Further interrogation by counsel, however, brought out the following:

Mr. LEVI. Well, then, is it your testimony that if you owned your own ore it costs you less than if you buy it from someone else?

Mr. FAIRLESS. Well, it should in the consolidated results; yes.

Mr. LEVI. And, therefore, it costs you less than, say, the competitor to whom you sell the ore?

Mr. FAIRLESs. For that portion of their ore * * * 49

In further discussion of this question, Mr. Fairless was asked whether a competitor who buys ore from the Oliver Mining Co. is at a disadvantage because of the concession granted to Oliver's affiliates. Mr. Fairless stated that would not be so in periods when the cost of ore exceeded the selling price of ore, because of business conditions. Counsel for the subcommittee then asked if a refusal on the part of the United States Steel Corp. to sell ore to competitors would have even more effect upon them. Mr. Fairless replied:

Well, to answer that question, if our competitors were unable to get ore from any other sources, either from their own properties or from the properties of others, and we said, "No, we will not sell you ore," then the answer to your question would be "Yes"; but the facts are * * * that there is not any customer of iron ore in this country today or at any other time that has ever closed down a single operation because of the lack of ore. I have gone on record here that the United States Steel Corp. has been a seller of ore since 1940, and we intend to continue as a seller of ore to anyone who desires to purchase it and has a use for it. Mr. LANE. If needs be, you will sell ore to your competitors?

a

Mr. FAIRLESs. They are the only people that use it, generally speaking. Anyone who uses iron ore must be a competitor of the United States Steel Corp.49 Mr. Fairless' comments regarding transportation as a factor in the price of ore is considered infra, page 40.

A general statement indicating some of the factors which may enter into the ore market or policies affecting it or influenced by it was made by Mr. C. M. White, president of Republic Steel Corp., in response to questions by Representative Bryson. Representative Bryson asked Mr. White to describe for the benefit of the subcommittee the methods used in the purchase of ores. Mr. White stated:

* * *

That depends on the time. At different times and in different business cycles we use different methods. At one time-this was prior to the war it was the fixed policy of our corporation that we did not want to be committed for more than about one-half of our ore. In other words, there was distress ore coming on the market quite frequently, due to the fixed carrying charges that many companies had-steel companies and ore companies—and we could buy ore on a better basis that we could own it, or make long-term contracts. Then, with the war and postwar periods coming along, where the tremendous ore reserves had been used up due to the war and postwar activity, after that situation changed we had gone over to an ownership or long-time contract, because there was just not enough ore, as we saw it, to play with the market. We felt that we had to become covered or integrated. We must have our ore supply known in order to determine whether we go ahead with big investments of our own-big_mining ventures. We put an enormous amount of money in the Adirondacks after that period to develop some 2,500,000 tons' capacity of ore, and we have gone into other ventures. We have also made commitments which, as I say, 15 years ago we did not want to have. Today we want them. We have no fixed policy, but today our policy is one of contractual obligations, or partnership, or ownership, because of the necessities of having a secure supply.50

Other statements concerning the composition and behavior of the market for iron ore of various types were made by various witnesses. Dr. James Boyd, Director of the Bureau of Mines, in reply to ques

49 Hearings, p. 572. 49a Hearings, p. 540.

tioning, stated that the commercial difference between high-grade ore of 45 percent or more iron content and low-grade ore of 35 percent iron content is the cost of concentration for the low-grade ore. This difference is such as to place those having lower-grade ore in an unfavorable position relative to those having the higher grade, if all other conditions are equal.

The testimony of Mr. C. M. White, president of Republic Steel Corp., that there are at the present time more small producers of iron ore than for many years past has already been cited, as well as his statement that there is not now any open market for iron ore. It should be noted, however, that the Secretary of the Cleveland-Cliffs Iron Co., Mr. John H. Kerr, stated that in the year 1950 this oreproducing company has approximately 1,000,000 tons of "spot ore,' and that sales of ore on the spot market vary between 15 and 20 percent of Cleveland-Cliffs' total sales.

Sales of Georgia brown iron ore were discussed by Mr. Frank Smith, an ore producer from the Cartersville district; Mr. C. M. White, president of Republic Steel; Mr. Garland Peyton, State geologist of Georgia; and Mr. W. S. Sanford, manager of the land department, southern district, for Republic Steel Corp. The phases of brown ore already mentioned above including the extent and average iron content of brown ore, were described. With particular reference to the marketing of brown ore, the witnesses differed concerning the relationship between ore producers and steel companies in the southern district and relationships among the steel companies as buyers of ore.

