finality without delay. Mr. Elliot offered to accompany Mr Todd, a suggestion which Mr. Todd himself appeared to welcome, but which Mr. Grace, when consulted, was understood to consider unwise. Under these circumstances Mr. Elliot did not feel able to press the matter. Mr. Todd proceeded accordingly, accompanied by Mr. Outwater, representing the S. E. A., and was able to make most of the desired contacts, returning to New York two days after the arrival of the delegation. 7. The delegation, after receiving Mr. Elliot's report, agreed that nothing could be done until they had seen Mr. Grace, a meeting with whom had been arranged for the evening prior to Mr. Todd's return. Their intention was to emphasize the impossibility of avoiding a final breakdown, unless the Agreement of June 14th could be completed without delay. At this meeting, Mr. Grace identified the interests of his own Company and the other two signatories with those of the European Groups in a feeling of bitter and, in their case, humiliating disappointment at the failure of the February understandings to materialize, and at the deterioration in the position, which had frustrated the confident expectations of the Paris Agreement. He felt bound to admit that the animosity which now prevailed in the industry was, in regard to exports, directed largely against his own company. While agreeing wholeheartedly that a final effort should now be made to complete the Agreement, he suggested that it might, on this occasion, be preferable that Mr. Fairless should endeavour to get the Principals together. Mr. Mackall, who was present at the meeting, stated that Bethlehem had, in any case, gone to the limits of concession, and insisted that their attitude to he oher Companies could only be of a "Take it or leave it" nature. As Mr. Grace had explained, the division of internal quotas had largely been agreed before the American delegation visited Europe in June, and Mr. Mackall saw no reason why the other Companies should now be permitted to improve their position. The suggestion was then made that in the event of failure it would be well worth while making an arrangement with the three signatory Companies only, Mr. Grace emphasizing his desire, which he knew was shared by the Corporation, to maintain co-operation with the European Groups to the maximum extent possible. Mr. Mackall argued that there was an intermediate price level which could be maintained without risk of serious loss to other American manufacturers. When asked, however, if, under such an arrangement, Bethlehem and the Corporation would be prepared to take responsibility for outsiders, both Mr. Grace and Mr. Mackall replied with an emphatic negative. The delegation felt bound to say that, while, in the event of failure, they would naturally ask their European colleagues to give consideration to any proposals Bethlehem and the Corporation might wish to make, they gravely doubted if the European Groups would be willing, after so many disappointments, to entertain the idea of a partial Agreement. Finally, Mr. Grace renewed his assurances that he, personally, would do everything possible to make the Agreement complete, and indicated that, as most, if not all, the Principals would be in New York for certain meetings under the Institute on October 18th, it might be possible to arrange a meeting with them on the following day. He expressed a hope that the Delegation might be willing to stay a little longer than they had contemplated, if necessary, and urged them to get in touch with Mr. Fairless with a view to his arranging the meeting. Lord Dudley replied that he, personally, would stay on in any case, and that, if events showed it to be necessary, Mr. Elliot, and possibly also Mr. Summers, would delay their departure. Mr. Mackall undertook to see Mr. Todd on his return the following morning, and jointly with Mr. Todd to consult with the delegation again. 8. Mr. Todd, after seeing Mr. Mackall. visited the Delegation and gave a résumé of the results of his tour and his conclusions thereon. Briefly, Mr. Todd, while finding the difficulties greater and the atmosphere even worse than he had feared, refused to give up hope. He agreed to make every effort personally and through the Corporation, to arrange a meeting of all the Sales Vice Presidents and Export Executives during the day on October 18th. He was, however, seriously perturbed that the delegation should contemplate returning on October 19th and pressed them to defer their departure. Lord Dudley explained to him what he had already told Mr. Grace in this respect, but urged that every effort should still be made to reach finality by October 19th, the proposed sailing date. Matters were, therefore, at this stage left in Mr. Todd's hands, including the arranging of an interview with Mr. Fairless, who, however, was not expected to be available before October 18th. 9. A further meeting also took place with Mr. Mackall, at which the delegation repeated their strong feeling that no alternative to the present Agreement would be acceptable to the European Groups, and pressed him to be more accommodating towards the other companies' claims, since a breakdown, with the removal of all restrictions on imports, would undoubtedly hit the Bethlehem Company more than any other. 