Watching Steel

How strong is steel? That question preoccupies economists as well as bridge builders, makes the weekly figures on steel production among the most closely watched in the nation. Last week steel production was due to slip to below 80% of capacity for the first time in 1960, dropping for the fifth straight week.

Some experts blamed the rise of the compact car as a major cause of the steel slump, since each compact uses more than half a ton less steel than a standard model. But if the Big Three compact cars produced during March had all been standard-sized cars, the industry would have used only 36,000 more tons of steel. Since the auto industry uses more than a million tons of finished steel a month the difference is too small to be important. A likelier explanation of Detroit's drop in steel buying: automen have restored their steel inventories, which were exhausted during the nearly 17-week steel strike.

So have other industries--appliance, farm machinery, and construction. Feeling that there is no likelihood of a price rise in the near future, they are keeping inventories at a minimum. Steelmen expect that they will be operating between 70% to 80% of capacity until late May, when buyers will have whittled away their new inventories. After that, steel business should reflect more closely the rate of business done by steel users.

Steelmakers are not alarmed by the slump. First quarter earnings were up smartly. Jones & Laughlin, the nation's fourth largest producer, reported record first quarter earnings of $2.22 per share, a 13% gain over last year; Lukens Steel reported first quarter earnings of $2.43 per share, more than double last year's first quarter.

Moreover, steelmen say that the industry can produce more steel than the U.S. can use (expected 1960 production: 120 million tons) at 85% of capacity. That also happens to be the most efficient operating rate for the industry, since it permits better planning and less overtime pay. One serious drawback is that 85% of capacity means fewer jobs for steelworkers. So far, the drop in production has meant the layoff of nearly 13,000 steelworkers out of some 90,000 in the Pittsburgh area alone.

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