Bethlehem Steel Burns Harbor

The world's last integrated steel plant built by a company — five to six billion dollars, 1965–1970, with ingot casters that had to be ripped out and replaced with continuous casters in the mid-1970s. Almost bankrupted Bethlehem.

So what happened to the US steel industry? In 1968 when Armco Steel put in new casting facilities, and they could have put in a continuous caster, what did they put in? Ingot casting, because there was no risk. The Japanese were putting in continuous casters and they were beating your socks off with productivity. They went from six hours a ton to one and a half hours a ton because of the productivity increase of using continuous casting. When Bethlehem Steel built the world's last steel mill built by a company, in the 1960s — from '65 through '70, took them about five years to build it, probably about a five or six billion dollar investment, just about bankrupt the second largest steel company in the world, Bethlehem Steel — they put in ingot casters. Both these companies in the mid '70s took out their ingot casters and put in continuous casters at the cost of a few hundred million dollars, because all of a sudden they realized what they should have known ten years before — that continuous casting was the way to go.

Last private integrated steel mill ever built in the US, 1965, cost Bethlehem $5 billion (their entire year's gross product). Used to make the "no private company can finance an integrated steel mill anymore" point. Setup for Clayton Christensen / mini-mill discussion.

About a year before, I'd been sitting in the Saginaw, Michigan airport with one of my graduate students, and I'd sketched out on a piece of paper the approximate cost of an integrated steel mill, a mini mill, and a micro mill. A mini mill you could build for like 100 million dollars. An integrated steel mill was 15 billion, by my estimate. It cost Bethlehem Steel in 1965 5 billion dollars. That was their whole year's gross product, and they almost went bankrupt. By the time they hired me, it was the most profitable year ever — that's why they could afford to hire me. But they almost went bankrupt in the previous six or seven years.

1965–1975 construction at a cost of ~$1 billion. The last integrated steel mill built by a private US company. Tom invokes it to make the country-vs-company-investment point.

The continuous caster and the BOF all came in around the 1960s. The American steel mills, they were still using 1910, 1912 technology. Did I tell you the story about my being a young engineer at Bethlehem Steel? They had a meeting for one or two weeks in the summer — they took all 500 of their new college hires, whether you were an accountant or whatever, and very much segregated those who had a college education from those who didn't, basically the hourly workers from the salaried staff. It was a real rich-man-poor-man type of society.

Last integrated steel mill built in the United States by a private company. 1965–1972 construction, $5 billion, 7 years. Nearly bankrupted Bethlehem. Tom uses this to make the point that since then, integrated steel mills are built only by governments (POSCO via Korean government).

Gordon and a few other people around the world realized this, and they started what they called mini mills. Instead of a steel mill as big as — well, the last steel mill built in this country was the Bethlehem Steel Burns Harbor plant, from 1965 to 1972. It took 7 years to construct, it cost Bethlehem $5 billion. Bethlehem was the second largest steel company in the world at the time. They started the Burns Harbor plant, which is still in operation. It almost bankrupted them. I think they were only about $5 billion a year in sales, and so they were spending a lot of money on capital. It'd be equivalent today of Intel having to spend $20 billion to build a fab plant, or a $60 billion fab plant. It can bankrupt a company if things don't go right. Or Boeing deciding to build a Dreamliner — it can bankrupt the company if it doesn't come out properly.

Threaded through the lecture. Schwab founds Bethlehem after Carnegie fight; Bethlehem learns to roll I-beams (skyscraper enabler); Bethlehem develops hot-work tool steels; Bethlehem builds Burns Harbor in 1964 (last US private greenfield integrated mill) which nearly bankrupts the company; Tom joins in 1974 right after their peak year; Bethlehem ultimately goes bankrupt and Burns Harbor is sold for ten cents on the dollar. The Homer research lab ($600M in mid-1960s) is Tom's reference point for steel-industry technological seriousness.

If you're going to build bridges and buildings other than concrete and stone, you're going to have to have steel. To build modern skyscrapers — people attribute the fact that Bethlehem Steel, or Charles Schwab — he was running US Steel for Andrew Carnegie, had a fight with him, went off and took this little iron foundry in Bethlehem, Pennsylvania and created Bethlehem Steel, and became the second-largest steel company in the world after US Steel. Charles Schwab and Bethlehem Steel learned how to roll I-beams, and people point out that's when New York City was allowed to grow up. Before that the tallest building was probably ten stories tall. Some people say it wasn't just that, it was also Otis with his elevator, because not everybody wanted to climb up more than ten flights and back down to go to lunch. So between elevators and I-beams, the big-city skyscrapers came into being.

