Armco works to reverse losses
The Kansas City Times
By Rod Perlmutter of the Business Staff
August 23, 1987
Later this year, Armco Inc. will begin the biggest innovation at its Kansas City operations in a decade with the installation of a $7 million ladle arc refiner at its plant at 7000 Roberts St.
Lawrence Hicks, the newly appointed president of Armco’s Midwestern Steel Division, said he knew that he could not depend on the new ladle arc refiner to correct the woes of the area plants, which haven’t been profitable since 1981.
However, Hicks and union officials are optimistic about Armco’s operations in Kansas City. They cite increased quality and efficiency at the plants, which have an annual payroll of about $93 million and employ about 1,880 people.
“Our losses have narrowed, but not nearly enough to ensure that they cured the problem,” Hicks said. “They’re still big losses.”
Hicks, who was appointed June 30, would not disclose what the losses for the division had been for the last five years. However, Armco, which is based in Parsippany, N.J., lost , $472 million systemwide in 1986. Except for the ladle arc refiner, Hicks would not say what other measures were planned to make the plants profitable.
But John Jacobson, a steel analyst at Wharton Econometrics in Bala-Cynwyd, Pa., said the Kansas City plants manufactured “the kind of steel that most of the integrated steel companies are trying to get out of.”
That’s because competition from foreign importers and domestic “minimills” have greatly reduced the profitability of the type of products the Kansas City operations make. Those types of products include:
Grinding media, which are forged steel balls and rods used primarily to pulverize ores such as copper and iron. Hicks said that Armco dominated the grinding media market but that that production represented only about one-eighth of the plant’s production, which is projected at about 740,000 tons this year.
Wire rope, which is made at Armco’s plant at 2100 Manchester Ave. and is its least-profitable product. Wire rope is used in oil fields, and oil field activity has dropped dramatically in the last five years.
Hot-rolled coiled rods, which make up more than two-thirds of the Kansas City plant’s production and is considered the “pivotal business.”
“We’re going to rise or fall depending on what we do with rods,” Hicks said.
Steel rods are used in the manufacture of wire and automotive and other products, such as fencing and bed and upholstery springs. Hicks said the rod market was more stable than the wire rope market because its buyers were in a wider range of industries.
Christopher Plummer, a steel analyst for Wharton Econometrics, said that last year was a record year nationwide for wire rod shipments, which included coiled rod. And shipments for the first six months of this year were running higher than in 1986, Plummer said.
But a big chunk of that shipment was imports: About 1.4 million tons of the 4.8 million tons of wire rod shipped last year came from abroad, Plummer said. And about 30 percent of the wire rod shipped in the first six months of 1987 was imported.
Even though the wire rod market has been “hot” this year, Plummer said, it is still not an inviting market for an integrated steelmaker because other steel products are more profitable.
“Integrated” means that the company melts coke out of metalliferous coal to produce pig iron and then produces steel products from that. Armco operates coke furnaces at its Ashland, Ky., and Middleton, Ohio, plants.
In contrast, a minimill melts scrap metal, instead of coal, to produce steel.
Like a minimill, the Armco operations in Kansas City make steel out of scrap metal. But the Armco operations’ size and labor costs make it tougher to be competitive with smaller, non-union, minimill operations, Jacobson said.
As the minimills, such as the Laclede Steel Co. in St. Louis, grew, Armco’s Kansas City operations shrank. Employment at Kansas City has fallen by half since the beginning of the decade.
But union representation does not preclude competition with the mini-mills, said officials of Armco and the United Steelworkers of America.
Labor costs in Kansas City have been reduced, said John Cottrell, president of Local 13 of the United Steelworkers union. Steelworkers at Armco’s union wire rope plant are represented by Local 2916 of the United Steelworkers.
Labor costs in Kansas City have been reduced, said John Cottrell, president of Local 13 of the United Steelworkers union.
Last year, the unions ratified a contract that reduced labor costs by $7 million, Cottrell said. The contract included cutting wages and benefit costs per hour by about $2.25, including a $1 an hour decrease in the basic wage.
The contract also eliminated one week of paid vacation annually for every employer who qualified for more than two weeks of vacation each year. The vacation savings alone equaled about $650,000 a year, Cottrell said.
As competition increased, Armco has responded by trimming operations.
According to the American Iron and Steel Institute in Washington, in seven years, Armco has shut down or sold off more than 29 operations in nine states, including seven operations in Kansas City.
(For more information about the Armco plant, please see these articles by Rod Perlmutter in The Kansas City Times:)
“Leaner, stronger Armco may emerge from closings,” December 2, 1987.
“Armco identifies investor; St. Joseph firm is looking at wire rope plant,” December 3, 1987.
“Union Wire Rope’s suitor owned by colorful, civic-minded family,” January 5, 1988.
“Armco to sell units from KC operations,” September 17, 1988.