U.S. Steel Corp. Chairman Edgar Speer gave verbal support to President Carter's anti-inflation program yesterday but said he would not pledge that U.S. Steel would hold its price increases to a lower level than last year's 8.5 percent.
The president wants all companies to raise prices to keep price increases this year one-half percentage point lower than last year's.
Speer said too many factors - including the rate of inflation in costs and the volume at which steel companies operate - affect the price of steel, which already has risen about 6.5 percent this year.
Speer revealed that a wage increase scheduled for steel workers Aug. 1 will raise labor costs about 8 percent. Speer said labor costs account for "about 50 percent of the cost of production."
The U.S. Steel chairman, who also is chairman of the American Iron and Steel Institute, said that the steel industry is not in good financial shape and could not absorb rising costs without increasing prices.
The steel industry as a whole lost money in the first quarter but appears headed for a profitable second quarter. Most companies are operating at about 90 percent or more of capacity. The higher the volume of steel a company can turn out, the more profitable it becomes because it can spread its high fixed costs over a bigger amount of sales.
Earlier, in his address at the steel institute's annual meeting here, Speer told his fellow steel executives that they must stop spending all their investment capital to finish or modernize existing facilities and instead must plan to build new, expensive plants.
When a steel facility is started from scratch (building everything from the port, to raw-material-handling facilities to blast furnaces and finishing mills), industry officials call it a "greenfield" plant.
Speer told steel officials that, if the industry plans to remain competitive in this country and in the world market, "America's steel companies must soon take advantage of the opportunities we have to more aggressively into the construction of new greenfield steel plants."
Steel companies have complained for years that their low rate of profitability prevents them from investing enough money in their plants and, in his talk and his press conference speer was vague about where companies would come up with the cash they needed to build these more expensive greenfield plants.
Although estimates vary, analysts say that it costs a steel manufacturer about $500 a ton (of yearly steel production) to increase output by adding to an existing steel facility. To build a greenfield site would cost about twice that amount.
But new plants would reduce the costs of producing steel, sharply, because companies could plan their production flow better and take advantage of energy-saving and labor-saving innovation, Speer said.
Frederick Jaicks, chairman of Inland Steel Co. of Chicago, historically one of the most profitable and best-run of the nation's steel companies, said in an interview he was "a little bit mystified" by Speer's insistence on the need for a change in the industry's investment pattern. Jaicks said he is less optimistic than Speer about some of the cost savings that can be achieved by building new facilities.
Inland is the process of a major expansion at its only plant on Lake Michigan near Gary, a plant that has been in operation since the turn of the century.
Speer said that if the industry is to generate the $50 billion in investment capital it will need over the next decade, tax law changes as well as higher prices are necessary. He said that the tax laws allow steel companies to write off their new equipment over a 17-year period, but new technology makes the average life of a new piece of equipment 10 years.
Speer also said he could not commit the company to holding raises for any individual executive to 5 percent this year, a level suggested by Barry Bosworth, director of the Council on Wage and Price Stability. Several major companies, including AT&T and General Motors Corp., have pledged to observe the Bosworth guideline.
Speer said the total executive payroll at U.S. Steel never has risen 5 percent a year in recent years and that today it is no bigger than it was seven years ago. Lewis Foy, chairman of Bethlehem Steel Corp., said his company has cut executive salaries in each of the last three years. Speer said that the total executive payroll would rise less than 5 percent but that he could not say that an individual executive at U.S. Steel would get no more than a 5 percent raise.