Last private-company integrated steel mill in the US; cost $5B in 1964; nearly bankrupted Bethlehem; ingot-cast rather than continuous-cast at startup (a strategic mistake); ultimately sold to ISG/Mittal for cents on the dollar after Bethlehem's bankruptcy.

An integrated steel mill, what we call it today — the last one ever to be built by a private company was Burns Harbor in Indiana, started in 1964 by Bethlehem Steel Corporation. It cost them about 5 billion dollars. They were the second-largest steel company in the world, and it almost bankrupted them. I went to work for them in 1974. It turns out 1973 was the most profitable year they ever had, and I try to say I wasn't the one who made them go down — it wasn't just me. It was because they built Burns Harbor, and they had one of the most modern steel plants in the world. These are the blast furnaces, about 20 stories tall. This is Burns Harbor, where the ore and everything comes in. It was laid out in a nice logical way, and these are some of the rolling mills, still in operation today.

The last company-built greenfield steel mill in the world (1965). Almost bankrupted Bethlehem; turned profitable by 1974. Used both as cautionary tale and as the reason Tom was hired at Bethlehem in 1974.

Part of the best part of Bethlehem Steel, the Burns Harbor plant, was the last large-scale steel plant built by a company in the world. Bethlehem decided to build a brand-new greenfield steel plant in 1965, and it almost bankrupted them. At the same time they decided to build the Homer Research Labs for $600 million, which is where I was hired in 1974. A $600 million research lab in 1966 — it was a Taj Mahal of research labs.

"The last steel plant ever built by a company in the world" — 1965, $6 billion. The anchor for Tom's argument that no shareholder-funded integrated steel mill has been built on a greenfield site since.

I bring in a copy of the slide. The slide was made in Saginaw, Michigan, in the airport when I was visiting General Motors with one of my graduate students, and we were talking about what his thesis was going to be, and I jotted down what it cost to build an integrated steel plant versus a mini mill — people were talking about micro mills back then. I pulled the numbers out of the air. Well, not completely — it was my best estimate: $15 billion to build an integrated steel plant in the mid '90s. I know what it cost to build a steel plant. The last steel plant ever built by a company in the world was the Bethlehem Steel Burns Harbor plant in 1965. It cost $6 billion. Burns Harbor, Indiana. You take inflation and so it's $15 billion to build one in the mid '90s — today it's probably $20, $25 billion. My number's not way off. $15 billion order of magnitude is the right type of number. So I gave the slide to Rebecca, and if you look in Clayton's book, I'm referenced for the cost of a steel plant. I just sort of pulled it out of the air — well, I had a basis for it. But now it's referenced in this great management text. So be careful when you see numbers. I only tell my students about it, because — hey, Clayton wrote it in his book, it must be the gospel, right? Clayton doesn't even know this story. All he wanted was a reference. I'm the professor of metallurgy at MIT — who would know better? In fact, I'll bet you I'm right.

Cost of last integrated steel mill built by a company rather than a country ($5B in late 1960s; Tom's $15B figure multiplied by 3x for 30 years of inflation). Cited in Clayton Christensen's *The Innovator's Dilemma* via Tom's daughter Rebecca.

I said, well, Rebecca, I've got a slide I put together. I was sitting in the Saginaw, Michigan airport with one of my graduate students one day. Plane was late, so I scratched this slide that had the cost of building steel mills — integrated steel mills and mini mills and micro mills — and how things had changed. I'll bring you a copy of the slide. It's just one PowerPoint slide and didn't have a lot of content, but it had some numbers. I had estimated, sitting there in the Saginaw airport, that it costs 15 billion dollars to build an integrated steel plant. I actually had a basis for saying that. The last integrated steel mill ever built by a company rather than a country was Bethlehem Steel Burns Harbor Indiana plant from 1965 to 1971 or so. Cost Bethlehem Steel five billion dollars to build that steel mill. That was in the late 60s. Bethlehem, which was the second largest steel company in the world at the time after US Steel, almost went bankrupt. Then they hired me in '74. That's not why — they actually started doing better. In fact, they started going down after they hired me, but nonetheless.

Last integrated steel mill built by a company (rather than a government). $5 billion in 1965 dollars — equivalent to $15–20 billion today. Nearly bankrupted Bethlehem. Profitable by 1974. Tom's bet-your-company example for capital intensity of fundamental industries.

