Century Of Steel
STELCO TURNS 100, BUT ARE THERE MANY YEARS TO COME?
By Robert Thompson and Cheryl MacDonald
It may have been Halloween, but for Hamilton city officials it was time for a different kind of celebration. While the kids were preparing their pumpkins in 1985, Hamilton Mayor Bob Morrow was preparing to fete one of the city’s most significant businesses with a lavish lunch that included a five-piece band and a massive cake large enough to feed all 300 people in attendance. Seventy-five years after Canadian Maritime industrialist Max Aitken, the man who would become Lord Beaverbrook, brought five companies together to create the Steel Company of Canada—or Stelco as it would be known—Mayor Morrow was celebrating the company’s distinguished place in local history. After all, the city hadn’t earned its “Steel Town” nickname through happenstance.
If the company prospered after Aitken’s takeover, it reached another level altogether after World War II, as the Canadian economy worked to keep up with the post-war boom.
But Stelco faced increasing pressure as its 75th anniversary approached, and was no longer either the economic force it had once been nor the largest steel mill in Canada. That, however, didn’t negate its continued importance to Hamilton, as Morrow pointed out to the crowd, which included Stelco officials, employees and passersby.
“This is just to say thank you for 75 great years,” he announced. “And we look forward to another 75 years.”
Morrow’s politically fuelled optimism was probably never realistic, for the times were changing, says Hamilton historian Brian Henley.
“Even then you no longer automatically got a summer job if you were the son of a permanent employee and the [employee] numbers were already on the decline,” Henley notes. “I know it was 25 years ago, but I think there was a sense that globalization and automation and better technologies that would allow companies to produce more with fewer people were really going to change Stelco.”
A quarter-century later, Stelco no longer exists—not as an autonomous entity anyway, with its financial struggles having led to its acquisition by U.S. Steel in 2007. Labour unrest and production issues have caused significant problems, with employment plunging. U.S. Steel is embroiled in a bitter battle with employees at its Fort Erie facility. And though Stelco’s history in Canada is now in its centenary, no one is in a celebrating mood. The Canadian government is suing the steel company, claiming it hasn’t lived up to the promises it made when it bought Stelco three years ago for $1 billion (US).
Suffice it to say, government officials aren’t likely to be blowing out any candles should Stelco’s current owners bring out a cake this year.
History of consolidation
No one should be overly surprised about Stelco’s current situation, especially if you understand the company’s complex history, says Peter Warrian, a professor at the University of Toronto who specializes in the steel industry. The foundation of Stelco is based on industry consolidation, Warrian explains, meaning the company’s current scenario is closely linked to its formation. “One hundred years ago, Max Aitken consolidated about 20 steel companies (to create Stelco),” says Warrian. “That means you had Stelco consolidation 100 years ago, and you’ve gotten global consolidation now.”
Stelco’s creation came at a time when the pressure to scale regional businesses led to mergers. In 1901, the United States Steel Corporation came into being as the result of the merger of several smaller companies, gaining a stranglehold on the American steel market in the process. Although he was born in Ontario and lived his formative years in New Brunswick and Nova Scotia, Aitken had the same thing in mind when he began consolidating the Canadian cement industry in 1909. A year later he turned his focus to the steel industy, borrowing $4.2 million from sources in England to keep North American competitors from becoming aware of his intentions. He soon engineered a deal to meld Montreal Rolling Mills, Dominion Wire Manufacturing Company, Hamilton Steel and Iron Company, Canada Screw Company, and Canada Bolt and Nut Company. The new enterprise, with assets of more than $10 million and 51,000 employees, was—rather unimaginatively—named the Steel Company of Canada.
Aitken’s interest in Stelco wasn’t to last. He loved the art of the deal, not the operation of his creations. He’d later make another fortune in the newspaper industry, but by then Stelco wasn’t a concern to the industrialist. He’d moved to England soon after Stelco was created, eventually becoming Lord Beaverbrook and a trusted wartime adviser to British Prime Minister Winston Churchill during World War II. That left Stelco in the hands of Charles Wilcox, the former president of the Hamilton Steel and Iron Co. Under the American-born Wilcox, Stelco began a period of stabilization, more than doubling capacity to 200,000 tons per year, and completing a new plant in 1913. Despite stumbles, by 1915 Wilcox made Stelco profitable with sales of $18 million. Its plants were primitive, according to one historian, but they were also “a harbinger of the change which was to make this product the bread-and-butter line of the North American steel industry.”