10. On the evening of October 13th the delegation were the guests of Mr. Girdler, Chairman of Republic Steel, and of the Vice Presidents of that Company, an occasion kindly arranged by Mr. Bellamore. They were glad to find the same attitude of cordiality and helpfulness as had been shown by this Company throughout. Mr. Girdler especially assured them that he would do everything possible to achieve the object all had in view. 11. Throughout this period and subsequently, Mr. Elliot and Mr. Summers continued to meet with the Board of Managers of the S E. A. All questions which could de dealt with were covered and are referred to in Appendix C.1 · 12. Between October 13th and 17th, Mr. Todd was away from New York continuing his missionary work with his many friends among the Sales Vice Presidents and Executives of the various Companies, with a view to persuading as many as possible to come to New York for a meeting on Gber 18th. In this, the delegation understands, he was greatly assisted by Mr. McKaig, Vice President in charge of Sales of the U. S. Steel Corporation, as well as Mr. Grace and Mr. Girdler. It was not, however till the evening of October 17th that the full success of these efforts was known, to the extent that the principal representatives of fifteen Companies, including all those scheduled in the Agreement of June 14th, had agreed to meet throughout the day of October 18th. The delegation is not at present aware which additional Companies attended this meeting, but understands that the Inland Steel Company was among them. For Mr. Todd's reference and assistance, they prepared a Memorandum summarising their conclusions upon the situation-see Appendix C.' They had made it clear to Mr. Todd privately that, while this Memorandum read somewhat as an ultimatum, if the meeting failed in its immediate object but gave sufficient promise of eventual success, a personal request for time, with a reasonably near limit, say October 31st, would not be refused. 13. On October 18th certain Members of the delegation had an opportunity of meeting Mr. Weir, Chairman of National Steel, controlling Weirton and Great Lakes. They had not been able to meet Mr. Weir in February and were anxious to make his personal acquaintance. With the same object, Lord Dudley had arranged to visit Jones & Laughlin's plant at Pittsburgh later in the week and make Mr. Edgar Lewis' acquaintance. 14. The final results of the meeting of October 18th, at which Mr. Todd took the chair, exceeded his most sanguine expectations. Contrary to recent experience, a spirit of helpfulness and determination to overcome obstacles was shown by all present, and agreement was, in fact, eventually reached in such a way as to enable signatures to be obtained for all products except Plates, in which product the signatures of Allen Wood and Lukens were made conditional upon the adherence of the Worth Steel Company. This Company, which was not represented at the Meeting, has exported some thousands of tons of Plates during the present year, considerably in excess of any quota they might reasonably expect to obtain. They were not included in the schedule attached to the Paris Agreement on account of the fact that, being Quakers, they had declined absolutely, at that time, to join. Mr. Todd will take an early opportunity of vising them, and in the meantime Mr. Girdler, who is understood to have considerable influence with them, has promised to do his best to bring them in. There is a possibility, therefore, that this difficulty will have been removed before Lork Dudley's departure. 15. Such a formal record of events as this may leave the impression that the Delegation was not fully appreciative of the patient and upsparing efforts which Mr. Todd had already made, and was proposing to continue, and the great responsibility which he was willing to accept. Complete confidence in his understanding of the position from every point of view, as well as the knowledge of the high regard in which he is held by all the Principals and their Executives, satisfied the Delegation that the best possible hope of a solution lay through 1 See exhibit S-78C, infra, pp. 149-150. his mediation and advice. Their confidence was more than justified. It is no overstatement to say that the result must be regarded as a personal triumph for Mr. Todd, but for whose patience and persuasiveness no Agreement could have been reached in so short a space of time. The Delegation had, naturally, when meeting Mr. Grace, Mr. Girdler and Mr. Fairless, informed them of the