Steel: The New Softness

From Indiana Harbor to Sparrows Point, the nation’s steel industry showed little flare last week. Production has fallen in five of the past seven weeks, now hovers below 71% of capacity. Unfilled orders, which bulged at $5 billion in early 1960, are wheezing along at $3 billion. During the recovery of 1961, steel has contributed less—and benefited less—than in any other postwar economic comeback.

Tightening Up. Steel’s new softness results from some basic economic changes. Increasingly, steel faces competition from alternative materials: aluminum is cutting into the auto market (the use of aluminum in cars has doubled since 1955 to an average 63 Ibs. on new models), prestressed concrete has won widespread use in the construction field, and steadily improving plastics are displacing steel in containers, furniture and pipe. Still a greater threat, steelmen insist, comes from imported steel. While they tend to exaggerate the foreign pressure, imports now take a steady 5% of the U.S. market and, confidently expecting to get more, Europe’s hustling steelmakers are expanding capacities well beyond their own countries’ needs.

Perhaps the sharpest impact of the imports is psychological. The knowledge that outside sources are readily available has encouraged steel users to operate on much leaner inventories than in the past. More important, breakthroughs in electronic data processing make possible far tighter inventory controls, have helped customers to cut steel stockpiles from 20 million tons before 1956 to 10 million tons now. At the same time, steel is being pinched by the general leveling-off in hard goods (TIME, Sept. 8), and the torpor in major steel-using industries, e.g., oil, housing, railroads.

Hedging, Not Hogging. Balancing these bad omens are some favorable signs. Not only are the 1962 autos off to a fast getaway—which portends more steel buying by Detroit—but.some manufacturers are beginning to fatten their steel inventories against a possible strike when steel labor contracts expire June 30. Last week Ford Motor Co. said that it was already stocking up; Chrysler and General Motors plan to start hedge buying in January. But because most steel users expect the Kennedy Administration to step in and stop any 1962 steel strike early in the game, steelmen suspect that hedge buying will be considerably smaller than it was before the 116-day steel strike of 1959—perhaps 10 million tons in the months just ahead.

Bundling together all the prospects for 1962—a big increase in defense steel ordering, slight gains in housing and capital-goods spending—steelmakers are optimistic, but not exhilarated. Steel is still the nation’s basic industry, but its softness at a time when the economy as a whole is much more solid suggests that it is a lot less basic than it used to be.