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NOTE D.--McLouth Steel Corp.: At the time the company applied for the $10,500,000 loan, it was operating as a conversion mill. Suppliers of semifinished steel claimed that sales of such materials were made at a loss and notified McLouth of their intention to discontinue supplying semifinished steel one year ofter date of notice. In order to be assured of a supply of steel, the company decided to install its own facilities. The facilities to be added included: 4 60-ton electric furnaces, soaking pits, 1-10'' blooming mill, 1-42'' hot mill, buildings, and auxiliary facilities.

Originally, it was estimated that these additions would cost approximately $18.5 million; of this, $10.5 million was to be supplicd by the RFC loan. Later, it was found that the
cost would amount to about $ 24 million, and an additional loan of $4 million was requested and authorized for this purpose.

NOTE E.-Pacific States Steel Corp.: To augment its existing facilities, this company applied for a loan to assist in financing the acquisition of 4 60-ton open hearth furnaces from
WAA, and the construction of a 22"' rolling mill. Also included in the program were the buildings and necessary auxiliary equipment.

The company later revised its plans and, instead of the facilities originally contemplated, proceeded with the erection of a 26'' rolling mill and 2 130-ton open hearth furnaces.
Source: Industrial Analysis Branch, Budget and Reports Division, Office of the Controller.

RECONSTRUCTION FINANCE CORPORATION,

Washington 25, D. C., June 30, 1950. Hon. EMANUEL CELLER, Chairman, Committee on the Judiciary, Subcommittee on Study of Monopoly Power,

House of Representatives, Washington, D. C. DEAR MR. CELLER: The material accompanying this letter is in further response to your request of May 24, 1950, regarding the steel firms and facilities financed by the Reconstruction Finance Corporation.

Supplementing the tables sent to you with my letter of June 20, 1930, you will find attached tables III, IV, and V, consisting respectively of the detail on loans authorized to members of the iron and steel industry during the defense and war periods (table III), those authorized prior to July 1, 1940 (table IV), and a summary of the financial data on all loans authorized to members of that industry (table V).

Through June 9, 1950, this Corporation authorized 72 loans to 36 iron and steel companies; the total amount of these authorizations was $216,818,983. Of these, 15 authorizations for $8,347,000 were canceled before any disbursements were made, and partial cancelations totaling $1,667,267 were made in 9 otber authorizations, leaving a total of 57 authorizations for $206,834,716 on which funds were disbursed, or which may be disbursed at some future date.

In the period from the inception of the Reconstruction Finance Corporation on February 2, 1932, to July 1, 1940, there were authorized to members of the iron and steel industry 35 loans for $10,993,983. Many of these were made to firms which were in troubled financial circumstances by reason of the general business recession of the early thirties. Several of them were to concerns which lad closed their plants or were conducting limited operations under receivership pending reorganization. The loans authorized in the prewar period were mainly for the purpose of resuming production in the closed plants and to assist all of the borrowers to regain profitable operations: less than 20 percent of the loan proceeds were earmarked for additional facilities or improvements to existing plants.

Following the gradual recovery from the depression, and about at the time of the inception of the defense program, the steel industry in general was oper. ating on a profitable basis. However, in financing some of the defense and wartime expansion projects, a few companies turned to this Corporation for loan funds. From July 1, 1940, through December 31, 1944, there were 20 loan authorizations totaling $130,815,000 made to steel concerns; among these were the eight Kaiser Co. loans amounting to $111,805,000.

As the defense program progressed, the need for more and more steel-making facilities became apparent and it was found that the projects contemplated by the agencies preceding the War Production Board were either beyond the ability of the industry to finance from private sources, or the industry was reluctant to proceed with them because of doubts about their economic operation during peacetime. In consequence, it became apparent that to have the needed facilities they must either be constructed by the Government or some limitation placed on the risk undertaken by companies erecting facilities with their own funds. The latter was accomplished through the certificates of necessity provided by section 124 of the Internal Revenue Code. This section provided accelerated amortization, for income tax purposes, for those privately financed facilities covered by the certificates. About half of all funds expended for steel facilities during the defense and war periods represented the cost of Government-owned facilities; the balance was expended by the steel industry and was largely covered by certificates of necessity.

