Steel Wants More

Trooping into Manhattan last week for the annual convention of the American Iron & Steel Institute, executives of the U.S. steel industry had plenty to crow about. For the first time in a year, steel production stood above 2,000,000 tons a week, and the industry's operating rate was back to a "normal" 70% of capacity, 30 points above its midwinter low. Some steelmen even predicted that total steel output in 1961 may hit between 100 million and 105 million tons, v. last year's 99 million. But despite this heartening news, the conventioneers all joined in singing a gloomily familiar refrain: it is time for a price rise.

The steelmen's strategy was clear. With demand pushing up, they felt that the market would soon be strong enough to bear higher prices. There was some difference of opinion as to whether the rise could be sprung this summer or whether it would be better to wait till October. But to a man, the steel executives offered the same justification for a hike: in the past three years, the steelworkers' average wage has jumped 30-c- an hour without any corresponding steel price rise. "To maintain a reasonable profit margin," said Republic Steel's Thomas F. Patton, "we should have a price increase."

More for Less. For nearly a decade after World War II, the steel industry fought rising costs by the easy method of raising prices, instead of by modernizing its equipment or seeking to broaden its markets. Since 1946, steel prices have been hiked about 150% in twelve installments, roughly the same as the hike in the average hourly wage--although steelmen claim that fringe benefits add another 40% to the wage hikes. Only since 1958, when recession cooled the climate for price rises, has steel had to struggle along without its favorite easy out.

Five years ago, the industry finally launched a $7 billion modernization program. By means of widespread automation and the introduction of such advanced techniques as oxygen lancing of traditional open-hearth furnaces (which can double a furnace's production), steel has made itself one of the nation's most efficient industries. Because it has got more from its modernized facilities, the industry has vastly increased its capacity while allowing its less efficient plants to remain idle. This trend makes capacity figures misleading as a measure of the industry's health. Modernization also increases the productivity of steelworkers; where it took 568,000 employees to turn out 105 million tons of steel ten years ago, it now takes only 450,000. One result: the increased wages that the industry complains about are paid to progressively fewer workers. Labor now accounts for an estimated 38% of the cost of steel, compared with 43% just after the war.

Profit in Recession. Giant steel's new-efficiency enables it to break even while operating at as little as 40% of theoretical capacity (which includes the idle, unimproved plants) and to meet its dividends at 55%-60% of capacity. Despite a drop in the profits shown in 1960 by the small steel companies--and hence in the industry's average profit--the big companies performed well even in recession. U.S. Steel's profits were up 20%, Jones & Laughlin's 12.4%, Bethlehem's 3.4%. Though 1961 sales are not expected to top 1960 substantially and another automatic wage rise of 7-c- to 10-c- an hour will go into effect in October, many analysts predict that the industry will equal or better its 1960 earnings next year.

With a price rise, steel profits in 1961 would obviously be even better. But given the inflationary impact of a price boost in steel, many a consumer--and many a businessman--hoped that the industry would pay attention to the warning delivered by President Kennedy in his second State of the Union message last week: "As recovery progresses, there will be temptations to seek unjustified price and wage increases. These we cannot afford."

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