In my many columns over the past few years I’ve written about the timeless lessons I’ve learned from what’s now been more than 32 years following the global steel industry. Over time, I’ve discovered that the more things change the more they stay the same, and I’d like to address a few new ideas and revive a few old ones.

Cost-cutting programs
I can’t imagine that U.S. Steel Corp. could possibly find a better name for their new cost-reduction program than the Carnegie Project. Andrew Carnegie was a notorious penny pincher and was purported to be the model for Walt Disney’s Scrooge McDuck, Donald’s miserly uncle.

I’d argue that cost-cutting programs are a mistake and that profit-incentivized management is far more long lasting and productive. For years, I have likened lean management to the newly reborn individual with a “near death” experience; as we know all too well, without “hitting bottom” real lifestyle change rarely happens.

It might not be intuitively obvious to most, but virtually every steelmaker in the United States today went through a real bankruptcy or a near bankruptcy, with U.S. Steel the most notable exception. (History wonks note: Nucor Corp. nearly went belly up, although that was before it got into steel.)

U.S. Steel went through its first cost-cutting program in the 1980s, when chairman David Roderick hired legendary cost-cutter Tom Graham. Will Mario Longhi be able to emulate Graham’s success at U.S. Steel? And the bigger question is why--after five years of compressed margins/selling values/operating rates--are we only now seeing this plan? While John Surma’s team brought innovation, outside-the-box thinking and smart move, at this point in the cycle there really shouldn’t be any superfluous costs left.

If you build it they will come
The latest folly in the “what were they thinking” department is ThyssenKrupp AG’s Brazil/Alabama mill, which has already cost the company some $15 billion since its inception. I call it a mill because that’s what it is--a multicontinental attempt to rebuild Canada’s Dofasco, which ThyssenKrupp lost to Arcelor before Mittal became part of its name.

While ThyssenKrupp’s management attributes the investment’s problems to the global recession, I believe the recession simply gave the company an exogenous adversity (the dog ate my homework) on which to blame what may go down as the single worst investment in the Western steel industry of this generation. The ongoing soap opera of Cia. Siderurgica Nacional SA buying/Cia. Siderurgica Nacional not buying is truly one of the most embarrassing management follies I have ever witnessed.

Governments shouldn’t be in the steel business
While today’s villain is clearly China--where subsidized high-cost steelmaking dominates the landscape--other regions wrote China’s playbook, particularly Europe. What joy there has been watching Mittal Steel and then ArcelorMittal SA take over the bloated bureaucratic state-owned giants and turn them around. I originally had high expectations for the Chinese government in steelmaking; what other industry could benefit more from long-term and central planning? But rather than capitalize on its buying power as the largest steel importer buying from a fragmented supplier base at the start of the last decade, China instead chose to tip into overcapacity and become the world’s largest iron ore customer, buying from highly consolidated and sophisticated vendors, ceding control of its input chain and in general turning gold into straw.

The China Iron and Steel Association (Cisa) ought to read the biography of Carnegie and think hard about whether it makes sense to import high-priced ore and export low-priced steel.

Expect the unexpected and maintain flexibility
Which of us forecast the defining trends of the first decade of this millennium? Who in 1990 would have foreseen the Chinese juggernaut, the bankruptcy restructurings or the pricing power of the iron ore industry? And since the start of the Great Recession, who would have foreseen the shale gas revolution? Course reversals are the norm, not the exception. A good example was the yen/dollar relationship; in the 1980s, the yen hit 255 to the dollar, making the steel industry west of the Mississippi essentially a Japanese market. More than a few domestic steelmakers shuttered and/or sold off unprofitable plants during the 1982-86 time frame, when the United States’ global competitiveness was at its nadir. As the yen dropped to 100 from 1986 to 1989, previously uncompetitive plants became very competitive--but domestic mills had no interest in repatriating these orphan assets, even at discount prices. Unilaterally, the response was “we just shut the facility” even though the fundamentals had done a 180-degree turn.

I’d contrast that with Nucor. Birmingham Steel built a direct-reduced iron (DRI) facility in Louisiana in the 1990s, which was well-positioned geographically but poorly positioned economically with high domestic gas costs. When Nucor ultimately acquired the failing Birmingham Steel Corp. more than a decade ago, the DRI facility was simply packed up and moved to a region with lower natural gas prices; it cost roughly 50 cents on the dollar vs. building a new plant. Fast forward 10 years, and without blinking an eye Nucor is building a new DRI facility in the same spot.

Accept globalization--it’s not going away
Globalization works only when the more narrow parochial needs are being met. At the risk of picking on ThyssenKrupp, the Brazilian plant has as many “globalization” issues as it does operationally. Most important today is that the Brazilian government is “invested” in picking a successor owner to ThyssenKrupp and thereby controlling the company’s ability to divest, unless ThyssenKrupp decides to simply walk away. This actually happened to a number of domestic mills that invested in South America, which saw facilities become nationalized. The history of globalization is about local needs being met with global resources. As soon as local needs stop being met, globalization stops making sense.

Michelle Applebaum is an independent steel analyst who runs a five-member research and consulting company in Chicago. She can be reached at michelle@michelleapplebaum.com.