State of Business: Slicing Prices

In Pittsburgh last week the Allegheny Ludlum Steel Corp., largest U.S..producer of stainless steel, lopped 2% off its prices on key grades “to make ourselves competitive.” Coming hard on the heels of a recent 12% price slash by California’s Kaiser Steel Corp.. which virtually eliminated the historic differential between Eastern and Western steel, and last month’s sharp reductions (as much as 19%) in posted prices by the Aluminum Co. of America, the Allegheny Ludlum move was the latest evidence of a general softening in the prices of industrial materials. According to the Labor Department, U.S. industrial prices as a whole are less than 1% above the 1957-59 average, have actually declined slightly since last January. If this is a victory over inflation, it is not an easy one to celebrate because it results from bruising competition for customers who just aren’t buying.

Soft Metals. Rubber prices have dropped 1.8% so far this year under the growing pressure of synthetic rubber, which now has 73% of the U.S. market. Chemical prices have declined 5% in the past two years because of overcapacity, which has been aggravated by the entry into the business of such heavyweights as W. R. Grace, Schenley, Armour, and several oil companies.

Few industrial groups have been hit harder than metals. Producers of lead have lowered prices by 3% this year to fight a domestic glut and foreign competition. Tin has tumbled 13% in anticipation of sales from the U.S. stockpile (TIME, Aug. 17). In steel, the Labor Department index shows that prices overall have slipped two-tenths of 1% so far this year; on certain kinds of pipe, wire and bars, steel producers have been quietly granting discounts of 5% to 20%.

One reason for the fall in steel prices is that imports of steel jumped almost 50% (to 2,800,000 tons) in the first eight months of this year, while exports (1,300,000 tons) showed only a 2% rise.* More important, domestic demand has been so disappointing that production in the first week of October fell 1% to 1.746,000 tons, the first decline since Labor Day. Tinplate is off because the canning season is over, and galvanized sheet is soft because of the tailoff of the construction season. Worst of all, orders from Detroit are below expectations—largely because the stockpiles that the automakers built up last winter as strike insurance were apparently much larger than steelmen thought, and the auto companies are still living off their inventories.

Hard Times. All this is good news for the nation’s contractors, builders and manufacturers of retail products. Though few of them can be expected to pass on their savings to the consumer, many of them can well use the lower prices they are paying for materials to fatten skimpy profit margins or to help offset the upcreeping costs of research, transportation and labor. But it is not good news in the judgment of President Kennedy’s favorite economist, Paul Samuelson of M.I.T. Says he: “If prices sag when we have high employment, full-capacity production and good profit margins—that’s good. But if prices sag because profit margins are lousy, excess capacity is widespread, and there’s too little demand to keep at least 96% of our workers working—that’s bad.” By that measurement, what is happening now clearly is bad.

* One evidence of foreign steelmakers’ increasing competitiveness: a new world record for iron production was set last month by a blast furnace of Australia’s Broken Hill Proprietary Co., Ltd., which turned out 92,680 tons v. the previous record of 92,124 tons, set by a Bethlehem Steel Corp. furnace last May.