The Economy: Slump in Steel

The steel industry is proud of the axiom that "As steel goes, so goes the economy." Increasingly, this boast is challenged by those who say that the growing switch to such substitute materials as aluminum and concrete makes steel a lot less basic than it once was. But steel is still the biggest single force in U.S. industry, still directly provides the bread and butter of one U.S. industrial worker in 23.

Last week the butter was being spread a little thinner. Since March, steel production has slipped from 82% of capacity to 55%, and dozens of steel furnaces have been banked from Pittsburgh to Buffalo. This week U.S. steelmakers will pour barely 1,600,000 tons—just about what Russia will produce.

Living Off Inventory. Steel users are currently living off the huge inventory of 17 million tons that they piled up last winter as a hedge against a possible strike by the United Steel workers. The auto industry, which consumes one-fifth of the nation's steel, has enough at its disposal to carry through the first month's production of its 1963 models. Ahead lie the traditional summer doldrums, when many big steel users close for vacation. Normally such a seasonal slowdown would cause no alarm, but steelmen today are none too bullish about their long-term prospects either.

With capacity plentiful and deliveries quick, steel customers are turning to a new long-term policy of lean inventories, hope to make do with less than half the amount they customarily kept on hand in the 1950s. Above all, the steelmakers complain that President Kennedy's determination to hold the price line denies them the capital that they need to cut their costs through modernization of their plants. At the American Iron & Steel Institute meeting in Manhattan fortnight ago, Pittsburgh Steel's President Allison R. Maxwell Jr. summed up the industry's complaints: "Prices must be high enough to build the markets of tomorrow. We need tremendous new investment in ultramodern facilities, and the money to finance this investment is ultimately derived from just one source—profits."

Invasion from Abroad. Most of all, steelmen want to modernize to meet mounting competition from the Europeans and Japanese. With superbly automated plants—many of which, U.S. steelmen argue, have been bankrolled directly or indirectly by U.S. aid funds—foreign producers have cut deeply into U.S. steelmakers' traditional markets at home and abroad. Though the U.S. historically has exported two or three times as much steel as it has imported, steel exports last year fell 29% to $423 million, while imports amounted to $380 million—and so far this year have risen sharply. The U.S. now imports about half its nails, one-quarter of its wire rods and reinforcing bars, and three-fifths of its barbed wire (principal source: Belgium).

Steel's future is by no means totally grey. New mines in Canada promise cheaper ores for U.S. steelmen, and new oxygen processes pioneered in Austria should spur great advances in productivity. And in the short run, steelmen look forward to increased sales in August or September as the production of the '63 autos swings into high gear and appliance manufacturers step up output in preparation for the Christmas selling season.