As went steel, so did Hamilton, says Henley. Historically the rise of the city was linked to the increase in demand for the metal. But it was a synergistic relationship, he adds.
“You had the spinoff from having the steel industry local. Obviously there were related [companies] like those that made farm implements that chose to locate here,” he explains. “And there were other elements. It was a great geographic location with great access to water for shipments in and out. Electricity at the turn of the century was a big factor in Hamilton, which had large capacity at a relatively low charge. And it spun off all sorts of other industries. It was a key to the explosion of the population in the first few decades of the 20th century and the period after World War II.”
Steel would remain an important part of the local and national economy right through the Depression, with Stelco accounting for almost 50 percent of Canadian capacity. Demand grew again during World War II, with the company expanding to 9,000 employees and turning to women to fill gaps in its workforce left by the absence of men who’d left to support the war effort.
By 1963, the company produced 3 million tons of steel, and in 1973 moved into new offices in the 26-floor Stelco Tower on King St. West in downtown Hamilton. It was the second tallest building in Hamilton, but it could be seen as a metaphor for Stelco’s slow erosion over the ensuing decades, says Henley.
“Symbolically, the Stelco tower downtown, even 25 years ago, was never full,” he says. “In the early days I’d go up and there were always empty floors. It was bizarre—floor after floor was empty. And within the community, I think there was a sense [that change] was on the horizon.”
While steel sales reached 5.9 million tons in 1979, the bottom was about to fall out of the industry. Requirements to control toxic emissions took a financial toll, as did labour unrest, which led to a 125-day strike in 1981. The effect on the city of Hamilton was significant, as it was on the company’s market share, with Stelco slashing 3,700 workers, nearly 30 percent of its entire workforce by December 1982. The company went on to post the first loss in its history in 1981—
$41 million in the red. Losses amounted to $200 million by 1990.
Other signs suggested the future would be similarly bleak.
“There’s a lot of history there,” Warrian says. “Back up 20 years ago and there was a very quiet conversation going on about the future of Stelco. The basic proposition was that a stand-alone steel company, unless it could bulk up to 10-million tons of capacity, would not be viable long term. Steel is cyclical and the notion was that during a downturn, smaller players would have to drop their prices, and given the labour issue at Stelco, that was difficult.”
Stelco would fight the valiant fight, but it was a losing effort. Despite lobbying North American car manufacturers to use its steel, by 2004 the company faced what would have been unthinkable even a generation before—bankruptcy. It would eventually enter bankruptcy protection, only to emerge two years later and post five straight quarterly losses. The only remaining choice for management was to sell the company before it was too late. The consolidation from which the company had been formed would again be its future.
“It may have been a question of failure of collective leadership,” says Warrian. “One hundred years ago you had this working under Aitken, but the leadership in recent years wasn’t able to make that work for Stelco. Something was coming, and being an orphan steel company was not going to be enough to allow Stelco to survive. How you dealt with that was the question.”
While some blame management and others see organized labour as the culprit for the inevitable sale to U.S. Steel, which was concluded in October 2007, Henley says that was simply the end result of changes in trading patterns over the previous decades. What was once done relatively inexpensively in Hamilton could now be accomplished more inexpensively elsewhere.
“I point to globalization,” he says. “You can do it elsewhere more cheaply and there’s the rise of major steel manufacturers using more up-to-date technology in other centres. The labour issue is a factor, but I don’t see it as the key factor.”
End of an era
Following the U.S. Steel purchase another economic downturn led to more layoffs. In March 2009, U.S. Steel shut down their Hamilton and Lake Erie operations and laid off 1,500. Although 800 were recalled in June as coke-making operations resumed, more than 1,000 unemployed staff at both plants have chosen to retire rather than wait to be called back to work, according to Local 1005 President Rolf Gerstenberger. In May, convinced that U.S. Steel had violated the Investment Canada Act by not maintaining levels of employment or production set out in the sales agreement, Industry Minister Tony Clement demanded compliance. Dissatisfied with the response, he sued the company in June—a lawsuit that may take years to grind its way through the courts.
