Pennsylvania Steel Technologies Inc.

This past year Pennsylvania Steel Technologies, Inc., reached a number of milestones among which were the installation and commercial operation of America's only in-line railroad rail head-hardening facility and the start of large-scale steel shipments to operations in Bethlehem, Pa.

Within months of going into production, PST's head-hardened rail achieved qualification by almost all of the nation's Class 1 railroads - a tribute to the talent and skill that went into the head-hardening facility's installation and the abilities of its operators.

Head-hardening facility throughput has improved steadily to the point where it has attained an annual production rate of 125,000 to 150,000 tons of premium rail per year. Customer acceptance of PST's head-hardened rail has been excellent across the board and sales are expected to increase steadily this year.

Overall, the outlook for rail production in the new year appears healthy as orders for all types of rail continue to mount.

Late in 1995, steelmaking ceased at Bethlehem Structural Products Corporation and BethForge Inc. BSPC's blast furnaces and basic oxygen steelmaking furnaces were shut down and PST's new 150-ton DC electric furnace and jumbo bloom continuous caster is the source of the bulk of semifinished steel for BSPC and BethForge.

The plan to provide steel from Steelton better utilizes the steelmaking capacity of PST's large, new furnace while preserving employment at PST and reducing costs. In 1996, PST plans to ship approximately 300,000 tons of steel blooms to BSPC.

PST will also be supplying ingot steel to BethForge's forging facility. In 1995 PST produced its first 120-ton ingot for BethForge, and in 1996 PST expects to produce ingots of more than twice that size - 280 tons.

Last year, PST completed installation of a new bloom transportation and storage system. Specially designed giant 32-wheeled vehicles transport cast and rolled blooms using a system of portable racks that can be equipped with hoods to allow for controlled cooling of the steel during transit and while awaiting shipment.

In the first full year of operation for its highly efficient DC furnace, PST achieved an annualized production rate of about 900,000 tons per year, while significantly reducing steelmaking operating costs. Steelmaking also brought on line two new facilities for improving steel quality - a vacuum degasser and a ladle arc furnace.

PST's large diameter pipe mill turned in a good performance during 1995, meeting its business plan goals. In the outlook for PST's pipe operations, efforts are expected to advance in 1996 for a number of major foreign pipeline projects in various areas of the world, including Turkey, Africa, South America and Mexico, and PST's sales people have been in the midst of the bidding for these projects.

PST is getting a new look this year. All of the unused buildings in the former trackwork area are being demolished in a face-lifting for the plant. When the project is completed later this year, the cleared land will be used as a lay-down area for pipe.

No doubt one of the low points in PST's operations during 1995 was a fire at the rotary straightener, but out of the incident came a new spirit of resolve and cooperation among PST employees, and the straightener was brought back on line better than ever.

Overall, 1995 was a shake-down year for PST. Nearly $80 million in new steelmaking and production equipment was operating for the first full year of production. The results looked very promising for the future.

Other positive results in 1995 for PST included:

• Operating four months without a lost workday accident.
• No major environmental problems.
• Achieving a satisfactory labor agreement with the United Steelworkers of America.
• Achieving quality recognition by key customers.
• Continuing aggressive cost reduction programs.

PST is entering 1996 with some of the best and most technologically advanced steelmaking and manufacturing equipment in the industry. We resolve - from the shop floor to the president's office - to take advantage of every opportunity the marketplace has to offer for PST's products and expanded capabilities. PST's goal for 1996 is to return to profitability.