It's Spelled Steele

West Virginia's little-known Wheeling Steel Corp. is only the tenth largest steel producer in the U.S., but last week it was first in the hearts of the industry. One year to the day after U.S. Steel's price rise sparked a business-political uproar, Wheeling Chairman William A. Steele surprised everyone by risking the Kennedy Administration's wrath with an announcement of selected price increases averaging $6 a ton. Steele's timing seemed a deliberate test of President Kennedy's present mood, and steelmen happily hailed Wheeling's lead. Said one competitor: "God bless 'em."

48 Hours of Silence. For 48 hours, there was not a word from the White House. Kennedy and his staff met two or three times in cliffhanging sessions, planning strategy and trying to divine whether steel would follow Steele. White House staffers got in touch with labor leaders, and Washington Attorney Clark Clifford, Treasury Secretary Douglas Dillon and Deputy Defense Secretary Roswell Gilpatric busily checked with steel management sources to try to plumb the industry's intentions. This time there were no s.o.b. outbursts from the President, no FBI men pounding doors in the night--but there was almost as much suspense.

Finally, the President produced a somewhat ambiguous statement that registered his protest against price rises in general but seemed to clear the way for selective rises. The President did not want another confidence crisis such as followed his interference last year. Said Kennedy: "I realize that price and wage controls in this one industry, while all others are un restrained, would be unfair and inconsistent with our free competitive market--that, unlike last year, the Government's good faith has not been engaged in talks with industry and union representatives--and that selected price adjustments up or down are not incompatible with a framework of general stability."

Perhaps in Bits & Pieces. Both before and after Kennedy's bland statement, steel executives kept warily silent about their intentions. But it was widely believed that the industry would indeed raise prices, perhaps in bits and pieces over a period of time. The steel industry has been feeling better of late. Steel prices have been firming somewhat, and production has been rising for ten straight weeks. It now stands at 77% of capacity, due partly to strong demand from automakers and partly to hedge buying against the possibility of a steel strike this summer.

But many in and out of the industry consider steel's present performance a short-term one, and the industry takes certain risks if it raises prices now. There is strong evidence that last year's attempted rise would have been cut down in the free market even if the President had held his temper; stuck with a soft market, steelmen have been quietly discounting prices from 1% to 5% for much of the past year. Furthermore, steelmen take the chance of turning their customers increasingly to lower-priced imports, which rose by 1,000,000 tons last year, and to steel substitutes, which last year displaced 2,000,000 tons of steel. Wheeling wisely tried to avoid this peril by limiting its rise to products for which domestic demand is strong and import pressure is weak--sheets and strips widely used in cars and construction.

The Risks. Many steelmakers argue that foreign competition actually obliges them to raise prices to finance their ambitious $1 billion-plus modernization program to build automated plants and highly productive basic oxygen plants, and thus catch up with more efficient foreign producers. The industry's profits dropped last year to a ten-year low of $583 million. Saddled with much outdated plant, Wheeling fared worse than most, earning only 3.09% on sales v. the industry average of 4.05%.

If steel raises its prices, the big question is how much of the rise will be absorbed by higher labor costs. David McDonald's Steelworkers can reopen their labor contract on May 1 or later, and are almost sure to ask for a sweeter contract in the face of any price rise--seeking either higher wages or three-month paid leaves for veteran workers every five years in order to create more jobs.

But all of the risks involved for steel are the kinds of risks that every businessman must consider in his pricing policy. And steelmen clearly feel that they want to run those risks without Government interference.

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