Managing a company in a crisis is tough enough. Managing a company in a crisis-ridden industry is harder yet.

And make no mistake, the U.S. steel industry is in a serious crisis. Deep pocketed -- and well-backed -- rivals from Asia and South America have made life miserable for managers at American steel makers, many of whom have found it nearly impossible to compete in their own backyard.

Industry watchers note that foreign steel companies are often government-owned or government subsidized. Those governments routinely pay retiree health care and pension costs. They ladle out low-interest loans, forgive producers' debts, provide tax breaks. More importantly, many governments often subsidize price cuts, thus keeping their national steel exports competitive.

Indeed, over the past five years, the U.S. has seen one of the largest influxes of below-cost foreign steel in the history of the domestic market. In 1998 alone, imports of hot rolled steel surged 70 percent. In 2000, the U.S. imported 3.8 million net tons of steel. That's the second most steel ever sold in the U.S. by non-domestic producers.

Not surprisingly, cheap imported steel has driven the domestic price of steel into a tailspin. Between 1998 to 2001, steel prices in the U.S. dropped to levels not seen in 20 years.

This influx of cheap steel in the U.S. has exacted a mighty toll on the domestic manufacturing sector. For some, it's also evoked memories of the gutting of Detroit and the American auto industry in the Eighties.

The comparison is not far off, either. Says Joe Klein, CEO of Klein Steel, a steel distributor based in Rochester, New York: "This is an industry for people with strong stomachs who can take a high level of uncertainty and risk."

Glut or Glutton?
The numbers tell the tale. Since 1998, about 30 domestic steel companies have declared bankruptcy, often leaving shareholders with worthless scrip. The list of the steel-producers that have gone into Ch. 11 reads like a Who's Who of the American steel industry: LTV Steel, Northwest Steel, Bethlehem Steel.

Hard times for U.S. steel-makers has taken its toll on the rank-and-file, as well. The mass shuttering of integrated plants and mini-mills over the past four years has cost nearly 46,000 steel employees their jobs.

John Surma knows these figures only too well. Surma, CFO at U.S. Steel Corporation, has signed off on his fair share of downsizings and layoffs. But Surma says cheap imported steel is not the only reason American steel-makers have had to wield the axe. "At the moment," explains Surma, "world over-capacity is the most glaring problem in the steel industry."

Over the past fifteen years, worldwide steel capacity has exceeded consumption by a staggering 200 million tons. This growing glut of steel has made it difficult for U.S. steel-makers to turn the tables on foreign competitors in their home markets.

The strength of the U.S. economy hasn't helped, either. The strong American dollar, although sliding of late, has made U.S.-produced steel more expensive in other countries.

To boost crucial cross-border sales, U.S. steel-makers have developed intricate pricing strategies. But all too often, those strategies get whipsawed by local politics.

CFOs at steel companies note, for instance, that the steel policies of foreign governments often change without warning. "You can be the most astute prognosticator of pricing trends and still be dead wrong," says Klein. "Prices can stay steady for a while, spike up, and collapse very quickly, both in steel producing and distributing businesses."

In March, President Bush did some policy changing of his own. Determined to stop the dumping of cheap steel in the U.S., the President imposed a 30 percent tariff (under Section 201 of the 1974 Trade Act) on imported steel.

But preliminary statistics compiled by the U.S. government seem to indicate that the tariffs have not helped U.S. steelmakers all that much. According to the U.S. Census Bureau, imports of steel into the U.S. dropped from 1.9 million tons in April to 1.7 million tons in May -- a piddling amount.

Moreover, the Bush tariffs have not dramatically boosted the price of steel. Observers say there has been some price recovery in flat rolled products since the duties were imposed. But Data collected by Purchasing magazine shows that prices for hot- and cold-rolled sheet still remain below their historic, pre-crisis averages.

One steel-industry executive argues that the tariffs have had little effect. Says the executive: "The biggest factor affecting prices has been the removal of capacity in the domestic marketplace."

Steel Insulation
In other words, industry consolidation.

While many U.S. steel companies have already gone out of business, some worry that the Section 201 tariffs may insulate managers at inefficient steel companies from the realities of the marketplace. That insulation, they argue, may keep those managers from making painful -- but necessary -- changes to their businesses.

"For political reasons, the inefficient U.S. steel producers are not being allowed to die," insists Klein, whose company has benefited recently from lower import levels and higher prices.

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