Moving Metal

A PROBLEM OF SUPPLY Gimbel’s “bullish” outlook was, perhaps, all the more remarkable because Reliance had just been through some tough years adjusting to the decline of the domestic steel industry and the rise of foreign suppliers. It was an old story. American producers had never fully recovered from the 1959 nationwide steel strike. For years afterward, struggling domestic firms complained that foreign exporters—especially the Japanese—were “dumping” steel, charging below-mar- ket prices and undercutting their business. They were right to an extent, but the truth of the matter was that much of the U.S. industry’s problems were of its own making. While U.S. producers delayed investments and paid ever-higher costs, European and Asian industries raced ahead, building more and more efficient and nimble mills. By the 1970s, the U.S. mills were closing and taking hundreds of thousands of jobs with them. Congress and a succession of administrations were eager to help, imposing new regulations and enacting increas- ingly stringent laws governing the importation and pricing of foreign steel. These were misguided efforts: they only shel- tered inefficient and moribund producers for a time, and in the process hurt companies like Reliance, which had come to rely on imported steel since the early 1960s. The latest blow was the Carter administration’s January 1978 implementation of the “trigger price mechanism” (TPM) system, which provided that imported steel could not be sold below a level established by the U.S. Treasury without precip- itating an anti-dumping investigation against the offending foreign producer. TPM caused more problems for U.S. con- sumers than it solved for producers. In response, the Japanese scaled back exports to the United States by twenty percent, creating a shortage in the metals service center industry and

generating political pressure to end TPM. During a meeting of the Association of Steel Distributors, a Carter administra- tion official admitted that TPM’s framers did not anticipate the problems that it had created. “The Treasury Department has just realized the extent and variety of roles filled by distribu- tors,” he acknowledged. Still, he insisted, when it came to solving the crisis in the metals service center industry, it was “beyond our ability to help.” With Reliance’s carbon steel flat rolled business at stake, Bill Gimbel was livid. “The U.S. Treasury Department plans to ignore the plight of the independent domestically owned service centers,” he informed the directors. “If this represents the attitude of the government towards us,” he fumed, “then we had best take steps to protect ourselves by whatever legal means we can.” Reliance Vice President Bob Zurbach conducted an analysis of the TPM regulations and devised a work-around. He suggested that Reliance consider incorpo- rating a foreign-based trading company in Nassau, Bahamas, to purchase steel on the world market for resale in the United States at “trigger” prices. Gimbel liked Zurbach’s idea but never approved the foreign trading company scheme. Reliance did, however, begin allocating most of its expansion funds to specialty metals and started segregating carbon steel from other product lines. Meanwhile, management also considered spinning off the Vernon carbon steel operation, which, due to the steel indus- try’s decline, had become the least profitable segment of the business. In 1980, Reliance split off the aluminum and stainless steel operations in Vernon, and moved them to a newly-built 77,000-square-foot plant in Cerritos, which it called Metal- Center. The Los Angeles location retained the carbon steel operations and prepared for a possible spin-off, but held back

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