Chaos & Confusion

The steel industry, said Bethlehem Steel's Chairman Eugene G. Grace last week, has been plunged into chaos and confusion by the Government's Controlled Materials Plan. Although only four weeks old, CMP has already turned the industry's distribution upside down, said Grace, and is opening the door to black markets such as have never been seen before.

The confusion stems from the fact that the Government knowingly allocated more third-quarter steel than was available. The CMP assumed that many orders for steel would be canceled. The cancellations failed to appear; instead, customers everywhere were pounding on the doors of steel mills in a vain attempt to get more metal.

Turnabout. Some were fly-by-night operators who had wangled CMP chits and were trying to buy steel for resale on the grey market. Most were established companies, many of them in direct defense production. Chrysler Corp., for example, with 10% of its space turned over to arms output, said that it would not be able to produce its quota of cars this quarter. It might even have to close down next month unless it gets more steel.

The Government was doing little to lessen the confusion. Only three weeks after assuring civilian goods producers that they would be cut back no further this year, Defense Production Administrator Manly Fleischmann last week reversed himself. He issued new steel allocations for the fourth quarter, which will slash auto output another 5% (from 65% to 60% of the first half of 1950), and pinch off production of other civilian durable goods from 70% to 65%. To add to the confusion, DPA took the same chance it had before: it allocated almost 15% more steel for the fourth quarter than will be produced.

Where is all the steel going? Not into arms. For the next quarter, Fleischmann allocated only 1,900,000 tons, or less than 10% of the available supply, to direct defense output such as tanks, ships and guns. Eighty percent (16 million tons) will go to what the Government calls "defense-supporting programs" (see chart). Biggest takers: railroad equipment, petroleum industry, building materials.

Much of the present trouble grows out of the fact that defense-supporting programs is a misleading term, loosely denned by the Government. It includes wide areas of industry usually considered largely or wholly "civilian" (e.g., freight cars), some of which had low priorities in World War II. This loose definition invites almost any manufacturer to apply for defense steel allocations. With CMP on a first-come, first-served basis, many old customers are going to their usual sources of supply only to find that some newcomer has got there first and left no steel for them. The result is that many steel users are placing orders anywhere they can; no one knows how much overbuying is being done, yet no one is canceling orders because of the fear that steel will become still tighter.

Bland Reminder. Through all the turmoil, Washington blandly reminded everyone that some confusion was bound to occur as CMP got under way. However, the news is so bad that a few steelmen think the way out is to bring every industry under CMP, and have complete allocations. The big majority, like Bethlehem's Grace, think that CMP should control only the steel for direct arms output. The rest should be left free.

In any case, the outlook for steel for consumer goods is getting worse. It looks as if the supply will be pinched still more in the next six months before expanded steel capacity eases the pinch.

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