Change in Steel

Steel stocks, which have helped lead the market up for the past two months, turned about last week and led it down again. All major steel issues sagged badly, from Armco's slide of 3! points to Youngstown Sheet & Tube's dip of gf. The main reason was a sudden pessimism, largely touched off by a gloomy steel report front-paged in the Wall Street Journal, and sent over the Dow-Jones ticker, which said that demand is disappointing and inventories are building up too fast. Steelmen thought the report was far too pessimistic, and so did the industry's bible, Iron Age. Said Editor Tom Campbell to the American Warehousemen's Association in Chicago: "The facts do not suggest a rate of activity under that of last year, when steel production was 115.2 million tons."

Slow sales of G.M. cars (TIME, Jan. 14) and some appliances were softening the market for cold rolled sheets, bringing supply in line with demand for the first time since last summer's strike. But for the types of steel that make up most of production, there was no letup. The market for structural steel, heavy plate and pipe that go into tankers, heavy construction and pipelines was tighter than at any time since the Korean war.

Whittling the Inventory. What was happening was less a falling off of demand than a change in buying habits. With steel production at the fastest rate in history and no worry about a steel strike, buyers are not tying up their cash in inventory, as they did last year. They are buying closer to production schedules, demanding immediate delivery. Chrysler, for example, is still whittling down its steel leftovers from disappointing 1956, plans to step up buying.

Steelmakers still estimate that they will operate close to capacity in the first half of 1957, then level off to 85% in the second half, when plants slow down for vacations and Detroit closes for model changeovers. That would add up to a record 120 million-ton year. U.S. Steel, Inland Steel and Pittsburgh Steel expect to pour near capacity in the first half; Jones & Laughlin figures 100% through March, 90% in the second quarter. Said Inland President Joseph Block last week: "Steelmen are rediscovering a little pessimism. But there is no cause for alarm."

Heavy Wager. The big if in the industry is whether an upsurge in auto buying will start another scramble for steel, and a shortage like last year's. That will not be known for sure until spring, when automakers learn whether expectations for a 6,500,000-car year are being met. Prospects for meeting that target looked good last week. Ford Motor Co. said that in the first ten days of January it sold 59% more Fords and 30% more Lincolns than the like period last year, the best year-opening period for Fords in history. Steelmen themselves are betting heavily that this will be their biggest year. The American Iron & Steel Institute reported that steelmakers will spend a record $1,700,000,000 for expansion in 1957. That is 42% more than last year's record, and more than six times what the industry spent a decade ago.

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