STEEL: Support at the Heavy End

Steel is the Maine of industries; as it goes, so—usually—goes the economy. Last week the U. S. steel industry looked back on the third best month in its history. But its rate of production last week—93% of capacity—was already ahead of August’s 89.72%. It was, in fact, working nearly at the practical maximum of its present equipment. And steel’s repercussive power over the economy was already being felt.

Four kinds of customers sent the steel rate up: 1) industrial builders, doing jobs for defense (TIME, Sept. 9); 2) manufacturers of durable goods, whose index of new orders received went up to 162.2 in July from 156.9 in normally more active June; 3) the export market, mainly the United Kingdom, which rose 14.6% in July to 707,809 tons, 14.2% of the month’s production; 4) consumer industries (automobiles, refrigerators) which, instead of being elbowed aside by the defense boom, are so far being carried along with it.

The steel industry is notoriously unstable. Whenever it approaches peak operations, blows in its last 10% of becob-webbed furnaces, farsighted businessmen begin to expect sudden collapse. Last week steel was flying all the danger signals. Some companies were feverishly running furnaces that could use relining, fearful that time out for repair would lose them business. Deferring repairs is steelmen’s standard practice in a boom, the theory being that steel booms rarely last long enough to cause serious breakdowns.

But last week the hectic steel rate did not look transitory. The Wall Street Journal pointed out a difference between 1940 and the classical overproduction year of 1937, in which steel output went into inventories, stayed there, caused the autumn depression. Trade reports indicate that steel inventories and steel backlogs are practically equal, backlogs being large enough to keep the mills at their present clip through the year’s end, inventories being large enough to keep steel users supplied for no longer.

This steel boom also found a different kind of steel in demand. The “heavy” types used in construction and capital-goods work have firmly re-established their old leadership over the light “paper” steels (mainly sheets & strip) used in consumer goods. The American Iron & Steel Institute reported that in June nearly 60% of shipments was accounted for by “heavy” steels, against 56.5% averaged in 1940’s first half, 57% in 1937’s flush first half. Additional demand for heavy steel was in the offing last week:

> The U. S. Navy’s order for 201 ships (the 201st being a repair vessel) will call for 732,000 tons in the next few years. Another 73,000 tons is now on order for Maritime Commission vessels.

> Defense Commissioner Ed Stettinius announced a $40,000,000 plan for installing steel forging capacity in arsenals, steel hammering & boring plants. This will take an estimated 7-800,000 tons of heavy steels.

> General Motors, which just received an $81,319,872.19 machine-gun & equipment order (to be filled at four of its accessories plants), also put its La Grange (Ill.) Diesel locomotive plant on a 24-hour basis to handle an Atlantic Coast Line order for 18 heavy Diesels—the largest single locomotive order ever placed.

> The Association of American Railroads flashed an order to western and southern lines to return long flat cars (used to carry heavy steel beams) to the eastern roads, where the great bulk of steel traffic originates. This may foreshadow orders for new freight cars, which take a lot of heavy steel.

No steelmaker was happier about the nature of this boom last week than the industry’s No. 4 unit, 90-year-old Jones & Laughlin Steel Corp. For four uncertain years J. & L. has been slightly out of step. Its plants are all in the long-suffering Pittsburgh district, headquarters of heavy steel. Its preferred-stock arrearage has grown from $21.25 then to $43.50 a share now. Its new (in 1936) boss, up-from-the-mills Horace Edgar Lewis, has had to be tough. He tried to balance J. & L.’s heavy wares by building a gigantic strip mill in Pittsburgh. This was farther from the most active light-steel markets than National’s and Inland’s mills in Detroit and Chicago; and before he had a chance to compete, the 1938 depression hit him. Meanwhile he won the good will of tough steel labor (which had been a long time forgetting tough Tom Girdler’s regime at J. & L.) by following U. S. Steel into a C. I. O. contract.

Last week Pittsburgh was thick with smoke again, and J. & L. was working at 94.5% of capacity. Patient H. E. Lewis seized the opportunity to hedge. Against the day when heavy steel would yield once more to light, he went deeper into light—by buying the tin-plate division of independent McKeesport Tin Plate Corp. Price: around $3,000,000, which included good will, a euphemism doubtless meaning that J. & L. will probably get the lion’s share of tin-plate orders from McKees-port’s can factories. Meanwhile, Wall Street anticipated a shower of back-dividend payments on J. & L. preferred, pushed it up from its May Blitzkrieg low of 48¢ to 72¢.

So active were all steel mills last week that pig-iron production had begun to lag behind them. Steelmen therefore upped their purchases of scrap, the alternate ingredient used with or instead of pig iron. Last week they grumbled because they had bid the price up $2 in ten days to $21. They grumbled also because the Defense Commission still sanctioned scrap exports.

Their other basic raw material is coke. With all by-product coke ovens working at capacity, many an oldfashioned, high-cost, beehive oven (once homes for the unemployed) was fired last week. Meanwhile the demand for coking coal outran the capacity of the steelmakers’ “captive” mines, sent them into the commercial market. Result: the ailing soft-coal industry is headed toward 10,000,000 tons a week (its 1939 average: 7,800,000 tons a week), and many a factory manager began to think it might be a good idea to stack some extra coal in the yard just in case. Ordinarily, coal buyers get inventory-minded when they fear a strike. This time, like the country as a whole, they were just being prepared.