Mr. Frank Smith testified that he spoke for a number of ore producers in the Cartersville area and described a contractual arrangement between his company and the Republic Steel Corp. under which sales were made on an order basis at the option of Republic Steel. According to Mr. Smith, his ore was purchased by Republic Steel as needed, but under the terms of the contract he could not sell ore to any other purchaser without the permission of Republic Steel. Mr. Smith also testified that he had been informed by a representative of the United States Steel Corp. that he (Mr. Smith) was on the "list" of Republic Steel, and that in consequence United States Steel could not purchase his ore. Mr. Smith related certain instances in illustration, specifically one during 1939 or 1940. According to Mr. Smith, he had accumulated several hundred tons of iron-ore boulders, having an iron content of 53 or 54 percent, with small impurities. Mr. Smith arranged to sell this ore to the Atlantic Steel Co. at 12 cents per unit, as compared with the 6 cents per unit received from Republic Steel. Mr. Smith stated that Republic Steel insisted upon all of the ore or none, and that as a result he did not ship the ore to the other purchaser. Mr. Smith stated that Republic Steel is the only buyer of his ore at the present time.

Mr. C. M. White, president of Republic Steel Corp., and Mr. W. S. Sanford, manager of Republic's land department for the southern district, replied to Mr. Smith's testimony. According to their statements, the type of contract described by Mr. Smith has been traditionally and typically employed in the southern district, because the small ore producers could not meet fixed production schedules and Republic Steel desired firm contracts under which it could take their output as released by the buyer. Operators have never been refused

area.

the right to ship ore to other buyers, even though the right existed under the contracts with them. Other buyers of ore in the southern district include Tennessee Coal & Iron Co. (subsidiary of United States Steel), Woodward Iron Co., and the Sloss-Sheffield Co. Republic purchases from 60 to 70 percent of brown ore produced in this In the particular instance cited by Mr. Smith, Mr. Sanford stated that the objection was based on the sale of higher-grade ore to another buyer, and the lower-grade ore to Republic Steel. Mr. White also stated that Republic Steel wanted brown ore of as high a grade as possible, because of the greatly increased cost of reducing low-grade ore. More coke is required to reduce ore with 43 percent iron than ore with 48 percent iron. Mr. White also stated that Republic Steel could, if it chose, cease buying brown ore from the Georgia area, and produce its own from holdings in that district without loss. Representatives of both Republic Steel Corp. and the United States Steel Corp. denied the existence of any understanding or arrangement concerning the purchase of ore from producers in the southern district. Difficulties of ore producers in this area were also referred to by Mr. Garland Peyton, State geologist of Georgia, who recommended possible measures to improve their situation as a part of the development of the brown ore reserves in Georgia.

VII. THE TRANSPORTATION FACTOR; INTEGRATION OF TRANSPORTATION FACILITIES WITH IRON AND STEEL COMPANIES

The transportation factor in the steel industry, both in its relation to the production of ore and to the integrated operations of steel producers, was described and discussed by a number of witnesses. Certain phases of transportation as it affects the availability and prices of domestic and foreign ore have already been summarized. The present section of this report is therefore devoted primarily to the testimony dealing with the ownership of railroads by ore and steel producers; the effects of such ownership on ore prices, the advantages and disadvantages of ownership of railroads and shipping to integrated and non-integrated steel manufacturers, and the relationships involved in single ownership of both transport facilities and commodities such as iron ore and coal.

Several witnesses, including Secretary of the Interior Chapman, Commissioner Mead of the Federal Trade Commission, Mr. McCoy of the Department of Commerce, and Dr. James Boyd of the Bureau of Mines, stated that transportation is a major factor in the economics of the iron and steel industry. According to these statements, transportation affects the accessibility of raw materials, the location of plants, the prices of ore and of finished steel, and the development of new sources of supply. The construction cost of transportation facilities, and freight rates were indicated by these and other witnesses to be a principal consideration in the development of potential foreign sources of supply, such as Labrador, and of domestic low-grade ores. The witnesses testifying directly on specific aspects of the relationships of transportation, iron ore, and the ownership of transport facilities by steel companies presented data and points of view varying widely in emphasis. It may be noted that although there were incidental references to the ownership of transportation subsidiaries by

other steel or ore companies (including a table of all railroads owned by steel producers introduced by Commissioner Aitcheson of the Interstate Commerce Commission), the major part of the testimony on transportation refers to the facilities owned by the United States Steel Corp.

Mr. E. A. Wisco, an employee of the Butler Ore Co. of Minnesota, testified before the subcommittee concerning studies which he made for this company pertaining to ore surveys, power rates and certain legal actions taken by his employers to seek rate reductions in the transportation rates for iron ore.

