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Thursday, March 07, 2002

By Len Boselovic, Post-Gazette Staff Writer

National Steel joined the growing legion of domestic producers in bankruptcy yesterday, vowing to continue operating while it considers options for reorganizing, including a possible merger with U.S. Steel.

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The Chapter 11 filing came one day after President Bush gave the troubled industry three years of relief from cheap imports, a major reason for the rash of layoffs, plant closings and bankruptcies among steelmakers. Even though a surge of imports that began in mid-1998 has subsided, steel prices have remained near 20-year lows because of weak demand.

"[National officials] heard the outcome, and they decided it was not going to help them enough," said CIBC World Markets steel analyst Anna Sorbo.

Tariffs of 30 percent will provide some much-needed temporary support for prices, but lower tariffs in the second and third years of Bush's program won't do much to deter imports or maintain pricing, Sorbo said. She said it would take increased demand to sustain higher prices, something she does not see happening near term.

Prices "will not improve sufficiently for everybody to prosper," Sorbo predicted.

National Steel lost $652.1 million last year, including a fourth-quarter loss of $280.3 million. The Mishawaka, Ind., steelmaker has operations in Indiana, Illinois and Michigan. It is controlled by Japanese steelmaker NKK Corp., which holds a 53 percent stake.

Chairman Hisashi Tanaka said the bankruptcy wouldn't affect daily operations. The steelmaker's 8,400 employees will continue to be paid. The company has arranged $450 million in financing that should be sufficient to maintain operations, Tanaka said.

U.S. Steel said it was studying how the bankruptcy affects the option it has to acquire NKK's stake in National, but spokesman Mike Dixon said the Pittsburgh-based company remained "very interested" in buying the steelmaker. The option expires June 5.

U.S. Steel offered to buy National in 1984, another trying time for the industry. The government rejected that merger on antitrust grounds. Fears of a monopoly are the least of the roadblocks to consolidation this time.

The biggest obstacle is legacy costs: pensions, health insurance and other retiree benefits National and other steelmakers promised but can't afford. Until those obligations are resolved, no one is interested in acquiring troubled steelmakers. The United Steelworkers union is lobbying for federal assistance for retiree benefits, or the liabilities could be erased by liquidating bankrupt producers such as LTV Corp.

"Then there will be lots of takers because they will be clean operations," Sorbo said.