The Big Steel

Anthony Whittingham September 29 1980

The Big Steel

Anthony Whittingham September 29 1980

The Big Steel


Anthony Whittingham

It was like a rollcall, a corporate Who’s Who, as last week leading Canadian chief executives gathered together under a striped marquee, sipping drinks, to honor a success within their own fraternity. This was Peter Gordon’s day, and no one who was there on that little patch of green lawn, shadowed by giant industrial buildings in the distance, begrudged the chairman of the Steel Company of Canada Limited his hour of glory. The chairmen of Ineo, CN, Sun Life Assurance and the Toronto-Dominion Bank were there. So was the premier of Ontario and the prime minister of Canada. The official opening of Stelco’s Nanticoke plant on Lake Erie, the first fully integrated greenfield steel mill anywhere in North America in nearly a decade, built by a company fully owned by Canadians, was clearly an event not to be passed over lightly.

Yet there was something else that made the event all the more special— and it was not to be found in the Lake Erie perch mousse catered by Toronto’s Winston’s restaurant, nor in the sheer size of Nanticoke’s 28-storey refinery, constructed in part from steel purchased, ironically, from one of Stelco’s chief competitors. Five days earlier, in a heavily industrialized corner of New Jersey within sight of New York’s Statue of Liberty, U.S. President Jimmy Carter presided at the opening ceremonies of another Canadian-owned steel mill—Raritan River Steel Company, newest steel mill in the U.S. The mill is a 100-per-cent subsidiary of Co-Steel International Limited, a little-known multinational steel company privately owned by a small group of Canadians based in Whitby, Ont., about 50 km east of Toronto.

At a time when most sectors of the North American and world economies are struggling to shake off the torpor of recession—and still months from recovery—the performance of the Canadian steel industry is cited time and time again by analysts and economists as a rare bright spot. Not that the Canadian industry itself is immune from recession, for production slowdowns are plaguing Canadian steelmakers too. But

compared to the giant steel industries of Europe, Japan and the U.S., Canadian companies continue, as they have for more than a decade, to record higher productivity and profitability.

“Steel is a dynamic game,” says Donald Barnett, vice-president of the Washington-based American Iron and Steel Institute, “and Canadians are running faster than anyone else in the competition. They’re widely admired here and in the industry around the world.” What some are now asking is whether the key Canadian companies— especially Stelco—are sitting ducks as take-over candidates, rumors fuelled by heavy trading in Canadian steel stocks. “Of course we wonder about this,” says Gordon. “But we’d be hard to swallow. Most of the cash we throw off is needed for reinvestment.”

Attractive as the leading Canadian steel companies may be, total Canadian steel output is relatively insignificant in the world. Stelco, for example, the country’s largest producer and itself almost twice the size of the nearest competitor, produces less than one-fifth as much steel as U.S. Steel Corp., largest steelmaker in the U.S. In fact, total Ca-

nadian steel production last year, about 17 million tons, is less than half the output of U.S. Steel alone, and roughly equals the production of two smaller companies, Bethlehem Steel Corp., second-largest U.S. giant, and Britain’s state-owned steel behemoth, British Steel Ltd. Size, however, does not necessarily indicate corporate strength. U.S. Steel, for example, reported losses of $562 million in its fourth quarter, the largest quarterly loss in U.S. corporate history; Bethlehem has barely climbed back to profitability after heavy losses the year before; British Steel earlier this year was reporting unbelievable losses of £1 million per week. While these figures rocked the industry worldwide, Canadian steelmakers recorded handsome profits in 1979 and, with only a slight dip, are expected to do the same this year.

