Show ar t STEEP RECESSION IN STEEL INDUSTRY Every major domestic steel company will record a deficit this year with some of the losses being very substantial As Asfor Asfor for 1982 only slight if any improvement seems likely to occur Even if the economy should make a strong recovery next year capital goods expenditures would normally trail such sucha a recovery by six to nine months Should there be a steel strike in 1983 which is of course a possibility the situation would worsen Because the outlook for the steel in in- in industry is highly unfavorable the Research Department of Babson's Reports is not advising the purchase of any steel stocks at this time Hold positions however are maintained on them because the issues are priced near their lowest levels in several years and many of them sell at steep discounts from their book values In addition the potential is good for sharp earning advances by the leading steel firms in the next two or thee years When they emerge from the recession the major companies should be leaner more efficient and notably better able to compete with the strong foreign competition Six of the nations nation's leading steel firms are Armco Bethlehem Inland National Republic and US Steel The stocks of these firms should be maintained for gains beyond the near term MANAGEMENT LABOR PROBLEMS The present steel industry labor con con- contract tract expires in August 1983 Preliminary management labor talks took place this past summer but the differences were not solved In July the union rejected the industry's demands for a virtual wage freeze over the next three years So on Aug 1 wage and benefit in in- in increases creases which the had hoped to prevent went into effect Also before the current pact expires living cost adjustments will add another conS con amount in wage costs to the steel producers payrolls While there is still some hope that a steel industry contract will be signed before next August labor and manage manage- management management ment are are still far apart If there is a astrike astrike strike in 1983 it could turn a relatively poor mediocre steel year year into a a disaster t i I IMPORTS IMPORTS-A STICKY PROBLEM For a long time the steel industry has been concerned about the import pro blem Imports account for about 20 per per- percent cent of the domestic market But recent recent- recently ly Iy the US and Common Market officials renegotiated a settlement under which European producers would limit their exports of carbon and alloy steel here to percent of the American market Ex Ex- Ex Exports ports of pipe and tube products by the Europeans will be restricted to 59 per per- percent cent of expected US demand Domestic steel producers have also complained about dumping by Euro Euro- European makers ie selling products below the cost of production or at a price less than that in the home nation In this connection the Commerce Department this fall ruled that carbon steel imports from six European nations were being sold in the US at unfairly low prices The matter was then sent to the US International Trade Commission for a final determination A BRIGHTER FUTURE Even though 1982 will go down as one of the worst steel years in a long time there is hope for the future When the economy pulls out of the recession the industry should recover rapidly By that time the steel manufacturers should be bemore bemore more efficient imports should be a less pressing problem steel demand should be much stronger and new applications should widen the usage of steel Hence holders of steel stocks who ex- ex exercise ex- ex exercise patience could be in for some good term intermediate intermediate term J gains ains For this reason the Research Staff of Babson's Reports advises holding the stocks of Armco Bethlehem Inland National Republic and US Steel |