Rebecca came home one day and said, dad, I can't find the cost anywhere. I've looked all over, can't find anywhere where it tells me how much it costs to build an integrated steel plant. I said, I've got that data, Rebecca, I've got a slide on it. So I came in, got my slide, made a copy of it, gave it to Rebecca. I had estimated 15 billion dollars. I estimated this sitting in an airport in Saginaw, Michigan, with one of my graduate students, and we compared the cost of mini-mills and integrated steel mills. There was a new type of thing that Gordon Forward was promoting called micro mills that wouldn't be so many huge tons — like 5 or 10 million. It turns out, the last company in the world to build an integrated steel plant was Bethlehem Steel, the company I worked for in 1965. They built the Burns Harbor in Indiana plant for 5 billion dollars. They almost went bankrupt, because 5 billion dollars in 1965 was a huge sum — it'd be like 15 or 20 billion dollars today. An investment like that can bankrupt the company; it almost did for Bethlehem Steel. By 1974 they were making more money than they ever had, because they now had a modern facility.

The last integrated steel mill built in the world by a private company (1964, finished c. 1972). Five million tons per year, two blast furnaces, ~$5 billion. Burns Harbor's relining and "government job" culture used to introduce the corruption-and-arrogance theme; in §7.p7 it returns as the case showing that high-productivity assets did exist in U.S. steel and were retained while others closed.

Integrated steel mills got to the point where they would consume tens of square miles and would cost about five billion dollars — today would be about twenty billion. The last integrated steel mill to be built in the world by a private company was Bethlehem Steel Burns Harbor in Indiana, started in 1964, finished about eight or ten years later. It could produce five million tons per year, which was five percent of the U.S. steelmaking capacity at the time. It had two blast furnaces, so if one went down you didn't shut down the whole mill, because it can take three months to reline a blast furnace. When I lived in Bethlehem Pennsylvania, they relined the blast furnace, and that's when everybody got new grills for their patio. Everything went — it was a huge project, cost a couple hundred million dollars, and they were building all kinds of things in the shops, many of which actually went to the steel mill but most of which went to the people's homes. [laughter] Extra stuff — they call it a government job, if you've ever heard that.

But they could do it with a twentyfold reduction in capital. An integrated steel mill today would cost you twenty billion dollars. You can build a mini mill — and if you remember the picture of the Burns Harbor, Indiana plant of Bethlehem Steel that stretched for miles — this mini mill stretches for yards. That's a twentyfold reduction in capital. Over here is the electric furnace melt shop, whereas this wouldn't be twenty-five percent of the melt shop in a big integrated steel mill. The rolling mills — they're only making one kind of product. They're not trying to make a hundred different products. They're going to focus on one product to begin with, and they don't care, they're just going to take a small piece of the business. The big guys laughed at them and thought those guys would never go anywhere. That was the mid-70s — I was working for an integrated steel producer, and I remember all the jokes that people were making about the mini mills. Well, today about half the steel in the United States is made by mini mills, and it's not just the low-end stuff. They just kept on getting better and better.

Last large-scale privately-financed steel mill in the world (1968–1973). Bethlehem nearly bankrupt during construction; mill survived as ArcelorMittal property after Bethlehem's bankruptcy. Still the most efficient U.S. mill.

They built a brand new steel company in 1972. Building a brand new steel company is a 15 billion dollar venture. It's the same as Intel building a new ultra-fine-scale fab shop. It's the same as Boeing deciding to build a 787 Dreamliner. These 15 billion dollar investments will sink a company if they're not successful. Bethlehem Steel built the last large-scale steel mill in the world financed by a private company in 1968 to 1973. They built Burns Harbor in Indiana. Bethlehem was the second largest steel company in the world at the time. They almost went bankrupt until the steel company finally started producing higher productivity with the newer equipment. Burns Harbor in Indiana is still going — most efficient steel mill in the United States, because it's the newest one. There have been other steel mills built in other parts of the world, but every one of them, just like the Koreans and the Japanese, were funded by entire countries. It wasn't an individual company. When Intel wants to build a new fab, or Boeing wants to build a new airplane, they have to fund it themselves. But the steel industry — basically it's just a commodity product.

Last commercially built integrated steel mill in the world (1964, completed ~10 years later), still the most productive mill in the U.S. because it's the only modern one. Tom's anecdote about the Bethlehem finance VP who didn't understand depreciation — used to teach why Bethlehem went bankrupt and why Japanese postwar mills outcompeted U.S. integrated mills in the 1970s.

Andrew Carnegie's real thing, just like Bill Gates wants to improve health in the third world, was education. So there are Carnegie libraries, Carnegie Mellon University. He gave a tremendous amount of his fortune away to universities. Integrated steel mills — most world steel is still made in integrated steel mills. The last commercially built integrated steel mill in the world was Burns Harbor, Indiana, built by Bethlehem Steel starting in 1964, finished about 10 years later, right on Lake Michigan. This is only part of it. It stretches for miles. It's as big as the MIT campus, and a lot more industrial.