(Corrects last paragraph: U.S. Steel says plant manager
misspoke and meant to say "million," not "billion")
By James B. Kelleher
YOUNGSTOWN, Ohio, June 14 This city has been
down for so long, it's hard to believe what's risen up here in
the heart of America's "Rust Belt."
On an industrial site littered with scrap metal, a
French-Japanese joint venture called Vallourec Star has just
opened a $1.1 billion state-of-the-art steel pipe mill.
The plant, the largest capital investment by a manufacturer
in northeast Ohio since the 1960s and Youngstown's first new
steel mill since the 1920s, is a big example of the money that
has flowed into the state's industrial sector in recent years
thanks to the surge in U.S. natural gas and oil drilling.
The uptick in energy exploration has prompted companies like
The Timken Co. and U.S. Steel Corp. to pump
hundreds of millions of dollars into their plants in the state
to boost production. Wayne Struble, the policy director for John
Kasich, Ohio's Republican governor, said the flood of
energy-related dollars could be a major "game changer" for the
But state employment data, academic research and a
week-long tour of half a dozen factories in Ohio suggests the
shale gas revolution has been a disappointment when it comes to
"The industries benefiting are more capital intensive than
labor intensive," said Tom Waltermire, the chief executive of
Team NEO, the economic development agency for northeast Ohio.
"Even a manufacturing renaissance won't require the same
headcount per unit of output as we had 20 or 30 years ago. If it
did require that, the renaissance would never happen."
In March, a study by Cleveland State University concluded
that while gas exploration had unleashed a surge in economic
activity in Ohio, job growth - even in counties directly
affected by the drilling - was stagnant. The employment growth
that many assumed would follow the energy investment was "not
yet evident," the study's authors said.
The Vallourec Star plant, for example, will employ just 350
workers. Those jobs won't begin to make up for ones lost just a
year ago, when RG Steel closed its plant here and laid off more
than 1,000 workers - let alone the tens of thousands of jobs
Youngstown has lost since the late 1970s, when the steel mills
that drove the local economy closed.
And some recent investments, like the $100 million Timken
put into a new intermediate finishing line at its Faircrest
Steel Plant in Canton, are resulting in fewer, not more, jobs.
Timken's old intermediate finishing line employed more than
200 workers and processed pipe and other products in 10 days,
according to plant manager Larry Pollock. The new facility,
built to meet surging demand from the energy industry, employs
fewer than 30 and can process the same material in as little as
two hours, plant manager Larry Pollock said.
In the brightly lit and relatively quiet plant, no human
hand touches the pipes as they speed down the line. Workers
monitor the process at half a dozen computerized control
consoles. "A lot of the old assets were standalone work centers,
independently loaded and unloaded, very labor intensive,"
Data from the state's Bureau of Labor Market Information
tells the story. After bottoming out in 2010, Ohio's
manufacturing sector has added nearly 42,000 jobs in recent
years. But the state still has nearly 110,000 fewer
manufacturing jobs today than it did in 2007, when the last
Meanwhile pay across the sector is going down, not up,
according to the U.S. Bureau of Labor Statistics Quarterly
Census of Employment and Wages.
Manufacturing workers in Ohio, for instance, have seen their
wages fall 1.3 percent in the last year alone.
In a sign of how the labor supply is far exceeding demand,
Vallourec Star got more than 20,000 applications when it
solicited applications for its 350 openings online. "You can see
how hungry people are," says Joel Mastervich, the company's
president and COO.
Energy-related capex in Ohio link.reuters.com/faf58t
U.S. manufacturing jobs link.reuters.com/dyx48t
HOW LONG WILL IT LAST?
Despite disappointments on the job front, the shale drilling
has created a new and lucrative niche business for companies
that make the steel, pipe, compressors and other products energy
Pipeline and processing companies operating in Ohio have
invested $4 billion in the state in the recent years, according
to the state's economic development agency.
"It's a good time to be selling stuff in Ohio," says Jack
Lafield, the founder and chairman of Caiman Energy, which has
formed a $1.5 billion joint venture with Dominion Energy to
build plants and pipelines to process gas and non-gas liquids.
The shale boom has already spurred some companies to remake
themselves. Two years ago, sales at American Road Machinery
(ARM), a small metal fabricating shop in Minerva that makes
truck-mounted snow plows and leaf vacuums, were in a tailspin as
a result of sharp cuts in spending by cash-strapped
municipalities. An exceptionally warm winter in 2011 and spring
in 2012 added to the company's problems.
Nick Ballas, ARM's president, looked around at the flurry of
gas drilling in his backyard and asked himself: "How do we play
in this game?
Today, half of ARM's revenue comes from truck-mounted vacuum
tanks and winches that are hot items with drillers and oil
But the oil and gas business is notoriously cyclical, and
that has Ballas nervous. In neighboring Pennsylvania, the
drilling for shale gas "went from zero to full speed to full
stop in three years," he says as he eyes the half dozen unsold
tank trucks parked in his yard.
A report in mid-May from Ohio's Department of Natural
Resources (DNR) suggests Ballas has reason to be cautious. The
report concluded that the state's shale deposit was heavy on
lower-priced gas and light on more profitable oil.
Since the oil and other liquid petrochemicals believed to be
trapped here were the big draw for many drillers, not the gas
itself, the report raised questions about just how much demand
the industrial companies will actually enjoy as a result of the
Ohio shale play - and whether some may have gotten ahead of
themselves as they invested to meet expected demand.
The bigger companies, including Vallourec Star, U.S. Steel
and Timken, insist their huge investments in new capacity are
justified by the global shale oil bonanza, not by the success or
failure of any single shale play in the United States.
"We are as excited to see the things that are happening in
North Dakota, Brazil, Singapore and China as we are watching
what's going on in Tuscarawas County, 30 miles to the south of
us," says Jim Griffith, the CEO of Canton, Ohio-based Timken.
But even before the DNR report, Timken said during its
first-quarter earnings call that it was already seeing lower
demand from oil and gas customers and it warned that it expected
the weakness to continue through the year.
U.S. manufacturers aren't the only ones scrambling to supply
the shale drillers. John Wilkinson is the 36-year-old manager of
U.S. Steel's operations in Lorain, just west of Cleveland. U.S.
Steel recently spent $100 million on the 100-year-old plant to
build a new line to meet demand from the energy industry. "The
steel industry is back," Wilkinson tells Reuters. "We're
starting to see it and it's a fantastic feeling."
But Wilkinson can also tick off the names of the foreign
companies that are building new plants to sell to drillers,
including Tenaris SA, controlled by Argentina's
Techint group and based in Luxembourg, as well as China's
Tianjin Pipe Group Corp.
"In our tubular market, there's a million tons of capacity
coming onto the market in the next few years," he says. "That's
what we're going to be up against."
(Editing by Patricia Kranz and Claudia Parsons)