A Fresh Reappraisal of the Steel Industry

Abstract

AN EXAMINATION of the steel industry by the writer in August 19591 concluded that the upward revaluation of the industry by the investing public, which began about 1953, had been largely completed. This conclusion was based on the fact that the improvement in steel earnings and dividends during the previous six years was not the result of any spectacular growth in demand for steel products. Instead, earnings gains resulted from internal cost control and an upward movement in prices that more than compensated for rising costs. It was suggested that in the future the companies would have limited ability to increase prices and that profit margins could be improved only by internal efficiencies that would be offset, in part at least, by the upward pressures of labor and other costs. The experience of the industry since 1959 is fairly well known. A lower level of demand combined with a stable to moderately lower price realization per ton of steel shipped resulted in a sharp contraction of profits. Relative to the market, steel stocks have moved down almost without interruption since the late summer of 1959.