History of the modern steel industry

For details of the technology see Steelmaking and Steel. For the history of earlier processes see History of ferrous metallurgy. The history of the modern steel industry began in the late 1850s, but since then steel has been basic to the world's industrial economy. This article is intended only to address the business, economic and social dimensions of the industry, since the bulk production of steel began as a result of Henry Bessemer's development of the Bessemer converter in 1857. Previously steel was expensive to produce and only used where nothing else would do.
GermanyGermany has become one of the world’s most important steel-producing nations. The "German Steel Federation" was established in 1874.
Asia: Japan, India, ChinaThe Indian steel industry began expanding into Europe in the 21st century. In January 2007 India's Tata Steel made a successful $11.3 billion offer to buy European steel maker Corus Group PLC. In 2006 Mittal Steel (based in London but with Indian management) acquired Arcelor for $38.3 billion to become the world's biggest steel maker.
United StatesIn the United States the central figure was Andrew Carnegie, who made Pittsburgh the center of the industry. He sold his operations to US Steel in 1901, which became by far the dominant corporation for decades.
CarnegieMain article: Andrew CarnegieCarnegie's great innovation was in the cheap and efficient mass production of steel rails for railroad lines.
In the late 1880s, Carnegie Steel was the largest manufacturer of pig iron, steel rails, and coke in the world, with a capacity to produce approximately 2,000 tons of pig metal per day. In 1888, he bought the rival Homestead Steel Works, which included an extensive plant served by tributary coal and iron fields, a 425-mile (685 km) long railway, and a line of lake steamships. A consolidation of Carnegie's assets and those of his associates occurred in 1892 with the launching of the Carnegie Steel Companie.
By 1889, the U.S. output of steel exceeded that of Britain, and Andrew Carnegie owned a large part of it. By 1900, the profits of Carnegie Bros. & Company alone stood at $40,000,000 with $25,000,000 being Carnegie's share. Carnegie's empire grew to include the J. Edgar Thomson Steel Works, (named for John Edgar Thomson, Carnegie's former boss and president of the Pennsylvania Railroad), Pittsburgh Bessemer Steel Works, the Lucy Furnaces, the Union Iron Mills, the Union Mill (Wilson, Walker & County), the Keystone Bridge Works, the Hartman Steel Works, the Frick Coke Company, and the Scotia ore mines. Carnegie, through Keystone, supplied the steel for and owned shares in the landmark Eads Bridge project across the Mississippi River in St. Louis, Missouri (completed 1874). This project was an important proof-of-concept for steel technology which marked the opening of a new steel market.
US SteelMain article: US SteelBy 1900 the US was the largest producer and also the lowest cost producer, and demand for steel seemed inexhaustible. Output had tripled since 1890, but customers, not producers, mostly benefitted. Productivity-enhancing technology encouraged faster and faster rates of investment in new plants. However during recessions, demand fell sharply taking down output, prices, and profits. Charles M. Schwab of Carnegie Steel proposed a solution: consolidation. J. P. Morgan and Elbert Gary led the team that worked with Carnegie and Schwab to create United States Steel, by far the largest non-railroad corporation in the world in 1901.
US Steel combined finishing firms (American Tin Plate, American Steel and Wire, and National Tube) with two major integrated companies, Carnegie Steel and Federal Steel. It was capitalized at $1.466 billion, and included 213 manufacturing mills, one thousand miles of railroad, and 41 mines. In 1901, it accounted for 66% of America's steel output, and almost 30% of the world's. During World War I, its annual production exceeded the combined output of all German and Austro-Hungarian firms.
After 1970 the company could no longer compete effectively with low-wage producers elsewhere. Imports and mini-mills undercut its sales. It went into oil then was spun off in 2001. Finally US Steel reemerged in 2002 with plants in three American locations (plus one in Slovakia) that employed fewer than one-tenth the 168,000 workers of 1902.

Thus, derivatives trading – mostly futures contracts on interest rates, foreign currencies, Treasury bonds, etc had reached a level of $1,200 trillion, $1.2 quadrillion, a year. By comparison, U.S. GDP in 2006 was $12.456 trillion.
The table below provides data for the annual amount of financial trading in U.S. financial markets, compared to GDP.
Sources for Table above:
Equity Markets Trading, Statistical Abstract of the United States. For example 1990 and 2000 taken from Table 1201, Sales of Stocks on Registered Exchanges, 1990 to 2003, "Market Value of all Sales" minus "CBOE" Statistical Abstract of the United States, 2004-2005.
U.S. government securities trading, Statistical Abstract of the United States. For example 1990 and 2000 taken from Table 1190, Volume of Debt Markets by Type of Security, 1990 to 2003, Statistical Abstract of the United States 2004-2005.
Futures Trading, are estimates based on the average value of types of futures contracts, multiplied by the number of contracts traded, reported by the Futures Industries Association.

