Around the Grapevine

Something new had been turned up in the grey market in steel. It was the tie-in sale, once familiar to buyers of liquor, steaks and nylons. Last week a special House subcommittee heard two prime examples of how the tie-in works.

The story, which the committee dredged up from a dozen witnesses, began with International Detrola Corp., which needed steel for its radios and phonographs. To get a supply, Detrola, in August 1946, bought the Newport Rolling Mill at Newport, Ky. But Detrola's President C. Russell Feldman soon found that he still had a problem : he had no pig iron to make his steel. So, he told the committee, he made a deal with Kaiser-Frazer Corp. to trade finished steel for K-F's pig iron. (He also made another deal, the committee found, with Cincinnati's David J. Joseph Sr., one of the big U.S. scrap dealers. For his scrap, Joseph got 8,254 tons of steel, and a tidy gross profit of $800,000.)

Tuned In. Detrola's Feldman soon had another problem: his radios were piling up. So he offered to sell 9,000 tons of steel at mill price ($100.09 a ton) to Boston's Clark & White, Inc., if it would also pay $875,000 for 28,000 radios. Clark & White accepted the proposition -- and lost $580,000 on the radios; it sold them for $295,000. But it made up the loss handily -- and $461,120 to boot -- by selling the steel in the grey market.

The committee found that Kaiser-Frazer had also filtered some of Detrola's steel into the grey market. As K-F could not use some of the types it got from Detrola, K-F Vice President Clay Bedford told the committee, he made a deal with a Manhattan exporter named Charles A. Koons to sell Koons 4,000 tons of Detrola steel.

Koons got his steel from K-F at mill cost. But to get it he had to pay over $600,000 for a lot of things K-F wanted to get rid of, e.g., jigs and dies for K-F's abandoned front-wheel-drive auto, aluminum scrap left over from experiments with car bodies. Koons told the committee he lost $500,000 on sale of the tie-in junk. But, through his steel, he netted a $14,000 final profit on the whole deal. The committee got an eye-opening account of how fast steel gets around in the grey market and how fast the price goes up.

Static. Koons sold the steel, at $215 a ton, to a Cleveland steel broker. It rapidly passed through two other brokers "around the grapevine" until it was bought by Louis Golden, a Detroit broker. Golden paid $300 a ton. On paper, the steel had traveled from Detroit to New York to Cleveland and back to Detroit, and $200 a ton had been added to its price. Actually it never left K-F's warehouse.

Louis Golden finally sold it, he told the committee, for $315 to $325 a ton, to the Holland Furnace Co. of Holland, Mich., only four hours' drive from K-F's Willow Run plant. The constant selling and reselling of the same steel sometimes gets very confusing, Golden confessed. Said he: "I recall a gentleman came up to the office and asked us to come out and inspect some steel, and we needed that type, and we went out to our own warehouse and looked at our own steel."

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