The Hamilton works currently employs half the 1,700 it did before the recession hit (although U.S. Steel, which did not return phone calls for this story, lists the number of employees as 2,200 on the company’s website). As for the Lake Erie plant in Nanticoke, Gerstenberger notes “there were 1,100 workers before the shutdown in March 2009. Out of that number about 200 retired, about 150 are officially locked out and the balance are on EI, until their benefits run out.
“(Nanticoke) is the most modern steel plant in North America,” Gerstenberger says, “so it obviously has a future. But in my opinion, U.S. Steel wants to use the recession to try to get concessions from of the workers (whose contracts are up at the end of July.)”
The layoffs and drop in production have sent huge ripples through Hamilton, although some observers suggest that the impact may not be as serious as it might have been in the 1980s.
“I’m not sure there was this loss in our collective psyche,” says Michael Veall, professor of economics at McMaster University. “The long-term trend has been that steel in general has become less important in the varied economy over the last 20 years, so the fact that they’re at a very low level of operations is not as devastating as it would have been 20 or 30 years ago.”
The situation, expectedly, is viewed as much more serious by the union, which tried to block the sale to U.S. Steel. “We were one of the few that were opposed, saying this isn’t good for us and the whole issue of Canadian sovereignty,” says Gerstenberger, who believes the purchase is part of a “nation-wrecking” process. “It’s happening in mining, lumber, the steel industry, plus manufacturing—the foundations of Canada are being undermined.
“If U.S. Steel were to crater the Hamilton and/or Lake Erie Works, it would be a disaster for Hamilton and Canada,” Gerstenberger maintains. “Some in Hamilton are promoting that we don’t need a steel industry, that Hamilton can be a tourist destination as a ‘City of Waterfalls,’ or a research centre, but you can’t allow the manufacturing base to be wiped out. It produces value, which then pays for all the health care, education and social services that we as a people and country need. These essential services of a civilized society do not come out of thin air.”
While the city’s past and present are linked to the steel industry, that identity has to change if Hamilton hopes to prosper in the future, says Warrian.
“In the past, everyone in Hamilton knew what the steel company was—it was two great big [steel] plants. Everyone knew that, from the grandmother in the mall to the kid in the post office. But you don’t have steel companies or a steel industry like we once did. What we now have are major steel capabilities, but those are embedded in global supply chains that are fundamentally different from those we’ve known before.”
CLOUDY FUTURE FOR U.S. STEEL & DOFASCO
In search of demand
While the future is uncertain for U.S. Steel’s Hamilton plant, “it’s hard to imagine the Lake Erie works will ever be permanently closed, as it’s one of the newest and finest mills in North America,” suggests a Dofasco source, who requested anonymity. “As for steel producers such as ArcelorMittal Dofasco, the biggest challenge is to find new American markets as Canadian manufacturing goes the way of the dinosaur. Whether it’s the demise of an automotive assembly line (Ford’s St. Thomas plant), an appliance manufacturer (WC Wood in Guelph), a general manufacturer (Rheem’s water heater plant in Hamilton) or a drum and pail producer (ICL Industries in Brampton), we are seeing business after business leave Ontario and take the steel tons with them. Sometimes we are able to hold on to these tons by supplying the U.S. operation, but often we don’t.
“But globalization and consolidation will continue. We have already seen the demise of some famous past icons: Bethlehem, LTV and National. Currently, there are only a few big integrated players remaining: ArcelorMittal, U.S. Steel, Severstal (which bought out Rouge Steel, Wheeling Pitt & Warren Consolidated), Essar (which owns Algoma)
and AK Steel.
“Lower cost mini-mills (Nucor & SDI) continue to gain ground on the integrated mills because of their lower cost structure. Instead of using blast furnaces, which produce steel from scratch, these companies employ electric arc furnace technology to make steel from scrap. Dofasco has one of these furnaces too, producing about a third of our requirements.”
