Canton Repository

September 30, 2001

Terrorist attacks deal steel a setback 

Copley News Service

WASHINGTON — Forget about the war against terrorism becoming a
bonus for the U.S. steel industry. Even if it did lead to substantial
spending on military equipment, which seems unlikely at this time,
defense-related purchases account for a tiny fraction of steel sales,
according to industry observers.

Instead, the worst terrorist attack in history is likely to go down as
another sharp punch into the gut of a once brawny industry.

That’s the opinion of manufacturers, economists and others who
contend that the murderous Sept. 11 assault will depress demand for steel as it deepens the current economic slowdown.

The attack has all but ensured a recession, many economists believe. The European and Japanese economies have been in the dumps for some time, but the U.S. slowdown will in all likelihood worsen their plight.

This means fewer purchases of products made from steel, and steel
itself, at a time when low steel prices have pushed some steel makers into bankruptcy and caused others to warn that curbs on imports are needed to save the industry.

“The overall steel industry in the United States has been fairly
embattled for really the last year, stemming from imports and pricing pressures resulting from those imports,” said William G. Peluchiwski, director of mergers and acquisitions at Houlihan Lokey Howard & Zukin, an international investment bank. “I think this is just going to compound the same situation.”

Even low-cost, super-competitive Nucor Corp., which has grown from a small minimill to one of the largest steel companies in the
nation, feels the effects.

“Nucor will continue to be at the top level of performers and maintain its profitability, but it certainly will be impacted by it,” said Daniel R. DiMicco, chief executive officer of the company based in Charlotte, N.C. “It’s going to have an effect and it’s not going to
be positive.”

As demand for steel falls, layoffs are expected and there is an increased risk that more steel makers will fail.

Steel companies that are restructuring after filing for Chapter 11 bankruptcy protection are in particular peril. Among them is
Republic Technologies International, based in Fairlawn, Ohio.

John Willoughby, vice president of human resources for the company, said Republic is considering temporary production shutdowns that could last through the rest of the year.

“That’s still in the evaluation stage right now,” he said.

He declined to speculate on whether layoffs will be necessary.

The slowdown could reduce the availability of financing or credit for Republic, in turn delaying the implementation of a restructuring
plan designed to make the company more competitive, he added.

Tom Conway, an international representative for the United Steelworkers of America, anticipates more layoffs as the steel industry adjusts to less demand. “I don’t know how it could not have that effect,” he said.

Not all of the news for steel is bleak.

One possible benefit for the industry would be a decline in the U.S. dollar. The greenback’s strength relative to other currencies
makes steel imports cheap.

“I think the dollar has already peaked,” said Leo J. Larkin, metals analyst for Standard & Poors. Further decline “will be a positive,
but I don’t know if it will be enough of a positive to make any difference to the industry earnings.”

The White House and Congress are believed to be near agreement on an economic stimulus plan. President Bush already has signed
into law a $40 billion reconstruction package to deal with the attacks’ devastation. These measures, plus other spending bills
prompted by the war on terrorism, could pump $100 billion or more into the economy. Substantial amounts almost certainly would
find their way into the steel industry.

Rebuilding lower Manhattan, site of the toppled World Trade Center, will be a major job that could require “upwards of half a million tons of structural steel,” said Mark Parr, metals analyst for McDonald Investments. That, however, is a small fraction of the steel produced in this nation, which totaled 112 million tons last year.

Eventually, too, the economy will recover. Many economists expect the recovery to begin early next year.

William B. Hummer, chief economist at Wayne Hummer Investments in Chicago, expects a strong economic rebound by the middle of 2002 that will benefit steel.

“I’m in the camp of those who think that, after a severe sharp spike down, we’ll enter an expansionary period in the economy,” he

The psychological impact of the attacks could generate more support for protecting the U.S. steel industry from imports. The
government is investigating whether foreign steel has harmed domestic steel makers and will make a recommendation to Bush later this fall.

“Will we impose tariffs? Maybe there’s a better chance of it now,” Peluchiwski said. “That could have a very positive impact on steel
as far as pricing.”

Limiting imports would raise the price of steel in the United States while making life easier for struggling U.S. steel companies.

However, that could run counter to Bush’s advocacy of free trade, a position he has recently reiterated as key to an economic