Foreign exchange tradingThe

demise of fixed exchange rates initiated a rapid rise in the level of foreign exchange trading (forex). In the United States, forex leaped from $110.8 billion in 1970, 10.7 percent of U.S. Gross Domestic Product, to $5.449 trillion in 1980, 195.3 percent of U.S. GDP. These figures are estimates, but in April 1977, the U.S. Federal Reserve Bank of New York undertook to measure the actual amount of forex in the United States, surveying forex trading at 44 large money center banks, which the Fed believed probably represented 98 percent of all forex in the United States at that time. This April 1977 study found there was $4.8 billion in daily forex trading, or around $1.2 trillion a year. However, this study did not include all the trading in futures trading for various currencies. Currency futures were first created at the Chicago Mercantile Exchange (CME) in 1972, the year after fixed exchange rates were abandoned.

Financialization is a relatively new polemical term used to discuss the emergence of a new form of capitalism in which financial markets dominate over the traditional industrial economy. Greta Krippner of the University of California - Los Angeles has written that “financialization” refers to a “pattern of accumulation in which profit making occurs increasingly through financial channels rather than through trade and commodity production.” In the Introduction to the 2006 book Financialization and the World Economy, editor Gerald A. Epstein wrote that some scholars have insisted on a much more narrow use of the term: the ascendancy of “shareholder value” as a mode of corporate governance; or the growing dominance of capital market financial systems over bank-based financial systems.
More popularly, however, financialization is understood to mean the vastly expanded role of financial motives, financial markets, financial actors and financial institutions in the operation of domestic and international economies. In his 2006 book, American Theocracy: The Peril and Politics of Radical Religion, Oil, and Borrowed Money in the 21st Century, American writer and commentator Kevin Phillips presented financialization as “a process whereby financial services, broadly construed, take over the dominant economic, cultural, and political role in a national economy.” (page 268). Philips consider that the financialization of the U.S. economy follows the same pattern that marked the beginning of the decline of Hapsburg Spain in the 16th century, the Dutch trading empire in the 18th century, and the British empire in the 19th century:
. . . the leading economic powers have followed an evolutionary progression: first, agriculture, fishing, and the like, next commerce and industry, and finally finance. Several historians have elaborated this point. Brooks Adams contended that “as societies consolidate, they pass through a profound intellectual change. Energy ceases to vent through the imagination and takes the form of capital.”

In 1990, a Price Waterhouse audit of BCCI revealed an unaccountable loss of hundreds of millions of dollars. The bank approached Sheikh Zayed bin Sultan Al Nahyan, who made good the loss in exchange for an increased shareholding of 78%. Much of BCCI's documentation was then also transferred to Abu Dhabi. The audit also revealed numerous irregularities. Most seriously, BCCI had made a staggering $1.48 billion worth of loans to its own shareholders, who used BCCI stock as collateral.
The audit also confirmed what many Americans who had watched BCCI had long suspected--that BCCI secretly owned First American. When the Fed cleared the group of Arab investors to buy First American, it did so on condition that they supplement their personal funds with money borrowed from banks with no connection to BCCI. Contrary to that agreement, several stockholders had borrowed heavily from BCCI. Even more seriously, they pledged their First American stock as collateral, and when they didn't make interest payments BCCI took control of the shares. It was later estimated that in this manner, BCCI had ended up with 60 percent or more of First American's stock.

In 1982, 15 Middle Eastern investors bought Financial General Bankshares, a large bank holding company headquartered in Washington, D.C. All the investors were BCCI clients, but the Federal Reserve received assurances that BCCI would be in no way involved in the management of the company, which was renamed First American Bankshares. To alleviate regulators' concerns, Clark Clifford, an adviser to five presidents, was named First American's chairman. Clifford headed a board composed of himself and several other distinguished American citizens, including former United States Senator Stuart Symington. In truth, BCCI had been involved in the purchase of FGB/First American from the beginning. Abedi had been approached about buying it as early as 1977, but by this time BCCI's reputation was such that it could not hope to buy a bank on its own. Rather, it used the First American investors as nominees. Moreover, Clifford's law firm was retained as general counsel, and also handled most of BCCI's American legal work. BCCI was also heavily involved in First American personnel matters. The relationship between the two was so close that rumors spread BCCI was the real owner of First American.

The idea of margin (leverage) and floating loss is another important trading concept and is perhaps best understood using an example. Most retail Forex market makers permit 100:1 leverage, but also, crucially, require you to have a certain amount of money in your account to protect against a critical loss point. For example, if a $100,000 position is held in EURUSD on 100:1 leverage, the trader has to put up $1,000 to control the position. However, in the event of a declining value of your positions, Forex market makers, mindful of the fast nature of forex price swings and the amplifying effect of leverage, typically do not allow their traders to go negative and make up the difference at a later date. In order to make sure the trader does not lose more money than is held in the account, forex market makers typically employ automatic systems to close out positions when clients run out of margin (the amount of money in their account not tied to a position). If the trader has $2,000 in his account, and he is buying a $100,000 lot of EURUSD, he has $1,000 of his $2,000 tied up in margin, with $1,000 left to allow his position to fluctuate downward without being closed out.