Stelco’s Gordon, considered the dean of Canadian steelmakers, says the Canadian success formula has two main ingredients; capacity utilization and reinvestment. Though the country has 11 separate steel companies, nearly 80 per cent of the market is dominated by Canada’s “Big Three”—Stelco, with its head

office in Toronto and plants across the country, Dominion Foundries & Steel Ltd. (Dofasco), based in Hamilton, Ont., and Algoma Steel Corp. of Sault Ste. Marie, Ont. Between them, the Big Three and the eight other smaller companies (located in every province except New Brunswick, Prince Edward Island and Newfoundland) supply just under 90 per cent of Canada’s steel demand.

“The fact that Canadian companies have tailored production to keep pace with domestic demand rather than chasing volatile international markets has also been a key to profitability,” adds Dofasco Executive Vice-President John Sheppard. Still, about 10 per cent of production is exported, making Canada a net exporter of steel—keeping Canada’s mills working at close to 90per-cent capacity—leagues ahead of steel producers elsewhere in the world. That capacity, combined with the reinvestment in a new plant and equipment (such as Stelco’s $800-million Nanticoke

plant) at the forefront of technological efficiency, has kept the Canadian industry “far ahead of the rest of the pack,” says a Canadian government official.

Not to be overlooked, adds Barnett of the American Steel Institute, is the “enlightened” taxation approach adopted by the Canadian government allowing manufacturers, including steelmakers,

a faster recovery time in writing off assets, thus allowing plant and machinery to be replaced sooner. Barnett also says Canada enjoys “a generally more receptive and co-operative understanding by government about the key role of steel within the economy” than in the U.S.

Some critics charge the Canadian government with being too lenient with the steel industry by allowing three companies to dominate the industry. The Big Three have voluntarily assumed different product specialties. Yet an official government inquiry has determined that, under Canadian law, the steel companies are not operating anything approaching an illegal cartel. As for government aid, the only direct impact seems to come through public works projects, or through other projects requiring government approval. There’s little doubt that Trudeau’s reception at last week’s Nanticoke opening would have been considerably

less jovial if the Liberal government had failed last summer to ram through approval of the Alaska pipeline prebuild, a boon of at least $19 million to Stelco’s pipe-making operation.

Not everything in the Canadian steel industry is rosy. East of Ontario, Sidbec-Dosco Ltd. in Montreal and Sydney Steel Corp. (Sysco) in Sydney, N.S.—the two government-owned and -operated steel companies—are losing money. Both companies were inherited by provincial authorities as Britishowned Hawker Siddeley Canada Ltd. began its hasty withdrawal from Canadian steel operations in the 1960s. Sidbec’s current losses are attributed to unprofitable mining operations, though undoubtedly its attempt to blanket the market with too many products is another cause. Sysco, on the other hand, is saddled with outdated equipment and is too far from markets. Former Sysco president Ernest Alderton once said bluntly, “There is no possibility that Sysco can ever break even.”

At the same time, among several of Canada’s smaller companies, the very opposite is true. At the other extreme— and even more profitable and successful than the Big Three—are Ivaco Ltd. of L’Orignal, near Ottawa, Ont., founded and largely controlled by the Ivanier family of Montreal, and Co-Steel International Ltd. of Whitby, Ont., founded and privately owned by Edmonton-born Gerald Heiïernan and a small group of Toronto investors. So successful are

they that both companies have built mini-mills (using scrap) outside Canada. In the case of Co-Steel, not only did the company score a recent coup when President Carter opened its new Raritan River mill, but also its Sheerness Steel subsidiary near London, England, was the only steel mill to remain in operation during last winter’s nationwide steel strike in Britain. Co-Steel’s two other mills are located in Ontario at Whitby (Lake Ontario Steel Company Ltd.—Lasco) and just outside Dallas in Texas, giving the company a projected

steel production of nearly three million tons, or just under Algoma’s.

“Over-all, looking across the board, Canadians can be proud of their steel industry,” observes Barnett from his Washington vantage point. “Down here, we look upon it as one of your great success stories.” The crowd that gathered at Nanticoke last week seemed also to be savoring the welcome change from layoffs, losses and requests for government handouts that have so often characterized the nation’s business affairs in recent times.