New Cost Factor

Businessmen will probably soon have to take into account a new cost factor: an increase in the price of steel. The increase will be based on 1) inevitable wage boosts and 2) the need for cash for expansion. Last week Ernest Tenner Weir, chairman of National Steel, fifth biggest producer, touched off the campaign for higher prices.

To meet growing demand, said he, the steel industry must expand its 128-million-ton ingot capacity by about 18.5 million tons in the next five years, at a cost of $3.4 billion. The only way to get enough cash, said he, is by a big boost in steel prices.

The financing of needed expansion "simply cannot be done on the present earnings basis," the veteran steelmaster warned the New York Society of Security Analysts. Steel companies put a value of $60 per ton of ingot capacity on their books, while the market price of steel common stocks reflects a value of $78. This is far less than the cost of reproduction, which he estimates at $187 a ton, yet "it is on these bases of value that the steel industry is now showing its earnings and paying its dividends." Citing National Steel's own 1,000,000-ton expansion program, which will cost $650 million, Weir pointed out that his company could expect to sell only $400 million worth of securities to finance the job. The additional $250 million must be saved out of earnings during the next five years--at the rate of $50 million yearly--but steel prices are not high enough to do so, Weir said.

He implied that giant U.S. Steel, the price pacesetter, should boost prices now.

The other companies, which produce 69% of the nation's steel, are well aware of the difficulties of raising expansion capital, he said, but "unfortunately their influence in the direction of steel industry policies is a minority one." Weir called on steel management "to quit being behind and show real leadership. The real fact is that the earnings of the steel industry are not equal to its financial necessities. In the final analysis our country must have steel and no excuse will be taken."

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