The Daisy Chain

The steel shortage has cut deep into the production of big corporations. For many a small manufacturer it has been a worse misfortune; some have been forced to shut up shop completely. To head off this blight to business, the Senate's Small Business committee is trying to find out why small buyers can get no steel. What it found out in hearings last week was that little businessmen can buy steel--if they are willing to pay fabulous prices for it.

One small businessman named David Hillstrom, proprietor of the Corry-Jamestown Manufacturing Corp. of Corry, Pa., testified that in the last year he has paid $206,000 above the mill price for sheet steel. And he paid $18,000 more for steel he never got. He is now paying from $250 to $280 a ton for sheet steel (mill price: $50 a ton) to keep his plant going.

Arthur Boehn, of Cleveland's Boehn Pressure Steel Corp., said that his company had paid up to 14-c- a pound (mill price: around 3-c-). Last week he gave up in disgust, laid off his 100 employees, shut his plant.

Market In Grey. Solely responsible for this state of affairs was the "grey market daisy chain" of steel brokers. The committee was not able to pin down the exact workings of the grey market. But the plain assumption was that steel flowed into it from brokers able to buy from mills, by virtue of prewar dealings, or from manufacturing companies with excess supplies. Instead of canceling their mill orders, as they usually would, these companies took delivery and turned the steel over to brokers at a fat profit. As each party in this daisy chain got his cut, the price was run up and steel was kept out of the normal channels which supply small businesses. The fantastic workings of the chain were described by two would-be steel-buyers, L. C. Durham and E. A. Kerschbaumer.

Durham, a Chicago fabricator and steel broker, joined the daisy chain through a broker named McAleer, who phoned him long distance. If Durham could be in New York that night, said McAleer, he could buy 100,000 tons of steel. Too eager to pack, Durham grabbed a spare shirt, flew to New York, and hurried to the rendezvous in a suite in Manhattan's Hampshire House.

Marine Rescue. The suite was in the name of Kerschbaumer, a Pittsburgh supplier, who had been lured there himself by a promise of 300,000 tons of steel. Also present were middlemen, lawyers, and "company representatives" who assured the buyers that they would have confirmation of the orders from the mills in the morning.

But confirmation did not come the next day, nor for six weeks thereafter. Durham, who expected to go home daily, washed his linen in the bathtub. Kerschbaumer, who claimed he had a $40 million letter of credit to back up his bid, said he also agreed to pay the supposed mill representatives a bonus of $18,000,000--at around $62 a ton--for distribution among mill executives. Still he could not close the deal.

One Brooklyn exporter named James Boyle got so mad at the delay, said Kerschbaumer, that he burst in with two "very apparently gangster types" with guns, demanded 50,000 tons of steel "or else." Durham, a husky exMarine, happened to walk in just then and "removed them of their guns."

Dead End. Finally, a man named Herbert Karp showed up with what seemed to be confirmation of a 248,000-ton order to be filled by the Firth-Sterling Steel & Carbide Co. of McKeesport, Pa. The buyers, including Kerschbaumer, who had spent $63,000 in entertainment and "bonuses," then made their deals for the steel and went home. But no steel was delivered.

Last week the committee found out why: the letter was a phony. And it reached the dead end of the daisy chain when Boyle and Karp appeared. Boyle, a onetime Hollywood scripter, vehemently denied that any of his party had pulled any guns, though he did admit that one of his companions was carrying a revolver--a small one--in his pocket. Karp pleaded even greater innocence on the subject of the phony confirmation. It was handed to him in a Pittsburgh hotel lobby, he said, by a stranger. He had no idea how it happened to bear the signature, apparently not genuine, of an official of the Firth-Sterling Co.

"I learned that it's the easiest thing in the world to pick up the telephone and buy more steel than the whole industry can manufacture in a year," he said plaintively. "Only you never do get delivery."

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