"In the first half of 2008, everything was running at capacity. Orders were good. Our financial performance was record-breaking," says Dave Lohr, U.S. Steel's senior vice president for strategic planning and a 35-year industry veteran.
Then the economy lurched to a halt amid the worsening credit crunch. In the ensuing months, U.S. Steel's major customers slashed new orders as they concentrated on whittling away at gathering inventory backlogs. Mills slowed until they were operating at Depression-era levels of around 30% of capacity, vs. a long-term average of about 85%.
Entire facilities were idled. Thousands of workers were laid off. Hiring stopped. Pay was frozen on the plant floor this year while Surma voluntarily absorbed a 20% cut in his $1.2 million salary, and eschewed any long-term payments, which provided almost half his $13 million in total compensation in 2008.
Through the first half of this year, the crisis dealt U.S. Steel a beating. Second-quarter sales fell to $2.1 billion from more than $6.7 billion during the same period last year. The company lost $392 million for the three months that ended June 30, vs. a $668 million profit in 2008's second quarter.
Compounding the effects of the economic collapse, what Surma calls unfair competition from China is eroding U.S. Steel's market position. From almost nothing a decade ago, China now produces 48% of world steel output. In April, U.S. Steel complained to Washington about what it said were illegally subsidized Chinese imports of oil and gas tubes.
Inside the Edgar Thomson mill on a recent workday, workers are surprisingly scarce. That's a reflection of the leap in productivity that the industry has enjoyed since the dark days of the early 1980s. At that time, producing a ton of steel required about 10 man-hours. Today, it takes a little more than an hour.
The advance cuts two ways. It's great news for profits, not so good news if you're an unnecessary laborer. But a generous profit-sharing plan has taken some of the sting out of the labor-saving automation. Last year, the average USW member at the Edgar Thomson mill got about $10,000 from the plan. Union boss Gerard says today's mill environment places new demands on workers. "They used to want you to bring your arms, back and legs to work and leave your brains at the gate," he says. "Now, our members are able to bring their brains to work."
On a platform overlooking a torrent of molten iron flowing with the consistency of warm water, Lev Krizmanich has to yell to be heard over the din. Flames dance above a sparkling yellow-orange river that is mesmerizing in a sort of industrial-age beauty. The air shimmers in the heat. Everything here is on a Brobdingnagian scale: the overhead hook-cranes that effortlessly hoist 75 tons of scrap and 200 tons of iron; the giant ladle holding 250 tons of steel.
In an air-conditioned control room nearby, a team of technicians monitors an array of screens, showing video images from various vantage points and detailed data on the industrial alchemy underway on the mill floor.
Nobody from the G-20 will see any of this, but Krizmanich doesn't feel that his city's metamorphosis has been at his expense. "Most people see it as a necessary evolution. For our children, I think it's a good thing," he says. "Our children are going to have opportunities beyond industrial (jobs)."
In recent weeks, the steel business has shown welcome signs of life. The government's cash-for-clunkers program caused automakers' assembly lines to stir. And shell-shocked consumers began spending a bit more on the appliances dependent upon Edgar Thomson's output. But it's way too soon to celebrate. "We're improving off a very, very low base," Surma says.
Surma says his major customers tell him they're getting their inventories back in line with existing demand, but aren't able to forecast much beyond November. It seems clear that the frothy pre-crisis economy isn't coming back. But Surma's confident that whatever the new normal turns out to be, U.S. Steel will be positioned to capitalize.
"We've been fighting that battle since 1902. ... We're not prepared to surrender or retreat," Surma says.