Steel: Rise in Efficiency

U.S. Steel Corp. proved last week that it is not only the biggest producer in the nation's most basic industry but also the most efficient one among the majors. Though it operated at only 53% of capacity in the second quarter, Big Steel announced that it earned $73.2 million or $1.25 a share, amply covered its regular quarterly dividend of 75-c-. Earnings declined far less from the year-ago level ($115,943,000 while at 89.5% capacity) than most Wall Streeters had expected. The report at long last destroyed Wall Street's old assumption that Big Steel needed to pour at 65% capacity just to break even. Furthermore, it showed that U.S. Steel's second-quarter rate of income from sales, 8.5%, was the highest of any integrated steel producer.

For sprawling U.S. Steel, it marked quite a comeback. The corporation had long been a textbook model of corporate disorganization and technological backwardness. As a result, its share of the nation's steel production plunged from 65% in 1901 to 29% today. But in recent years U.S. Steel's plants and personnel have undergone a major, largely unnoticed revolution of modernization.

Since World War II, the corporation has spent more than $3.5 billion to improve plants. U.S. Steel's modern, automatic, seamless-pipe plant at Lorain, Ohio produces four times as much as an older plant of the same size--and with about half the manpower. Big Steel also has closed some of the older, less efficient plants and shunted their business to the huge new plants it has built near its busiest markets, e.g., the $600 million, 2,200,000-ton Fairless Works near Trenton, N.J. Last week U.S. Steel said it will shut the 72-year-old Rankin Works outside Pittsburgh, shift its production to the company's more efficient Donora Steel and Wire Works.

As part of its new look, Big Steel has brought up to date some Cro-Magnon personnel policies. More than half its 271,000 employees are paid incentive bonuses, often up to 40% over base pay. One result is that the number of man-hours needed to produce a ton of steel has decreased from about 16 in 1941 to about twelve today. One reason this was possible: in that same period U.S. Steel boosted research outlays fivefold.

This years-long struggle toward efficiency went little noticed during the fat times of the earlier 19503, when almost all producers were pouring and earning close to 100% capacity. But it was during the lean months of 1958 that the steel industry, led by U.S. Steel, demonstrated that it is no longer a cyclical industry of feast or famine. Steel can now operate profitably in slump periods when many another industry is forced into the red.

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