Steel: Race to the Seacoasts

Most of the free world’s steelmaking centers, from Britain’s Midlands to the U.S.’s western Pennsylvania, cluster around their major sources of coal or iron ore. Over the last century, France and Germany fought three bloody wars partly motivated by the belief that joining the Ruhr coalfields to the ore of the Saar basin would give the victor economic hegemony over Europe. Today, the march of technology is revolutionizing the economics and geography of the world’s most basic industry. From Tokyo to Naples, steelmen are moving to the sea, erecting new plants hundreds (and sometimes thousands) of miles from even the meagerest deposits of raw materials. Last week, in a move that emphasized this trend, West Germany’s sixth largest steelmaker, Kloeckner-Werke, announced that it plans a $25 million expansion of its eight-year-old plant near Bremen.

Savings from Size. One of the biggest reasons for the rush to the beach is the recent development of gargantuan bulk-carrier ships (up to 60,000 tons) that can haul coal and ore cheaply over vast distances. Another is the efficiency of the U.S. coal industry, whose mechanized output now undersells that of German and British mines in Europe, despite much higher U.S. wage rates, and is easily transported to seaports. Then, too, huge new deposits of high-grade ore that could be transported cheaply have been discovered in under developed countries. Result: waterside plants that are free of protectionist restrictions can buy raw materials wher ever in the world they are cheapest, thus destroying the traditional competitive advantage of a domestic supply.

The Germans are scurrying to catch up with other European steelmen; sea side plants already account for nearly 20% of the Common Market’s steel production. France’s Usinor opened a 1,500,000-ton mill at Dunkirk in 1963, and a consortium of Belgian and Luxembourg firms is busy building a 1,500,000-ton plant on the Ghent-Terneuzen Canal. Even Portugal has put up an efficient small works on the water at Seixal.

Prodded by this competition, 16 German steelmakers and The Netherlands’ Hoogovens have joined forces to build a $60 million ore-concentrating plant, the first of its kind in Europe, at Rotterdam’s Europoort industrial complex. By converting 15 million tons a year of ore from West Africa, South America, Canada and Scandinavia into 5,000,000 tons of concentrated pellets and barging it to inland mills, the combine expects to cut 20% off the cost of ore delivered to Ruhr furnaces. To keep their markets, the Germans feel they must put competitive prices ahead of national pride; 51% of German steel is exported either as a commodity or in such products as machinery.

Sharpening Competition. While Britain handicaps its steel industry by excluding U.S. coal and Germany admits only a small quota, Italy has become one of Europe’s lowest-price steelmakers (despite its lack of native iron or coal) by relying on coastal plants, American coal and ore from India, Liberia, Canada, Venezuela and Brazil. Aided by this reliance, Italian steel output has shot up 41% in seven years. A similar formula (Australian ore, coal from the U.S.) has made Japan’s wholly seaside steel industry the world’s No. 3 producer and a formidably competitive exporter from Detroit to Düsseldorf. This competition, anguishing to German and U.S. steelmen alike, may soon sharpen. Reason: even bigger ships now in the making (up to 100,000 tons) are expected to halve the present transport costs of coal and ore.