways and Means, U.S. House of Representatives, Washington, D.C. LUKENS STEEL Co., Coatesville, Pa., June 24, 1968. DEAR CHAIRMAN MILLS: Lukens Steel Company is a manufacturer of plate steels which are used in petroleum, chemical and food processing; electrical and atomic power equipment; industrial machinery and machine tools; construction; missiles and ordnance; transportation; shipbuilding; boiler manufacturing mining and quarrying equipment, and bridge and dam construction. It has annual sales of approximately $130,000,000 and employment of 5,500. Since its inception in 1810, the company has played an important role in the economy of Coatesville, Pennsylvania, and Chester County, where it is the major manufacturing enterprise. Even so, its sales represent only 3.1 percent of the largest firm in the steel industry. The company has been a reliable employer of Chester County people over the more than a century and half of its existence so that today among its employees are men and women whose parents, grandparents and great grandparents worked here. Lukens competes vigorously and successfully in the plate steel market. In the past 10 years it has invested $86 million in a continuing plant modernization and improvement program, and it plans to spend an additional $50 million in the next five years. This is indicative of its firm resolve to strengthen further its competitive ability both presently and in the future. There is cause for alarm, however, in the unfair advantage enjoyed by foreign competitors in our domestic market and the barriers other countries raise against the sale of our products there. You and other members of the Ways and Means Committee heard Thomas F. Patton, chairman, Republic Steel Corporation, and I. W. Abel, president, United Steelworkers of America, testify on June 18. The joint appearance of those two men emhasized their concern over the impact of the growing increase in steel imports. We at Lukens share that concern. For a company of our size to compete successfully with the major producers in the U.S.A., an extra measure of energy and ingenuity is required constantly. The problem is enlarged when the company also has to compete domestically with foreign steel producers which have advantages of home market protection, subsidies in prices and taxes and which are instruments of national policy. It is our intense desire as individuals and corporate citizens to promote free and equitable world trade, but it is increasingly difficult to compete in an international environment which legislates against free market competition. Therefore, we earnestly request your committee's favorable consideration of our views and ask Congress to enact the Iron and Steel Orderly Trade Act. Sincerely, Hon. WILBUR D. MILLS, CHARLES LUKENS HUSTON, Jr., President. CONGRESS OF THE UNITED STATES, Chairman, Committee on Ways and Means, DEAR MR. CHAIRMAN: Enclosed is a statement prepared by Mr. Martin N. Ornitz, President of the Roblin Steel Company of North Tonawanda, New York, in my congressional district, in support of my bill H. R. 13277. I understand this bill is being considered along with other tariff and trade proposals in the hearings now being held by your Committee. In order to save the time of the Committee, we are submitting this written statement and did not submit a request to be heard in person. I respectfully request that this statement be made a part of the hearing record and that it be given full consideration at the appropriate time. Thank you for your attention to this matter. Sincerely yours, HENRY P. SMITH III, Member of Congress. |