National Steel Corp., the country's third largest steeel producer, shocked the industry last week when it announced that it wanted to ante up nearly $245 million to buy a large West Coast savings and loan association.
Many analysts were skeptical, questioning whether the steel company has the expertise to own United Financial Corp., the parent of the $2.6 billion Citizens Savings and Loan of San Francisco.
It is a broad leap from making metal to making mortgages. And for the last five years, the $3.8 billion steel producer has earned 95 percent of its income from steel and most of the rest form aluminum.
"I am appalled at (National chairman) George Stinson," said one analyst who follows the industry carefully.
Were he a government official, that analyst might also be concerned that the steel giant is spending money to buy a savings and loan association at a time when steel companies complain they lack sufficient funds to modernize and expand their facilities.
Under normal circumstances, within legal and ethical constraints, how a company spends its money is none of the government's business.
But the steel industry is the beneficiary of a special government program to protect it, and its profits, from foreign steel producers, who, the industry has long complained, sap domestic steel profits during periods of low demand by selling imported steel at prices that often are below the cost of production.
Last year, the Carter administration -- under pressure from the industry, steel workers and an large congressional steel caucus -- set up a series of minimum, or trigger, prices for steel imports.
That trigger price program is designed to cushion domestic steel shipments and profits during low points in steel demand, helping companies generate earnings steadily enough expand and modernize their facilities.
The trigger prices have been increased several times to take account both of rising costs of steel production and the sharp appreciation of the Japanese yen.
Because steel is a very cyclical industry, it is understandable that a company as highly dependent on steel demand as National is would want to diversify.
And investors might want to consider whether buying into another cyclical industry (whose fortunes rise and fall with interest rates) is a wise move for National.
But policy makers must ask whether National, by sinking $245 million in a savings and loan (more than twice its $112 million in profits last year) is breaking faith with the trigger price program.
"We're thinking about it," said one top administration official. "We don't know if it's something we ought to condemn... It may well be a sensible way to diversify, it may not."
Although there have been disputes about whether the trigger price program is working, steel company profits rebounded nicely last year (with the help of a robust economy) and steel companies figure on a better 1979.
Furthermore, trigger prices have risen so high that when worldwide demand sags, as it inevitably will, the program should ensure that domestic producers capture a bigger share of the U.S. market than they did during the last recession.
The need to moderate the boombust industry has had its leaders crying in Washington for years. They finally got the Carter administrations' ear.
Although nearly all industries have good times and bad times, because of steel's heavy overhead investment in plants and equipment, its profits swings are sharper than those in many industries.
The billions of dollars of coke ovens, glass furnaces, steel-making facilities and rolling mills must be paid for whether they are being used or not.
By acquiring non-steel operations, steel companies can moderate the swings in their earnings. Indeed, many steel companies have done so in the past. As one government official noted, U.S. Steel could well be renamed U.S. Chemical, its investments in chemical products is so high.
But now that the government, with the blushing and encouragement of the industry, is trying to protect steel profits, the use of steel earnings for non-steel purposes is a proper concern of public policy.
Since that policy is aimed at reducing dips in steep profits, the government ought to have some say in how steel companies invest those profits.
Chairman Stinson, in a statement announcing the proposed acquisition, must have anticipated criticism that his company was plowing publicly protected profits into non-steel ventures.
The diversification, he contended, "In no way reduces our dedication to technological progress in our steel business."