Steel: Rising Profits & Prices

Booming auto sales have made bright times for steelmakers. So have brisk orders for steel to be used in freight cars, appliances and construction (given a lift by the prolonged balmy weather). With production rising for most of the past two months, steelmakers last week predicted that they would produce 108 million tons this year—up 10 million tons from 1962. Prices and profits are also on the rise. This promises to be by far the best year for the nation’s basic industry since 1957.

The Big Payoff. Third-quarter earnings range from strong to sensational. Compared with last year’s third quarter, Armco Steel and Youngstown Sheet & Tube more than doubled their profits; Republic’s earnings were up 54% and Jones & Laughlin’s an awesome 862%, to more than $7,000,000 in the quarter. Inland Steel raised its quarterly dividend from 400 to 450, the first dividend increase by a major steel company in two years. The industry’s two biggest companies, U.S. Steel and Bethlehem, are also widely expected to report higher earnings.

Rising demand, of course, does much to account for steel’s snapback, but newly efficient plants help to produce the profits. Over the past decade, the industry has averaged more than $1 billion a year to expand, modernize and automate; it plans to invest $1.2 billion this year and $1.5 billion next. Last week National Steel opened a $100 million hot-strip mill near Detroit, and in Kentucky, Armco Steel brought in two new oxygen-process steel furnaces and started pouring iron from the largest blast furnace in the Western world (daily capacity: 3,340 tons). The payoff from such new facilities as U.S. Steel’s five basic oxygen furnaces now building in Duquesne, Pa., and Gary, Ind., will come later.

Price Fight. Though steelmen do not like to talk about it, price rises have also helped fatten their profits. Two rounds of increases, in April and September, have raised overall steel prices by about 2%. Prices are still below what they would have been had the Government permitted U.S. Steel to hold to its 31% rises 18 months ago. Still hurting over that celebrated crisis, steelmen were unsettled last week by word that the Justice Department has subpoenaed the records of major steel companies for a New York grand jury investigation into price fixing. “We’re puzzled, irked, hurt and mad,” groaned one executive. To many, the Kennedys were obviously responding to steel profits and price increases.

Actually .the Justice Departments concern goes back much farther. A grand jury impaneled last year turned up evidence enough to prompt an investigation of steel-price rises dating to 1956. Justice is trying to connect these price increases not to formal meetings and written agreements among policy-making steelmen, but to informal contacts on the golf links or at trade meetings. Presumably, however, Bobby Kennedy’s men also hope to dissuade other industries from raising prices and kicking off an inflationary spiral during an election year, and to persuade labor unions that the Kennedy Administration is not “soft” on big business.