splendid impression which Mr. Todd had created in Europe, and of the confidence he enjoys in every Country. To each of these gentlemen, especially to Mr. Fairless, whom they were able to meet on October 18th, they had expressed the view in the strongest possible terms that the smooth working of the Agreement, if it could be continued, would depend upon the completeness of the authority given to Mr. Todd. In this connection reference may be made to the concluding sentence of the delegation's report on the February visit reading as follows: "We wish again to emphasize that the position can only be regarded as satisfactory when the reorganization of the Steel Export Association, referred to in 17, has been accomplished and the requisite authority of Mr. Todd established and assured." Mr. Fairless especially, as well as Mr. Grace and Mr. Girdler, has expressed his readiness to take such further action in this direction as Mr. Todd may feel to be required. EXHIBIT S-78A BUYERS' MARKETS IN STEEL PRODUCTS ENOUGH COMPANIES WILLING TO TAKE ORDERS AT CUT PRICES DATES FROM U. S. STEEL-C. I. O. AGREEMENT-PICTURE OF (By Kenneth L. Austin) While a chastened attitude was observable in steel quarters at the close of last week following price cuts of $4 a ton in several important rolled products, it was still impossible to determine what the future holds in store with respect to prices. Reports that further cuts of $2 a ton in automobile sheets had been made at Detroit by independent manufacturers, while verified in several quraters, appeared to be rather in the nature of a gesture than anything else, for no business was reported done at the lower levels, and the placing of the next large order by an automobile maker must be awaited before any conclusion can be drawn as to the price situation. Nevertheless, the previous price cut, made by six or seven steel makers in order to obtain a share in the 50,000 tons of steel order by the Ford Motor Company, permits three conclusions to be drawn; first, that with the industry slightly more than 50 per cent employed, there is a buyers' market for steel; second, that there are enough companies willing to take business at almost any price to make it impossible for the leaders to determine the ruling level; third, that even were it not for the thirst for orders, there is considerable animosity in the relations, or lack of relations, among important steel companies. GOVERNMENT AS A FACTOR Whereas some observers have expressed the opinion that the weakness of the steel price structure is attributable to the desires of the New Deal, to which certain important steel interests have adhered for the sake of cooperation and possible favours, the fact remains that economic and not political considerations are involved in the present situation. It is probable that the voice of government would be as loud as was that of labour in opposition to last week's weakness in steel prices were it prudent politically to criticise price cuts. As to the animosity among steel companies, it persists to a degree that is not applicable to the ordinary competition for business by the industry. The selling of steel has been keenly competitive for years, and sudden price cuts are nothing new. On the contrary there have been few periods when steel prices have been really firm, and such a condition implies employment at virtual ca pacity and pressure by customers for early deliveries. Roughly speaking, steel companies occupy such a position only in about ten months spread over ten years. The ill feelings now evident in the steel industry go back to the time, early in 1937, when the United States Steel Corporation signed a compact with the Committee for Industrial Organization. United States Steel has been immune from labor troubles since that time, while most of the leading independents have fought serious battles with strikers in opposition to the principle of "outside" control of their labor. On the eve of United States Steel's renewal of its labor agreement, on February 9, this year, independent steel companies suddenly cut cold reduced and oiled sheets by $4 a ton as a gesture of resentment against the big corporation. Later adjustments minimized this action, and the industry held to fairly stable prices until late Spring. During the Spring, however, weakness due to economic causes develope in the steel price structure, with warehousemen and the construction industry battling strongly for lower prices. The former had taken heavy inventory losses in clearing their floors, and the construction men-operating on contract instead of costplus jobs, wanted to cut costs wherever they could. At that time demand for automobile sheets and other rolled products was virtually non-existent. PRICING SYSTEM CHANGED At the last, United States Steel recognized the softness of the market by announcing reductions of $4 a ton, and was followed by other companies. But the company