Charles Bradford, an independent steel analyst in New York, says heightened carbon emissions standards down the road would be fatal for Dofasco. But Dofasco says that’s news to them.
“I’m not sure where this is coming from,” says the source. “I have not heard any serious discussions about tougher environmental restrictions on carbon emissions that would limit our steelmaking capability. I can tell you that Dofasco’s airborne emissions have been reduced by close to 90 percent over the last 40 years, which in itself is remarkable. Of course we can be better (especially on certain bad actors such as benzene) but I’d be surprised if there will be any significant changes to the current legislation in the near term.”
While the concept of clustering as well as harnessing the city’s steel expertise in more modern ways is likely the only long-term solution (see page 26), overseas demand may yet add sufficient business to help keep both of Hamilton’s operations in business over the next decade. “While we have already seen China explode onto the scene, India is where we will see the most growth in the next 10 years,” says the Dofasco source. “For these developing giants, it’s like the industrial revolution has just begun. Building infrastructure will always require huge amounts of steel.
A TIMELINE OF STEEL IN HAMILTON
1880s Steel is first manufactured in Canada.
1900 Hamilton Steel and Iron Company begins first successful open-hearth steel -
making company in Ontario.
1901 United States Steel Corporation formed.
1910 June—Five companies merge and incorporate as the Steel Company of Canada.
1917 Stelco’s sheet mill built.
1918 Pension plan established.
1936 Steelworkers’ organizing committee forms Lodge 1005 at Stelco.
1940 Plate mill built to meet wartime demands.
1945 Collective bargaining introduced.
1946 Local 1005 strike from July 14 to October 3.
1948 Two-day open house draws 26,000 visitors. In response, the company decides to run regular public tours.
1950 40-hour work week introduced.
1951 Major plant expansion begins.
1952 March—Hamilton News reports that the new Canadian nickel is actually made of steel fabricated in Hamilton.
1955 Stelco’s total output for one year hits 2 million tons, half the total of all steel manufactured in Canada.
1959 Memorial to 169 employees who died during both World Wars unveiled November 11
at Stelco head office.
1960 Stelco establishes a chair in metallurgy at McMaster, plus scholarships and bursaries to mark its 50th anniversary. The company employs 15,500 (12,000 in Hamilton) and has plants in Toronto, Montreal, Contrecour, Brantford and Gananoque, plus mines in Pennsylvania, Minnesota, West Virginia, Michigan, Quebec and Ontario. New Hamilton City Hall includes Stelco steel in its
framework, flooring, moveable office partitions, desks and filing cabinets.
1964 Hamilton Works
renamed Hilton works in honour of former company president Hugh G. Hilton.
1967 Stelco builds research and development centre in Burlington.
1968 Stelco decides to move head office to Hamilton, prompting a public outcry.
1973 Stelco employees move from offices in Hilton works to the Stelco Tower, Jackson Square.
1980 April 22—Name officially changed to Stelco, largely to
conform with Quebec language laws.
1981 Stelco production and sales down as the result of a
125-day strike, the longest in its history; company goes on to post a loss of $41 million—its first time ever in the red.
1982 In June, staff salaries are frozen in an attempt to prevent layoffs. In October, 144 workers are laid off. By December, the total climbs to about 3,700, approximately 30 percent of the workforce.
1985 75th anniversary
1990 Steelworkers strike for 95 days, starting July 31.
1991 Stelco executive offices return to Hamilton.
2004 Stelco enters bankruptcy protection. Its problems include a $1.3 billion pension shortfall.
2006 Stelco emerges from bankruptcy and loses $240 million over the next year.
2007 October 31—U.S. Steel’s $1 billion (US) purchase of Stelco completed.
2008 November—U.S. Steel shuts down the blast furnace at the Hamilton works and lays off nearly 700 workers.
2009 March—U.S. Steel stops operations at Hamilton works, laying off 1,500 workers in Hamilton and Nanticoke. June—800 workers recalled to Hamilton works as coke-making operations resume.
July—Industry Minister Tony Clement sues U.S. Steel for violating terms of its sales agreement.