Steel's Angry Ballet

The steps: first rise high, then split and roll back

With the growing use of lighter metals and plastics, steel is no longer the dominant performer in the economy that it once was, but its price rises still bring confrontations with Washington. Government officials know that other industries watch steel for clues to the size of price increases they can get away with. The confrontations have become a ritualized ballet. A steel company announces a towering jump in prices; Washington denounces it; another company posts a smaller increase; the original raise is trimmed down. Last week the ballet had an exceptionally thunderous performance, and it headed toward the same old curtain call.

U.S. Steel began by lifting prices an average of $10.50 a ton, or 2.2%. That might not seem much, but together with a boost in February, it would bring steel increases to around 8% so far this year. The Carter Administration reacted with unusual vehemence. The President, jawboning at a press conference in Brasilia on his Latin American tour, charged that the rise "is excessive and does cause additional very serious inflationary pressure in our country." Vice President Walter Mondale and the Council on Wage and Price Stability (COWPS) also condemned the increase. Privately, some officials recalled with approval President Kennedy's crack about the genealogy of steelmen* and made sarcastic, and misleading, references to a fat salary increase that they thought U.S. Steel Chairman Edgar Speer had collected. (In fact, Speer's combined salary and bonus was $372,972 last year, down from $425,000 in 1976.)

More important, COWPS Chairman Barry Bosworth and Trade Negotiator Robert Strauss got on the phone to heads of other steel companies, urging them not to follow the U.S. Steel increase. Strauss, who is becoming increasingly influential in the Administration, made the key call to National Steel Chairman George Stinson. National then posted a price rise of only $5.50 a ton, which COWPS pronounced "acceptable." The smaller increase was quickly matched by several other companies, including Bethlehem Steel, No. 2 in the industry, without whose support U.S. Steel cannot make the bigger raise stick. For the record, U.S. Steel vowed to resist any Government rollback plea. But at week's end Strauss phoned Speer, and after he hung up, Administration officials announced that they expected Big Steel "to remain competitive," that is, shave its increase to $5.50 or so.

U.S. Steel did have one justification for its original price boost: its steelmaking operations lost $45 million last year, and companywide profits hit a 30-year low of $138 million. The company has announced that its first quarter was "unprofitable." If U.S. Steel is indeed forced to back down now, it or some other steelmaker might well try to post further price increases in the summer or fall. The Administration's reaction could be most picturesque.

Carter's price-fighters were exceptionally bitter because last week's U.S. Steel move came at a crucial stage in their so far failing battle against inflation. Carter returns from his foreign journey this week to consider a new anti-inflation program that his economic advisers are urging on him. Mostly it consists of Government actions unrelated to what industry does--for example, a pledge to resist any congressional attempts to push the budget deficit above $61 billion. But the President figured that he could not afford to let a steel increase pass unchallenged.

Further, Government officials felt betrayed. Steelmen in the past have notified the White House of price boosts in advance; this time federal officials read the announcement on news wires. Indeed, U.S. Steel officials were in Washington at the start of the week conferring with Bosworth on moves that their industry could take to fight inflation, and they dropped no hint of a price increase. U.S. Steel says it dispatched only low-level "technicians" to the meeting with Bosworth, and that it is under no legal obligation to discuss price moves with the Government.

Finally, the Administration regarded U.S. Steel's justification for the $10.50 increase as flimsy. The company claimed that the rise was necessary to cover the cost of the coal strike and settlement; blast furnaces gulp coking coal in great quantity, COWPS, however, figured that the settlement and indirect effects of the strike would add only $4 a ton to steelmaking costs. The agency pointedly noted that American steel mills are benefiting from Government help against import competition. The Government now sets "reference prices" for imported steel; any sales below those prices trigger an automatic dumping investigation. That tends to raise the price of imports, giving American mills leeway to raise their own quotes.

The White House is also considering other help to the steel industry: loan guarantees of $500 million and possible exemptions from environmental requirements. So far as is known, Strauss and Bosworth did not mention these goodies in their calls to steelmen last week--but then they did not have to. It seems clear that, to get these Government benefits, steel will have to pay a price.

* After U.S. Steel raised prices $6 a ton in 1962 despite earlier assurances of price restraint, Kennedy said: "My father always told me that businessmen were s.o.b.s, but I never realized till now how right he was."

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