went further than that and swept away the basing-point differentials by which the entire steel industry was able to compete on fairly even delivery-cost conditions in all important consuming centres. Bethlehem Steel quickly followed suit, and other companies, after several days of study, gave up their basing-point differentials in turn. This action was traced by most observers to a desire of United States Steel and other companies to avoid controversy on the basing-point system in connection with the approaching Federal monopoly investigation. The companies did almost exactly what they had been urged to do for several years by the Federal Trade Commission, which is a party to the investigation. But in so doing the steel industry ran counter to the expressed convictions of responsible officials of every important company. The result was an increase in the tension in the steel industry, and the bitterness was increased virtually as much as had been the case in the labor controversy. The competition became more ruthless, and all companies with the proper equipment had their eyes on the approaching automotive season. When buyers for Ford Motor said they were willing to talk business they were able to place all their tonnage at the lowest price quoted. What earnings of steel companies in the third quarter of the year were is still uncertain. Two small speciality makers show improvements over the second quarter, since the price weakness did not affect their principal lines of products. None of the big companies has allowed any report to be given out. The importance of the reports lies in the fact that the price reductions of late Spring were in effect over the entire period, while wage and other standards remained unchanged. As to the fourth quarter of the year, the situation is even less uncertain, for the recent price cuts in hot and cold rolled sheets and strip and in certain other products appeared early in the period, with pig iron simultaneously $1 a ton higher and wage standards again unchanged. It is not believed that any important steel company can earn dividends on such a basis. On the other hand, most observers are convinced that the industry will not allow this situation to persist, and, whether or not there is to be any "pacification" among principal companies, they feel certain that ordinary common sense will dictate a restoration of a sound price level. Eighteen principal companies which have 864 percent of the Nation's steel ingot capacity have about $20,500,000 in bank loans, $580,000,000 in funded debt and $728,000,000 in preferred stock for which they must provide interest, amortization, and dividends before there can be earnings on common stock. There is considerable difference in the status of the various companies, however, and while none has been described as "weak" thus far, observers feel that the situation bears watching. The following tabulation shows the securities ranking ahead of the common stocks of the eighteen principal steel producers, listed in the order of their capacity: Capacity of eighteen companies, 63.006.120 tons (86.25 per cent of industry). EXHIBIT S-78B LIST OF AMERICAN MANUFACTURERS GIVEN IN THE SCHEDULE TO THE 1. U. S. Steel Products Company. 2. Bethlehem Steel Export Company. 3. Republic Steel Company. 4. Youngstown Sheet & Tube Company. 5. Jones & Laughlin Steel Corporation. 6. Wheeling Steel Company. 7. National Steel Company. 8. Lukens Steel Company. 9. Newport Rolling Mills. 10. Otis Steel Company. 11. Armco International. 12. Allen Wood Steel Company. 13. Pittsburg Steel Company. EXHIBIT S-78C NEW YORK, N. Y., October 18, 1938. Mr. WILLIAM B. TODD, DEAR MR. TODD: In view of the many misunderstandings and disappointments which have hitherto attended our efforts to complete an export agreement between the European and the United States Steel Manufacturers, my colleagues and I feel that we should place on record to you as briefly and clearly as possible, our conclusions upon the present situation: 1. The discussions which we have had with you and your colleagues during the past few days, and your own first hand knowledge of the situation in Europe will, we are sure, have convinced you that finality must now be reached. 2. Since the possibility of continuing with a smaller group than that foreseen in the Paris agreement dated June 14th, 1938, has been raised with us, we have to say that we have given this the most careful consideration, but as already indicated to certain of your colleagues, we cannot visualize the conditions which could make such an agreement, with the restrictions which it might impose, acceptable to the European Steel Manufacturers. 3. Your own knowledge of the feeling in Europe will enable you to judge what prospect we should have of securing the agreement of our colleagues in Europe, even if we, ourselves, could be satisfied that partial agreement would be better than complete freedom. |