Some small-town companies are reinventing themselves to stay alive.
Third in a four-day series.
MINGO JUNCTION, Ohio (AP) -- Cables sway, thick as telephone poles, as a gargantuan machine lowers three electrodes into a vessel 28 feet around. White sparks fly, and then, as the probes begin to glow a fiery orange, the quivering air turns faintly acrid.
Inside Wheeling Pittsburgh Steel Corp.'s new $120 million electric arc furnace, preheated hunks of scrap crash into the vat and begin to melt.
"Here is where you really get to feel the power of it," said spokesman Jim Kosowski.
It's also where you get to see the future -- for at least part of the American steel industry.
As the steelmaking world shrinks, with more small-town mills gobbled up by giant, often global corporations, some companies continue to stand alone.
From North Carolina powerhouse Nucor Corp. to smaller players like West Virginia-based Wheeling-Pitt, the independents are reinventing themselves to survive. They are seizing new technology, crafting more products and less raw steel, and tightly embracing customers leery of doing business from half a world away.
"It's not how big you are," said Nucor executive Bob Jones. "It's how profitable you are."
Offering something different
Wheeling-Pitt's strategy centers on a furnace that is the first of its kind in North America and one of only six in the world, able to make steel not only from raw materials and scrap, but also from molten iron. If all goes as planned, it will sustain the steelmaker that built six factories in six towns along an industrial, 21-mile stretch of the Ohio River in Pennsylvania, Ohio and West Virginia.
In the past seven years, 44 American steelmakers have filed for bankruptcy, and one-third have closed, wiping out 12.2 million tons in production and 10,000 jobs since 2000. Others were snatched up and reopened by Nucor, U.S. Steel and International Steel Group, since sold to Dutch producer Mittal Steel Co.
Wheeling-Pitt was able to reorganize, emerging from nearly three years of Chapter 11 with a leaner work force, a more flexible labor contract and a $250 million loan to replace a century-old blast furnace.
The nation's sixth-largest integrated steelmaker even adopted a new slogan: "Bring it on."
Analyst Michael Locker admires the optimism -- and the game plan -- but predicts the days of independence are limited in an era when global conglomerates rule.
At the start of this year, fewer than three dozen U.S. companies were making raw steel, and Locker, president of New York-based Locker Associates Inc., predicts that soon, fewer than six North American producers will remain.
"They're quickly disappearing," he said, "and I do think it's inevitable."
The market is already softening, with prices falling and inventory backing up. That devalues smaller companies like Ohio's AK Steel and Louisiana's Bayou Steel.
Putting up a fight
But don't expect the independents to fall quietly.
"You don't get to be 105 years old without a little bit of expertise in what you're doing. Perhaps a bit of luck," said Alan McCoy, a vice president for AK Steel, "but it's hard to think you've been lucky for more than a century. We will continue to do what's been successful for us."
AK makes flat-rolled carbon, stainless and electrical steel products, with about half of its revenue coming from things like body panels for cars and light trucks.
The auto industry wants suppliers nearby, offering technical support 24 hours a day, McCoy says, "and you just can't do it from 5,000 miles away."
AK stayed out of bankruptcy and is now paying for it. High labor costs for 8,300 workers covered by several unions have kept AK's prices about $40 per ton higher than its competitors'.
Last year, when raw material and energy costs spiked, the steelmaker honored the lower prices it had promised automakers in contracts, squeezing profit margins but creating what AK hopes will be irreplaceable good will.
Wheeling-Pitt, which mainly produces corrugated steel, decking and other products for the construction industry, also has customers concerned about the loss of service and personal relationships.
"We have more new opportunities because people are worried or unhappy," said Chief Executive Officer James Bradley. "When you're dealing with a big steel company and you're a little guy, you get an uneasy feeling. Are they going to be there for you when auto says, 'Hey, we want some more steel?' No. They're going to jump to General Motors, and they're not going to worry about mom-and-pop manufacturing."
That's also why Wheeling-Pitt is focusing more on finished products and less on raw steel.
Countries with high standards of living can't compete with China, Brazil, Russia and India, so Bradley says U.S. producers must "move up the value chain and let this lower commodity stuff to the third-world countries."