Polyacrylonitrile (PAN) fibers were heated and stretched in a steam bath mixed with nitrogen in the early stage of stabilization. During this process, the flexible linear chain of PAN molecule was converted to a rigid ladder structure by intramolecular cyclization. The shrinkage tension along the fiber axis decreased during this heat treatment, because water molecules here acted as a plasticizer for stretching. Consequently, the preferred orientation of ladder molecules in the stabilized fibers was enhanced. As a result, the preferred orientation, crystallite dimensions, and mechanical properties of the resultant carbon fibers (CFs) and graphite fibers (GFs) were improved, comparing with the corresponding CFs and GFs without pretreatment in the steam bath. POLYM. ENG. SCI., 2013. © 2012 Society of Plastics Engineers.