Economist: Future of Hamilton steel depends on research and development

With the recent court decision to sever U.S. Steel Canada from its U.S. parent, the future looks bleak for many of Hamilton's steel workers, pensioners and the city of Hamilton.

In fact, with the future looking so bleak for Hamilton's former steel workers, the federal government could sue U.S. Steel over "unacceptable" behaviour towards former employees.

• READ MORE: More details on U.S. Steel decision expected Tuesday
• READ MORE: U.S. Steel flags disappear from plants minutes after court decision

At the same time, Dofasco is painting a much different picture of the future of the steel industry.

Metro Morning's Matt Galloway spoke with Armine Yalnizyan, senior economist with the Canadian Centre for policy alternatives, to better understand this tale of two steel companies.

Below is an abridged, edited transcript of that interview.

What is getting your attention about the differences between Dofasco and US Steel Canada?

The first headline piece of information is U.S. Steel is running at 72 per cent capacity. Dofasco is running at 97 per cent capacity and cannot fill the job vacancies that it has got. U.S. Steel is losing so much money it's cutting pensions and health benefits to its retirees, it's not paying property taxes and it may not survive until the end of the year and there goes about 2,000 jobs.

Dofasco is, by far, the larger company. It's got about 5,400 workers, but it's flying under the radar. It has promised to hire about 1,000 people over the next three years. As their president said to a local chamber of commerce, any company promising to hire 300 people a year would be given a parade. Here, we're not even talking about it.

What's the cause of the differences here?

It's about investment. Hilton Works is over 100 years old. It's always been very difficult to streamline physically, and it's a company that's not invested in that physical plant for a long time, so it's the aging part of the plant that's coming home to roost.

Meanwhile, Dofasco has spent $250 million in investments in the last few years – upgrading processes, technologies and changing up their products. What happens is Dofasco is doing 40 per cent of their business with auto. What does auto want? Lighter cars, more fuel efficiency, which means a different type of steel. So they're both producing steel, just for different products.

Technology is leading the evolution of steel. The changes are coming hand-in-glove with science. If you snooze you lose.

You'd think that imports would have something to do with challenging these companies. Is that the case?

Oh yeah. That's really what's dogging the industry everywhere, not just in Canada. There's huge overcapacity everywhere in the global market. We've got more product than we have demand and that's getting worse as global demand stutters along.

The cheaper products are eating up our market right now. Imports account for a whopping 60 per cent of what we need in terms of steel in Canada. And the biggest pressure is coming from China, because Chinese companies are state owned – they don't have to make a profit. It's a completely different business model for a fraction of our cost.

And the competition is really high in these basic products like reinforcing bars, steel pipe etc. But the challenge isn't just from lower cost. The challenge is coming from different sectors like aluminum.

Can steel production survive and be an important sense of income and employment and be an industrial driver in a city like Hamilton?

I think absolutely. The moral of the story of this tale of two steel companies is the root of success is research and development. You've got to keep on top of how this product is evolving and how we make things is evolving in construction and aerospace and auto. Steel is everywhere, but we need a different type of steel now.

But don't confuse a globally competitive, cutting edge company that can produce lots of profits with a company that can produce a lot of jobs. A lot of what we're seeing in these plants is robots doing it, science doing it. Companies going bust is just half the story. The other half is what happens to the people who are left behind.