The Big Occasion

As expected, U.S. Steel Corp. and Bethlehem Steel Corp. raised their prices an average of $5 a ton last week, thus making the rise in steel virtually industrywide. What was not expected was the careful explanation of Big Steel's Chairman Irving S. Olds that the $5 boost had nothing to do with the recent coal price increase. The coal price rise added $1.50 a ton to the cost of steel making, said Olds, but the boost last week was only to cover increases in costs in steel wages, raw materials, etc. Whether there would be a further boost to cover the higher cost of coal, Olds did not say.

The justification for the $5 increase was closely linked to second-quarter statements published last week. Big Steel's net income was $29,336,868, down 25.2% from the record-breaking first quarter. Beth Steel's had dropped 22% to $12,408,966.

One item in Big Steel's earnings statement was an extraordinary additional charge of $6,700,000 (a boost of 30% over normal) for plant depreciation. New York's jumpy PM promptly jumped on it, cried that the $6,700,000 was profit that Big Steel had hidden to excuse its boost in prices. Olds conceded that the item was not "presently" deductible for tax purposes.* Thus in the eyes of the U.S. Treasury, it might be considered profit. But Olds claimed that the depreciation was warranted by recent increases of far more than 30% in the cost of replacing worn equipment.

Fleabite. In defense of the price boost, Bethlehem Steel's Chairman Eugene G. Grace struck a querulous note. He berated "the pastime or indoor sport" of blaming all economic ills on the steel industry. "Until we stop raising costs," he said, "we can't stop raising prices." Anyway, he added, the cost of steel was only "a fleabite" in the cost of living.

Although it was much bigger than a fleabite, Grace had a point. Since 1939, steel prices, including last week's jump, have increased about 37% as compared to a rise of more than 92% in the Bureau of Labor Statistics index of all wholesale commodity prices.

However, Iron Age estimated that last week's price advances would add $350 million to the nation's steel bill, boost third-quarter steel earnings close to the first quarter's alltime high. So last week's steel rise would give the rest of the nation's heavy industries an occasion to boost prices even though many of them had not yet had any decline in their profits.

Epidemic. The first to mark the occasion was General Motors Corp. Olds had minimized the steel boost by declaring that it would add no more than $9 or $10 to the cost of the average automobile. But G.M. boosted car prices last week from $60 to $168, despite a record peacetime profit of $81,804,815 in the second quarter v. $65,818,019 in the first quarter. G.M.'s explanation: since November 1946, steel and almost all other materials have gone up in price along with wages. Its huge profit, said G.M., was due to low-cost materials in inventories. Now that they were used up and it had to buy at present prices, it contended, its costs had risen sharply, not only for steel but for other and more costly items that go into the automobile assembly line.

* The U.S. Department of the Treasury allows nontaxable depreciation deductions that are based only on original cost of equipment, not on the cost of replacing it. Businessmen hope that this law will be changed in the future.

This file is automatically generated by a robot program, so reader's discretion is required.