United States Steel Corp. and Bethlehem Steel Corp., the industry giants, yesterday announced they would raise by 7 percent the price of sheet steel, the major metal in automobiles and appliances.
The announcement was the third price increase by a major industry this week as a number of companies attempt to take advantage of the bouyant economic recovery to restore profit margins that were severely eroded during the 1982 recession.
Dow Chemical Corp. yesterday announced price increases for several types of key chloride products, while Cominco Ltd. of Toronto announced a three-cent a pound increase in zinc products for both U.S. and Canadian customers.
Monday, General Motors Corp. announced an average 2 percent price increase on 1984 model cars, although analysts said the effective increase will be higher than 2 percent because GM did not include the price effect of making optional equipment standard on some models and adding rust protection and a new federally mandated emissions control device to its cars.
Other prices have risen quietly during the long-awaited economic rebound. Prices of copper and scrap metal, two commodities whose prices are usually closely linked to changes in economic activity, rose smartly earlier in the summer, although they have stabilized recently. Yesterday, a major copper producer reduced prices on some products.
Both the steel industry and the auto industry are protected from import competition to some extent, which might permit them to raise prices more than would be expected. Agreements worked out through the federal government in recent years have restricted the number of imports in both industries.
Robert Ortner, chief economist for the Commerce Department, said he would be concerned if protected industries raised prices excessively because they were protected from imports. Ortner said many companies try to raise prices when demand picks up in order to increase their cash flow and generate funds for capital spending. He did not, however, make a judgment about whether the steel and car prices increases were normal.
"If anything, they're subnormal," according to Alan Greenspan, head of the economic consulting firm Townsend-Greenspan. He said that cost pressures have been reduced at many companies because of rising production, moderating wage rates and the strong dollar. A strong dollar holds down the price of imported materials, which Greenspan said account for about 15 percent of the total costs for manufacturers as a whole.
Richard Peterson, chief economist for Continental Illinois National Bank, noted that although many manufacturers have said they will raise prices, their customers have not yet indicated they are willing to pay them. "It is one thing for a company to try to raise prices and another to make the price increases stick," Peterson said.
Steel companies tried to raise prices several times before and were "clobbered," Peterson said. The automobile companies raised prices and then promptly negated the effect of the increases by rebate programs or interest-rate subsidies to car purchasers.
The steel, chemical and automobile industries were among the hardest hit by the recession. Auto manufacturers earned healthy profits in the second quarter, but most major steel companies continued to lose money. Although steel sales have begun to pick up, steel companies still are producing at between 50 percent and 55 percent of capacity, compared with a U.S. industry average of about 76 percent.
Because of the pickup in car sales, the sheet and strip steel operations might be running at 80 percent to 90 percent of capacity, while structural-steel operations are running at 40 percent, Peterson said.
Three decades ago, an increase in steel prices had a much greater effect on overall prices than such an increase would have today, Greenspan said. Although steel remains a major component in manufactured products, buildings, and other durable goods, durable goods are a much smaller portion of total economic output than they were in the 1950s, Greenspan said.
Peterson said that even though many companies will try to improve their financial posture by raising prices, he still projects that consumer prices will rise by about 4 percent in 1984, compared with a current rate of increase that is between 5 percent and 6 percent.
Food prices represent the biggest risk to consumer prices in the coming months. The severe summer drought has cut crop yields at the same time that farmers cut back planted acreage as part of an administration plan to reduce a surplus of grain caused by three years of bountiful yields.