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Show COST STEEL PRODUCTION. Washington. Mav H -Part three of th reporl of the Bureau of Corporations Corpora-tions on its extended investigation of the Steel Industry dealing particularly particular-ly with the cost of production, was submitted to the President today bj Acting ' ommissioner Francis Walker Walk-er A discussion of the vast difference differ-ence between 'book costs and ' not costs featured the report, figures lelng given to demonstrate that Iron and steel manufacturing companies usual!, include in their statements of costs of production brge profits paid to subsidiary ore transportation concerns. con-cerns. For Bessemer steel rail", for Instance, In-stance, the report stated that the average av-erage book cost of the United States Steel corporation was $21 V.. while the actual net cost excluding inter- , ,omp..ir prolli on transportation and material, was onlv $16.87 Similar differences were shown In the manu- j facture of other Bteel products Parts one and two of the bureau's reporl were submitted during the Talt a Immigration by former Commissioner Com-missioner Herbert Knox Smith A (omi.ilhensi-c abstract of part three was contained in Acting Commissioner Com-missioner Walker's letter of truns-! truns-! mittal, which follows Washington. Mav r,. I'd . Sir 1 have the honor to submit herewith Part HI of the Report of rh- BftreaU of Corporations on the 1 Steel Industry, which deals with cost I of production. "Some of the essential tacts or inis report were set fortn in a letter of submittal and a brief preliminary report re-port 1 Fart III by former Commissioner Commission-er of Corporations Herbert Knox Smith on January 22, 1912 Matters which were treated of in the prelim-man prelim-man report are discussed in more detail in this report, and, moreover. terable additional data are presented, pre-sented, particularly the producing cos E Ol the steel Corporation for certain important steel products the computed Investment required for their production, and the significance of these facts with respect to the rates of profit on investment In this connection, therefore it is necessary to state in a brief manner man-ner only the general features of this report and to point out especially the character of the more important additional ad-ditional facts presented Book Costs and Net Costs. 'The statements of cost of production, produc-tion, as shown by the cost sheets of jon an steel manufacturing companies, com-panies, ordinorh Include Important items of profit accruing to the same manufacturing interests This arises irom the fact that tie ore and coke used In making pig iron are largelv produced by allied or subsidiary com. ponies, which sei I such materials to the manufacturing plants operated by the same interests at prices which ordinarily include a profit and in the 1 case of ore a ver large profit Prnfite From Sal 9 n H T ra n s no rt a 1 1 ci n of Ore. j Thus, for the Steel Corporation in , L91Q, the Intercompany profit on iron i , ore was no less than $1 .." per Ion out of an average ore pr,ce per ton j ol 14.18 in which there was. in ad-dltion ad-dltion to the profit of $1 SOi a further considerable transportation cost and j prof i i Owing to the fact that aloiit 2 tons of ore were required to make I a ton of pig Iron, this profit per ton i j In ere Involves a profit of abo it S2 is per ton In the cost of pg iron on this I account alone For similar reasons even larger amounts of profit per ton are included in the costs of steel products Henre, in order to obtain the net cost of manufacture lor BUCfa 1 concerns, 11 Is necessnr to eliminate! these Intercompany profits from the book costs, or costs shown on the COS! Sheet". "Furthermore some manufacturing concerns, and particularly the Steel Corporation, have subsidiary companies com-panies engaged In the transportation of raw mnternls for manufacture The costs of transportation, however. I Included in the hook costs of these 1 materials are based on the regular or going rates of transportation charged hv the transportation agencies, and I include large amounts of Intercom-Jany Intercom-Jany transportation profit Thus, the i profit of the Steel Corporation from '; the transportation of Its own ore in 1910, averaged over all its ore delivered de-livered at lower Iakc ports, was about 0.67 er ton This profit mounts up to over $1 ' per ton of pig iron "The necessity of determining the net coats is iear when consideration is given to the very high profitc charg ed on Iron ore and on tue transportation transporta-tion of iron ore. "On the basis of the bureau's esti mate of the average cost of ore pron erty at the time of the formation of the steel (orporation. together with due allowance- for subsequent invest I merits of the steel corporation there In me average Investment of the steel corporation in Lake ore waa aboul j4 47 per ion of ore produced In 191" riilS investment is computed on the basis of a 30-year supply In reserves of ore all additional Investment In reperves being excluded from con sideratlon The profli of SI SO per ton b hit h was charged by the steel corporation in uno was equivalent, 1 therefore, to a rate of per ceni on the computed investment In ore Con , sideling that the ste0l corporation owns or controls the greal bulk of "ae Pake nre supply; thai in conse- i ce of "p number of Its mines Us . risk of operating them is reduced :o I a minimum; that it has an assure) market for the sale of its ore to its own manufacturing plants: and thai itr, production of iron and steel is so extensive and diversified, and so wideli sold throughout the world thai a very large output is always practic nble. i' Is evident that the risk Of this business is comparatively small, and that the profit is excessively high Profits of Ore Railroads. Similar conditions are found with regard to the profits from (he trans portation of ore This appears il on . when the extremelv low ratios of operatinc expense to gross earning-; Of the steel corporation's two railroads In 'he Lake ore mining district in 10H are stated, namely. ".0 per ceni for the Duluth, Missahe Northern railway and .16 5 per cent Tor the Duluth & Iron Range railroad The average ratio for all the railroads of I the country in 10 lft was 6C per cent The business of these two railroads is almost entirely In the carriage of ore and for the most port there Is no existing or potential competition ther" In The situation of these railroads as respects investment and profit from operations is such that the rete of profit from the ore traffic on the in vestment falrlv attributable to the ore transportation business may he ; safely taken as not less than the rate of the total profit on the total Invest-' Invest-' menl Moreover, In computing the so tal net earnings, these railroads ad mtttediy made a little more than a necessary provision In 191't for depre elation of the property on account Of the ultimate exhaustion of the ore deposits from which their traffic s chiefly derived sr |