Steel Tries Again

Steel is used in so many products, from locomotives to paper clips, that almost any increase in its price becomes an economic and political gamble: Will the market take it? And will the White House hold still? Last week six big steel companies decided to run the risk. They announced increases of 6%, to take effect this week, on flat-rolled products, which go into autos and appliances and consume almost 40% of industry shipments. Their move brought hand-wringing from the outgoing Ford Administration and raised an immediate economic question of whether the increase would stick.

An earlier one did not. Last summer the mills scheduled a 4.5% rise on flat-rolled, effective Oct. 1. But demand then was weak. Some steelmakers apparently told favored customers they could continue to buy steel at the old prices; Armco then delayed its rise, U.S. Steel canceled the boost and the rest of the industry fell into line.

This time matters may be different. Though steel mills are still operating at only 72% of capacity, Wheeling-Pittsburgh Steel, one of the companies announcing an increase, claimed that flat-rolled products are selling especially well. National Steel, which led the increase, added that the boost would "only partially" recoup rising costs for materials, labor and freight. Significantly, Armco, the company that torpedoed the October rise, joined this one.

No Power. The increase seemed to catch Washington off guard. President Ford ordered an investigation by his Council on Wage and Price Stability. Acting Director William Lilley III asked National for production, cost and profit-and-sales data and said the market appears to be no stronger than last summer. COWPS, however, has no power to do anything except complain--and perhaps pass the buck to President-elect Jimmy Carter, who is committed to trying to get industry and labor to follow voluntary wage-price guidelines.

The key to the situation probably will be the position of the industry's giant, U.S. Steel. Last week its executives said not a word, but Chairman Edgar B. Speer is on record that "any price activity will come in 1977." Some Wall Street analysts speculated in consequence that until Jan. 1 or shortly after, the industry will have an unusual "two-tier" pricing system, with some mills charging a higher and others a lower price. If U.S. Steel decides to hold the line, the increase undoubtedly will collapse again. But if the giant raises prices, it could present Carter with an awkward dilemma: whether to swallow the increase, thus diminishing the credibility of any guidelines he may announce, or start his Administration with a fight against the steelmakers.

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