Mr. Wisco identified the Butler Ore Co. as the largest producer of "independent ore" in Minnesota. Mr. Wisco stated that he had been employed by this company to study various aspects of economy in mining low grade iron ore. His first endeavor was an attempt to obtain lower power rates for the production of iron ore.

His second project, Mr. Wisco stated, was a study of freight rates for the transportation of ore, involving an analysis of the different types and grades of ore produced in Minnesota, based upon data from the State tax department, an analysis of production costs, and an analysis of freight schedules applicable to ore.

Mr. Wisco's figures showed the percentages of total ore shipped from all ranges in the Superior district by the several producers for the years 1943-47. Other data included in this testimony concerned the prices of iron ore for these years, the trend of percentages of ownership by ore producers of lower grade and high grade ores, and the trend of income to the various ore producers.

Mr. Wisco stated that after a period of efforts to negotiate with the Duluth, Missabe & Iron Range Railroad, the Great Northern Railroad, the Northern Pacific, and the Soo Line Railroad to obtain reduced freight rates for low grade ores, Butler Bros. Co. filed a complaint with the Interstate Commerce Commission. The decision of the Commission did not grant the reduction sought. The exhibits prepared by Butler Bros. for the case before the Interstate Commerce Commission were placed in the record of the hearings.51

The chairman subsequently stated for the record the general conclusions of Mr. Wisco's testimony, which were submitted to the United States Steel Corp. for answer. These conclusions are summarized as follows:

1. That the percentage controlled by the United States Steel Corp. through its subsidiary, the Oliver Mining Co., is rather high on high-grade ore. It apparently has an 80-percent control of those ores on the Mesabi Range.

2. That the United States Steel Corp. controls the Duluth, Missabe & Iron Range Railroad, and that railroad is very profitable, with a return of more than 15 percent.

3. That the small companies own the low-grade ores which are expensive to prepare, and many of these companies are losing money.

4. When the smaller companies, like Butler Bros., which has since been absorbed by the Hanna Co. tried to get the freight rates reduced, the United States Steel Corp., through its subsidiary, the Duluth, Missabe & Iron Range Railroad refused to reduce the rates.

51 Exhibits S. 15 through S. 41, pp. 15-53.

5. The United States Steel Corp. keeps high rates of transportation which bear down on the smaller companies operating in the ores. It can pay the rate, since it pays itself. The costs are lower, anyway, because it has the high-grade ores which cost less to bring out.5

In reply to these conclusions, United States Steel Corp. submitted two statements, referring to first, the testimony concerning iron ore given by Mr. Wisco, and, second, referring to the testimony concerning the transportation of iron ore on the Duluth, Missabe & Iron Range Railroad given by Mr. Wisco and by Representative Blatnik.53

The statements in reply to the conclusions cited above may be summarized in each instance.

With reference to iron ore, the reply by the United States Steel Corp. asserts that

1. An analysis of the data presented and consideration of its source will disclose that it is both unreliable and inaccurate to state that the small companies own the low-grade ores which are expensive to prepare and are losing money. A substantial tonnage of iron ore is produced in the Lake Superior district by very small operators.

2. Comparisons based upon figures derived from the determination of taxes under such acts as the Minnesota Royalty Tax Act and the Occupation Tax Act must be carefully drawn or erroneous results follow.

3. One of the principal factors invalidating the results of Mr. Wisco's work is the treatment of royalty and royalty tax on iron ore production and failure to consider acquisition cost and carrying charges and depletion. Distortion of indicated earnings by this factor alone is material.

4. Since the sales price used is an assumed price based upon a formula, it is unreliable for determining actual profit ability.

5. Mr. Wisco's methods indicate that his calculations cannot result in reliable comparisons of operating results, the relative mining profit, or the relative value of the ore properties involved. In comments upon the testimony of Mr. Wisco and Representative Blatnik concerning transportation by the Duluth, Missabe & Iron Range Railroad, the United States Steel Corp. states, in summary, that there is no foundation for the conclusions. First, it is stated that the Duluth, Missabe & Iron Range has been profitable, but it is erroneous to say without qualification that its return is more than 15 percent, as that figure is based upon postwar traffic. From 1931 to 1949, inclusive, it is stated that the average return was 9.98 percent, and was 7.36 percent for 1949. Railroads of this type, depending upon natural resources for their trade, have a wasting traffic.

Second, it is stated that the United States Steel Corp. has no voice in making freight rates for the Duluth, Missabe & Iron Range, and therefore possesses no power to refuse to reduce the rates to Butler Bros. or any other shipper.

Because it believed that there is some apparent misunderstanding of the case brought before the Interstate Commerce Commission by Butler Bros. in Docket No. 29502, the United States Steel Corp. submitted to the subcommittee a copy of the Commission's decision. It

82 Hearings, p. 185.