Organisation of the industry: At the turn of the century, there was much horizontal integration and merger activity reflecting, amongst other things, a desire to reduce competition and to increase the scale of enterprises. Some companies became involved in vertical integration, being particularly anxious to secure their supplies of coking coal and iron ore (the US relied very heavily on indigenous ores at this time). The steel industry was clearly in need of restructuring by the early 20th century having grown in the main out of its predecessor, the iron industry. In 1901, the US Steel Corporation was established. This huge organisation incorporated the very efficient Carnegie Steel Corporation with several other companies. This was for many years the largest corporation in the US. It rapidly secured great coal supplies in the Appalachians, Rockefeller’s ore interest at the West of Lake Superior and also his shipping company controlling movement of raw materials through the Great Lakes. The new US Steel Corporation rationalised some of its undertakings in the early years but established major new enterprises e.g. the new steelworks at Gary in 1906. This corporation came to control about 2/3 of American steel production; its works were concentrated particularly in the Pittsburgh/Appalachian area and along the Great Lakes. Another major steel company, Bethlehem Steel Corporation, owned plants further east in the Manufacturing Belt. Other major companies included Jones and Laughlin and Pennsylvia Steel. Clearly, great concentration had occurred in the American steel industry in the early 20th century. The US Steel Corporation was such a powerful influence in terms of US steel production that it soon imposed price leadership on the entire industry. In 1907, it instituted the Pittsburgh Plus Pricing System (PPPS). This was a basing point system whereby steel was sold all over the US at the price of steel made at Pittsburgh, together with the associated transport costs to the point of delivery – this was regardless of whether or not, for instance, the steel had been produced in the consumer’s home town. This gave a clear advantage to the steel producers of Pittsburgh because their prices were not undercut by producers nearer the market. This system tended to discourage the establishment of steel plants in new locations away from the traditional heartlands of the industry. The PPPS was deemed illegal in 1924 and was replaced by a multiple basing point system which continued to emphasise the importance of the traditional steel-making areas. This system ended in 1948.
Location: During the first 40years of the 20th century, the steel industry had a very distinctive spatial distribution. The greatest concentration of steel plants lay in the Western half of the Manufacturing Belt.
- Coal-field orientation: e.g. Pittsburgh, Youngstown, Johnstown
- Intermediate lake-side orientation: e.g. Chicago, Cleveland, Detroit, Buffalo
- Ore and Coal orientation: Birmingham, Alabama
- Ore-deposit orientation: Duluth (of much less importance)
- Eastern seaboard location: e.g. Baltimore (and Trenton)
The US Steel Industry 1940-1970
This was a period of general prosperity, but also of misplaced complacency in the American steel industry. Output increased to 91million tons by 1970 and would subsequently peak at 111.4million tons in 1973. During the decades of the 1940s, 1950s and 1960s, significant changes occurred in the steel industry in terms of raw material inputs and demand.
Raw Materials
Iron Ore: Prior to 1940 the US steel industry had relied heavily on indigenous ore supplies. Over the following decades home-produced ores, including high grade haematite form west of Lake Superior with their 60% metal content, were severely depleted. Increasing quantities of ore had to be imported from Latin America, from Labrador in Canada and from Africa. These movements were facilitated by the technological advances and increased size of ore-carriers. While such vessels achieved economies of scale and reduced unit transport costs, they also required special berthing facilities in terms of deep-water harbours. By 1970 about 1/3 of the ore used in American steelworks was imported.
Scrap Metal: Increasing quantities of scrap metal were used in steel-making. Scrap was more-or-less ubiquitous in the major urban areas and was an input which would favour market locations for steel production.
Coke: Technological advances in steel-making resulted in decreasing quantities of coke required per tone of steel produced. This relaxed to some extent the locational pull of the metallurgical coals and coalfields.
Demand for Steel
WW2 produced a massive increase in the demand for steel during the 1940s. The industry assumed great strategic importance because of its contribution to shipbuilding, military vehicle production, armaments manufacture etc. Subsequently, the Korean War in the 1950s, the Vietnam War in the 1960s and the on-going Cold War maintained the demand for steel from the defence industries.
Following WW2, there was a prolonged economic boom in the US. In this Fordist era of mass production and mass consumption very large quantities of steel were needed for automobile production, for ship-building, for construction, for various forms of engineering, for pipes, for household goods, for tinplate and for many other uses.
The Location of the US Steel Industry 1940-1970
The above changes in raw material input to and demand for the products of the US steel industry between 1940 and 1970 were significant influences on the location of the industry.
During WW2, some of the new steel-making capacity was located in the south and west. For e.g. a new steelworks was located at Geneva in Utah (some raw material orientation here) and another at Fontana in South California. Sites were chosen which were believed to be safe from possible enemy attack. Much federal government investment occurred in new steelworks during the war and these plants were subsequently sold-off to the private sector. In spite of this slight locational shift towards the south and west, the bulk of new wartime steel-making capacity was in the traditional manufacturing areas of the northeast and the north so that in 1945, 90% of US steel production still occurred in the Manufacturing Belt.
A certain amount of both consolidation and of change occurred in the location of American steel production over the next quarter century so that by 1970 the industry was located as follows:
Eastern Seaboard: Approximately an eighth of US steel production was in this area. Developments included the integrated Fairless Works built in 1952 by the US Steel Corporation on a Greenfield site in East Pennsylvania with easy access to imported ores and to Megalopolitan markets. By 1960 Bethlehem Steel Corporation’s plant at Sparrows Point, Baltimore had expanded to be the largest in the world, employing 30,000 people. Much of its output supplied the tinplate industry and shipbuilders.
Shores of the Great Lakes: Approximately a third of US steel production occurred at plants in Buffalo, Cleveland, Hamilton, Detroit, Chicago and Gary. In most cases these represented trans-shipment points where raw materials for steel-making could be easily assembled. Ores could be brought by water from the west of Lake Superior and increasingly up the St. Lawrence from foreign sources. Meanwhile, coal from the Appalachians and the interior coalfields could be transported to the Great Lake shores by rail. The Chicago-Gary areas were particularly important steel production nexus during the 1960s and represented at the time the largest such production area in the world. The area had excellent rail and water transport links, including deep water harbour facilities and had access to the major steel markets of the Mid West Manufacturing Belt.
Pittsburgh and Pennsylvania: Approximately a third of US steel production remained in this area. The relative importance of Pittsburgh’s share of American steel production had been declining since the start of the 20th century although in absolute terms, output increased during the 1960s. Steel production in this area demonstrated classic characteristics of industrial inertia as many of the original favourable locational determinants were no longer operative. Local iron ore supplies were now exhausted, local markets were now restricted and narrow valley floor sites had become congested. Pittsburgh remained significant however as a major locus of administration and of R&D for the steel industry.
Areas beyond the Manufacturing Belt: The reminder of American steel production occurred in the south and west of the USA where markets were expanding in the Sunbelt. The increased proportion of steel production in areas other than the north and northeast illustrates something of a locational shift in the industry, but the extent of this should not be exaggerated.
In 1969 the US Steel Corporation was the largest steel-producing company in the world and it accounted for a quarter of US steel production. Second and third in terms of output were the Bethlehem Steel Corporation and the Republic Steel Corporation respectively.
Conclusion
The 50s and 60s were a period of prosperity and large scale production in the US steel industry. However, rationalisation had also been on-going with more than 100 plants closing during these decades. Incipient problems relating to lack of innovation, poor management and import penetration were beginning to emerge and would become particularly serious during the next 2 decades.