Prior to their conferences with Mr. Peek the steel men had been given to understand that if a price scale satisfactory to both sides could be reached the Railroad Administration, then operating all the country’s transportation systems, would place necessary orders for steel, and this understanding accounted in large part for their readiness to meet the Government representatives halfway.
The railroads, it was generally recognized, needed steel badly for rails, cars, locomotives, and other equipment. For years their purchases had been entirely inadequate to meet the growing needs of the country’s commerce, and their potential demand was therefore very large. In the then period of uncertainty it was felt that the purchasing of these railroad supplies would steady business and stimulate other demands, acting as a safety valve against a possible depression.
But the Railroad Administration declined to honor the promise, expressed or implied, of the Government. Director-General Walker D. Hines claimed that the prices agreed on for rails were unreasonably high and the three-cornered dispute that followed between Mr. Hines, Mr. Peek, and the railmakers resulted in the dissolution of the Industrial Board and the withdrawing by the Government from any attempt to regulate the price of steel or other commodities. Followed a period of general business uncertainty, a let-up in buying activities felt keenly by the steel mills. The responsibility for this situation must be placed largely at the door of the Railroad Administration. The roads, with the possible exception of the farmers, are the largest consumers of steel and of many other products in the country. Prosperity was hardly possible in steel trade without railroad buying, that is, under normal conditions. There was no question that the railroads were exceedingly short of supplies and the practically unanimous opinion was that if they began to place orders covering their requirements it would have a stimulating effect on business generally and would dissolve the doubt and hesitation that hung over the financial world during the period of transition from war to peace.
But the Railroad Administration declined to make any move. One of its highest officials informed the writer, who pointed out to him the importance of some definite action to help restore business balance, that he did not consider it the Railroad Administration’s duty to in any way “hold the bag” for business.
Ostensibly, the Railroad Director based his refusal to place orders for rails and other material required by the roads on the ground that prices were too high. There is little question that he and his associates believed that, by holding off, the steel companies would be forced to reduce prices further to induce railroad buying. The result must have been a severe disappointment, for when the roads did begin to buy, they had to pay, for a substantial part of the tonnage purchased, prices $10.00 a ton or more higher than those agreed on by the Industrial Board, though the Steel Corporation has consistently maintained the Industrial Board prices.
As a matter of fact, the end of the war found the whole world starving for steel. For five years steel needed for a million uses of commerce had been diverted to the terrible business of war. And it did not take long for this dammed-up demand to begin to make itself felt. By the early part of October pulses of business were again beating firmly, and by the beginning of 1920 a peace boom had taken the place of the war boom that ended at the close of 1918.
For the year 1919 the Corporation, despite the brief depression the steel trade went through, reported earnings of $143,589,062 (after deducting interest and obligations of subsidiary companies), and a balance available for dividends of $76,794,582. Earnings on the common stock were $51,574,905, or the equivalent of $10.20 per share.
In the early part of 1920 the steel trade enjoyed a boom that approached that experienced during the war. The world was filling its most pressing requirements of material of which it had been starved while the products of industry were going into munitions and other war needs. Steel prices ascended to the highest levels attained since 1917, although the Corporation maintained the lower levels fixed by the Industrial Board in March, 1919. The closing months of the year, however, witnessed a sharp depression, and at the close of the period the so-called independent companies were operating at a very low rate of capacity with practically no forward orders. The Corporation, because of its price policy earlier in the year, went into 1921 with its order books filled and with operations at fully 90 per cent. of capacity.
Earnings of the Corporation for 1920 were $177,126,126 and the net for the junior stock was equivalent to $16.70 a share. Production of steel ingots was approximately 19,278,000 tons and of finished steel 14,233,000 tons.
The events of the closing months of 1920 completely vindicated the judgment of Judge Gary and his associates, both on the matter of prices and in their preparation for the inevitable reaction of the earlier boom period. During the previous three years the Corporation had been steadily creating a reserve for anticipated inventory losses, this reserve amounting to $90,000,000 at the end of 1919. Thus, when the reaction did arrive the Corporation was not faced with the necessity, as others were, of scaling down inventories with consequent losses of earnings.