United States Steel: A Corporation with a Soul. Arundel Cotter
into merchantable products what had formerly been waste. The manufacture of the so-called by-products of the steel industry had been practised in Germany for many years, and to a limited extent in this country as well. But to get the best results not only was a considerable outlay for new plant equipment required, but the services of a corps of trained and experienced chemists had to be engaged. And this meant such an expense that, especially as the whole by-product idea was in a somewhat experimental stage, companies even of a moderate size as steel companies go hesitated to undertake it. With the Corporation’s vast resources, many subsidiaries, and large output the expense of experimenting and investigating was spread out so as to be hardly felt, a careful study of the subject was made, and necessary plants were erected. This has borne fruit not alone in increasing profits for the Corporation and its stockholders but in blazing a path for the steel trade of the United States as a whole (all the larger steel companies have by-product plants to-day), and finally in effecting an important conservation of the natural resources of the country.
Nor, as events of the last few years have shown, have the benefits of the developments of by-product manufacture been confined to the Corporation, the steel trade, or even the United States. Chemicals derived from coke by-products are necessary in modern warfare. They form the basis of high explosives, gases, etc., and when the European war broke out the world at large realized that Germany, in protecting and fostering her by-product industry, had really been preparing for war. The benzol, toluol, and other chemicals manufactured at the coke by-product plants of the Steel Corporation and other companies in this country played an important part in stopping the German hordes and in saving civilization.
Coke, the fuel used to make steel, is obtained, as is probably universally known, from coal. In the old days of the trade, and to a great extent still, the coal was burned in brick ovens with open tops, known as bee-hive ovens, which produced about sixty tons of coke from each 100 tons of coal and blew out in smoke into the air the oils and gas contained in the coal. Even to-day, in the great coal fields that lie near Pittsburgh, may still be seen the dense smudge that arises in the air from thousands of these ovens. But their day is surely, if slowly, passing. In the modern by-product coke ovens sixty-five to eighty tons of coke are obtained from 100 tons of coal, a gain of nearly 25 per cent. in the case of low volatile and about 8 per cent. with high volatile coals. Nor is this saving all. The gases with their oil content instead of being blown out into the air and burned are conducted through pipes to an intricate apparatus where coal tar, ammonium sulphate, a valuable fertilizing agent, ammonia, and benzol, an important base for high explosives and dyes and also usable as fuel for motor cars, as well as other products are extracted, and the gas itself is made available for use in motor engines or in illuminating. More than one city to-day lights its street with the gas from by-product coke plants.
As it requires more than one ton of coke to make a ton of steel it is plain that the 25 per cent. saving in the amount of coke obtained from coal by use of the modern by-product ovens means an enormous economy to the Corporation which produces from seventeen to twenty millions of tons of steel a year, and the saving of four to five millions of tons of coal to the country. Nor are the profits derived from the sale of the by-products themselves immaterial.
How profitable is the manufacture of coke by-products is indicated by the fact that for years before the World War, and possibly even to-day, the patentees of one by-product process were usually willing to erect a plant in connection with a steel plant, at a cost of several millions, and to take their pay for it from the profits of the by-products alone, handing the plant over to the steel company at the end of a stated period. They said in effect: “You give us the coal and we will hand you over the coke produced from it; and in twenty years we will give you the plant.” The Corporation, however, has always erected its by-product coke plants at its own expense.
Another important economy in its saving of both labor and material is found in the generation, from what were formerly the waste gases of blast furnace operations, of electric power for running the entire steel mill.
Still another by-product of the steel industry, and one that means material profits from waste, is Portland cement. In this is utilized blast furnace slag, formerly not merely a waste but a source of expense as it had to be freighted away from the mills and “dumped.” The manufacture of cement from slag had been carried on before the Steel Corporation was formed by the Illinois Steel Co. but only in a small way. The big company extended the cement industry as a side line to steel and erected several new plants, the largest being at Buffington, Indiana. It now has a capacity of about 45,000 barrels a day.
Greater earnings for the Corporation, larger profits for its stockholders, are represented by the extension of the manufacture of these by-products. But, beyond this, the cultivation of this part of the industry means an appreciable reduction in the cost of manufacturing steel, and consequently lower prices to the consumer and the possibility of higher wages to the worker, as well as the elimination of waste and the conservation of the natural resources of a continent.
Besides integration and the achievement of economies the early history of the United States Steel Corporation is largely a narrative of expansion, the building of new plants, and the acquisition of other companies. First of these acquisitions was the purchase, consummated about a month after the Corporation was organized, of the Bessemer Steamship Co., a Rockefeller concern engaged in traffic on the Great Lakes and which had been closely affiliated with the Lake Superior Iron Mines. This company had a fleet of 56 vessels (included in the number of vessels given as taken over by the Corporation in a previous chapter). The new organization paid $8,500,000 for the stock of the company, or about $150,000 for each vessel of the fleet.
In the same year control of the Shelby Steel Tube Co., a New Jersey company owning the principal basic patents for the manufacture of seamless tubes, and having an outstanding capital of $5,000,000 of preferred and $8,150,000 of common stock, was secured, the exchange of securities being made on the basis of one share of U. S. Steel preferred for 2⅔ shares of Shelby preferred, and one share of Steel common for four shares of Shelby common stock. Practically all the stock of the Shelby company—$4,776,100 preferred and $8,018,000 common—was acquired, giving the Corporation a substantial controlling interest.
In 1901 also the Corporation purchased by exchange of stock one-sixth interest in the Oliver Iron Mining Co. and the Pittsburgh Steamship Co. The Carnegie Steel Co. already owned the other five sixths of the securities of both these concerns and this gave the Corporation complete ownership.
In December, 1902, an important deal for the absorption of the Union Steel Co. was consummated. This company was a merger, effected only a month or so previous to its absorption by the Steel Corporation, of the Union Steel Co., a $1,000,000 concern owning a large plant for the manufacture of wire rods, wire, and nails at Donora, Pa., and the Sharon Steel Co., a $6,000,000 company making a similar line of products and located at Sharon, Pa. The merged company had an authorized capitalization of $50,000,000 and a capacity of 750,000 tons of pig iron and 850,000 tons of ingots yearly. The purchase was carried out on the following basis: The Steel Corporation guaranteed an issue of bonds on the Union-Sharon properties amounting to $45,000,000, of which $29,113,500 were issued to pay for the properties, $8,512,500 were purchased by the interests controlling the properties, $3,500,000 were reserved to retire bonds outstanding on the property of the Sharon company, and the balance was reserved to provide for future construction and improvements. The actual cost to the Corporation was fixed at $30,860,501, as follows: bonds guaranteed and issued, $29,113,500; underlying bonds assumed, $3,591,000; cash $497,990; total $33,202,490; less liquid assets taken over with the properties, $2,341,989; net cost, $30,860,501.
Down in a Coal Mine
By this transaction the Corporation acquired five blast and twenty-four open-hearth furnaces, two blooming and slabbing mills, four rod mills, two wire and nail mills, one skelp works, one tube works, one plate mill, one tin plate plant, one sheet plant, a by-product coke plant of 212 ovens, two modern ore steamers, 4,750 acres of coking coal, 1,524 acres of steam coal, and the ownership of two mines and leases on another two in the Mesaba Range with an estimated ore deposit of 40,000,000 tons.