Steel's Cautious Hopes

The skies glowed red again last week over the nation's steel cities as the bothered and beleaguered steel industry hummed with the greatest activity in many months.

In the steadiest gain in a year and a half, the mills melted well over 2,000,000 tons a week, raising the industry's operating rate to 70.1% of capacity. Production is up 68% from last July, and new orders are running at their heaviest rate in more than a year. To meet the new demand, Youngstown Sheet & Tube relit three ironmaking blast furnaces and nine steelmaking open hearths. Chicago's Inland Steel recalled 1,500 workers from long layoffs. Outside Pittsburgh, U.S. Steel reopened its obsolescent Edgar Thomson Works, usually one of the last to resume production during a pickup.

Immediate Need. To an industry that has been stagnating in its own recession for at least two years, all this should have been cause for noisy celebration. But steelmen have had to pay the piper for premature celebrations before, and caution hung over the steel centers like smog. No one could be quite sure how much of the fresh demand was business hedging against the possibility of a strike when labor contracts reopen after April 30. Government steel analysts feel that this fall steel should be able to avoid another tumble like last year's, and hope to see steel production rise 3% to about 101 million tons in 1963. Other economists are not so sure. Says George Cloos, senior economist of the Chicago Federal Reserve Bank: "Strike or no, there will be a drop in steel production in the coming months."

Because they are convinced that neither management nor labor wants--and that Government would not tolerate--a labor stoppage in steel this year, steel customers are actually doing less hedge buying than before last year's contract talks. Industry sources estimate that hedging accounts for no more than 15% of all orders. Though the thriving automakers are prudently stockpiling heavily, most of the industrywide pickup reflects immediate need. Tin-plate demand is rising as the canning season approaches, and appliance makers need more steel because their sales are running 12% to 20% above last year's high levels. Builders also need more structural steel because of the rise in capital spending (see below).

Small Fear. As a result of the new demand, steel prices, which softened after President Kennedy rebuffed the industry's try to raise prices last April, have begun to firm. But there is small fear of a price increase; foreign imports and domestic competition wield as big a club as Kennedy ever did. Cut-price imports rose from 3,100,000 tons in 1961 to 4,100,000 tons in 1962. Aluminum, concrete, glass, plastics and other substitute materials have taken away another 2,000.000 tons a year of business that steel used to count on. Steelmakers now concede that they were too long indifferent to the competition of other materials, and to fight back are boosting their capital spending 11% this year, most of it for modernization. Jones & Laughlin recently opened a new mill for "thin tin" plate to compete against the increasingly popular aluminum cans that pull open without punching. U.S. Steel is finally building two highly productive "basic oxygen" steel furnaces.

Such improvements will cut costs and increase productivity, but will scarcely create new jobs. There are 66,000 fewer steelworkers than there were last May, when production was about the same as now. The industry prefers to work fewer men longer rather than hire more. It thus saves on social security and other fringe benefits that it would have to pay extra men--one cost-cutting practice that is sure to demand the union's attention when the time comes to sit around the negotiating table.

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