Steel

Up & down before the House of Morgan on the corner of Broad and Wall Streets, Manhattan, marched a big delegation of pacifist picketers one day last week. They were there, according to their placards, to damn the "huge profits of Morgan and his U. S. Steel Corporation." In the process of damning they completely failed to recognize Mr. Morgan in the flesh as the banker came & went for lunch. Day before, it was learned that Mr. Morgan had dipped into his art collection for $1,500,000 in ready cash to help his executors settle his estate, and U. S. Steel Corp. reported a deficit for 1934 of $28,000,000.

Steel's report made better reading than the pacifist picketers would have supposed. In 1933 Steel's deficit was $43,000,000, in 1932 $92,000,000. The important fact, however, was not that deficits were declining but that operating profits--before depreciation and other charges--were rising. Chairman Myron Charles Taylor took pains to announce that the average wages of his 190,000 employes were up from 59-c- per hour in 1933 to 70-c- last year, that total wage payments were up nearly 30% from $172,000,000 to $210,000,000, although steel output increased less than 10%. Yet operating profits rose nearly 100% from $17,900,000 to $35,000,000.

On each of the 6,000,000 tons of steel it delivered last year U. S. Steel made an operating profit of $5.86 as against $3.25 on a production of 5,536,000 tons the year before. It was clear that Steel's management had at last got something of a grip on the expenses of its sprawling empire. What was needed now was sufficient volume to offset annual depreciation of more than $40,000,000 and other charges that last year amounted to $12,000,000.

By last week Steel was just about at its "pay point," the theoretical rate of operations at which all those charges are fully earned. For U. S. Steel the pay point is around 45% of capacity, and Chairman Taylor announced that operations last week were 44%. (Last September's low: 19%.) Unconvinced that the Depression was over, the directors, however, again voted a 50-c- payment on the $7 preferred stock, bringing accumulated back dividends to $11.25 Per share. But the directors might well ponder the fact that all Steel's Depression losses do not yet foot up to the profits of the single year 1929.

Last week NRA released a steel study showing that U. S. steel now owns less than 40% of the nation's ingot capacity as against 45% 15 years ago. Its capacity was expanded 21% in that period but additions to other companies ranged from 49% for Bethlehem to 890% for Otis Steel. Some of the individual gains were the result of mergers but fact remains that smaller, more flexible units have the advantage over brontosaurian U. S. Steel.

Bethlehem, No. 2 steel company of the land, actually reported a profit last week, $550,000 as against a deficit of $8,700,000 in 1933. Even more dependent on the moribund rail and building markets than U. S., Bethlehem was operating at 40% of capacity. President Eugene Grace, who has not earned a $1,000,000 bonus in several years, dourly remarked that he could see no reason why operations would not hold at that level for "a little while."

Principal interest of the industry was the outlook for the current upturn. A softening of scrap prices, usually a portent of poorer times, encouraged the belief that the peak was near. And there was a nervous undercurrent of fear that strikes in the steel industry or its best customer, the automobile industry, might spell the top of the rise. Yet American Metal Market was astonished at the demand for miscellaneous steel, showing that Detroit was not bearing the entire burden of the boom. A surprising jump in the Federal Reserve Index of industrial production-- from 74 in November to 85 in December --revealed heavy timbering beneath the upswing. Estimating current steel production at 56% of capacity, Iron Age reported: "There is as yet little disposition to look for an early recession in steel works operations, although it is conceded that further gains may not carry output more than 5 or 10 points higher."

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