In connection with the financing of wartime facilities, the contribution made by the Defense Plant Corporation—a former subsidiary of RFC-is well known. Included in the list of DPC facilities were some 230 projects relating to the

steel industry. The principal additions to the Nation's steel-making capacity authorized in these projects were as follows:

Annual capac

ity (tons) Coal

6, 616, 000 Iron ore and concentrates.

9, 766, 120 Sintered concentrates

7,067,400 Coke--

7, 828, 500 Pig iron.

10, 003, 500 Open hearth ingots--

5, 200, 613 Electric ingots.--

1, 271, 240 Rolling mill products..

5, 915, 217 In addition to those listed, facilities also were provided for the production of ferromanganese, tubing, malleable and gray iron castings, steel castings and forgings, etc. Approximately a billion dollars was expended by DPC in the erection of steel facilities. All of the DPC projects were under the sponsorship of some Government agency directly concerned with the prosecution of the war. For details on the facilities included, your attention is invited to reports of the war agencies, especially “Steel Expansion for War,” prepared by W. A. Hauck, of the War Production Board's Steel Division. The postwar disposition of DPC's steel facilities has been noted in reports of the Surplus Property Board, the Surplus Property Administration, and War Assets Administration (now General Services Administration).

From about the time of the war's close until June 9, 1950, the Reconstruction Finance Corporation authorized 17 loans for $75,040,000 to steel companies. In most instances, these loans were made for the purpose of assisting in the conversion of wartime facilities to civilian-type production. More than 80 percent of the loan funds authorized to steel concerns since January 1, 1945, have been designated for capital expenditures.

While this Corporation has no restrictions placed on the size of concerns to which it may lend funds, you will note that only two loans were authorized to companies which might be considered as being among the major steel producers. Both of these loans were made under wartime directives to subsidiaries of Armco Steel Corp. (Sheffield Steel Corp. of Texas and Rustless Mining Corp.).

As far as funds for future expansion of the industry are concerned, it would seem that the leading producers should have little difficulty in obtaining any outside capital they may require from private lenders or from the sale of securities. This may not hold true, however, for smaller companies, and if any future requests for loan funds are made to RFC by steel concerns, it is most likely that they will come from the smaller members of the industry whose prestige is insufficient to assure a public market for their securities, or whose immediate earning prospects may make it necessary for them to borrow funds for longer periods of time than private lenders are willing to commit.

In a general sense, all loans made by RFC to business enterprises result in the strengthening or preserving of the borrowers' financial and competitive positions.

I trust that this letter, together with the tables submitted, will supply you with the information you desired and will prove helpful to your committee. With kind regards. Sincerely,

HARLEY Hise, Chairman.

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TABLE III.Detail of loan authorizations to companies inthe iron and steel industry, July 1, 1940, to Dec. 31, 1944

Name and address of company

Products

Amount
authorized

Eastern Stainless Steel Corp., Stainless-steel sheets.

Baltimore, Md.

$1,500,000 September 1944.

Kaiser Co., Inc., Oakland, Calif.

(now Kaiser Steel Corp.).

Coke, coal chemicals, pig
iron, ingots, hot-rolled
products, cold-rolled strip,
and pipe.

48, 700,000 March 1942
8,619,000 July 1942...
26,050, 000 November 1942.

700.000 October 1942
21, 736, 000 April 1943
4,000,000 September 1943.
1,000,000 January 1944
1,000,000 December 1944.

100, 000 August 1940. 200,000 November 1940.

Kilby Steel Co., Inc., Anniston, Open-hearth and electric-
Ala.

furnace ingots, rolling-mill
products, steel castings,

and forgings.
Lebanon Steel and Iron Corp., Electric steel ingots and hot.
New York, N. Y.

rolled products.

250,000 October 1942.

Oregon Steel Mills, Portland,

Oreg. (formerly Oregon Elec-
tric Steel Rolling Mills).

Electric furnace ingots and

hot-rolled bars.

700, 000 April 1942

700,000 May 1942.

· Pacific States Steel Corp., Niles, Forging ingots, merchant
Calif.

bars and shapes, and small
structurals.

600,000 June 1944.

Chrome ore

400,000 April 1942

Rustless Mining Co., Baltimore,

Md. (subsidiary of Rustless Iron Steel Corp., ,

Dow merged with Armco

Steel Corp.).

To assist in the financing of a new Direct loan; repaid in full in July 1943 steel plant. See note B.

from proceeds of a privately-sold

bond issue. For working capital..

Direct loan; no disbursements were

requested, and the authorization was

cancelled in May 1943. To refund unrepaid balance of loan Direct loan; authorization was reauthorized in July 1935.

scinded in June 1941 and maturity of

first loan extended.
To retire bonds of subsidiary, to pay | Direct loan; disbursements totaled
notes due, and for working capital. $1,401,919, balance of authorization

was canceled in December 1941; dis-
bursed portion repaid in full in
June 1942.

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NOTE A.-Kaiser Co., Inc. (now Kaiser Steel Corp.): The Kaiser steel works at Fontana
Calif., were originally financed through a series of loans made under the national defense
authority of the RFC. These authorizations totaled $111,805,000, all of which was dis-
bursed. In August 1945 the unrepaid balance of these loans was $102,828,380 which was
refunded in two new loans totaling $114,328,380; included in the refunding loans was
$11,500,000 of new money for improvements and additions to the steel plant so that it
might be converted to civilian production.

The principal facilities included in the Kaiser Steel Corp.'s plant are described as
follows in the twenty-fifth edition of the Directory of Iron and Steel Works of the United
States and Canada, published by the American Iron and Steel Institute in 1948:

Annual capacity

355, 000
Blast furnace.

840,000
Electric arc furnace

750,000 29-inch structural mill.

products, and wire. Superior Steel Products Co., Cold drawn products.

hardware.

(net tons)
90 Koppers-Becker coke ovens.

413, 100
6 stationary, basic open hearth furnaces.

30,000
36-inch slabbing and blooming mill.

492, 000
21-18-inch skelp mill.

334, 000
18-14-inch bar mill.

187,000
110-inch sheared-plate mill.

425, 000
24-inch reversible cold strip mill.

18,000
26-inch continuous cold-strip mill.

18,000
Additional facilities include a coal chemical plant and Koppers benzol plant (annual
capacity for 2,500,000 gallons of light oil), three 114 feet 6 inch by 25 foot stoves, two turbo
blowing engines, a double-strand pig-casting machine, an ore-sintering plant (annual

capacity for 547,000 tons), six two-hold soaking pits, six preheating pits, five continuou
regenerating heating furnaces, a continuous pickler, a galvanizing pot, and a continuous
buttweld pipe mill.

Also included in the facilities were iron-ore properties at Kelso, Calif., (annual capacity
900,000 tons), and coal-mining facilities at Sunnyside, Utah (annual capacity 600,000
tons).

NOTE B.-Sheffield Steel Corp. of Texas: The original plan of American Rolling Mill
Co. (now Armco Steel Corp.) was to erect a plant at Houston, Tex., to manufacture steel
products wholly from scrap. The Sheffield Steel Corp. of Texas, a bolly owned subsid-
iary of Armco, undertook this project. Construction of the plant started in April 1941
and the first steel was made a year later. The $12,000,000 loaned by RFC represented the
entire estimated cost of the project; working capital for the plant was supplied by Armco.
The principal facilities included were: three 100-ton open hearth furnaces; 24-inch combina-
tion billet and structural mill; 10-inch road mill; wire mill, merchant-bar mill, 14 -inch and
10-inch; 112-inch plate mill.

Later, due to uncertainty about the supply of scrap, the company proposed to add coke
ovens and a blast furnace to the plant to make it self-supporting, and to include another
plate mill. These facilities were financed by the Government under DPC Plancor 346,
along with the other facilities listed below: Ore mines and washing plant; coal mines,
byproduct coke oven plant, 47 ovens; one 700-ton blast furnace; two 100-ton open hearth
furnaces; hot-topping facilities; one 35-inch bloom mill; five 20-foot circular soaking pits;
one 110-inch heavy plate mill.

These facilities were subsequently purchased from the Government.
Source: Industrial Analysis Branch, Budget and Reports Division, Office of the
Controller.

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