TABLE 4-Summary of capacity and output data on finished steel from 39 semiintegrated and 84 nonintegrated steel companies 1—Continued

1 Summary of reports of semi-integrated and nonintegrated steel companies in response to questionnaire of Steel Subcommittee, dated Nov. 22, 1949. The returns cover approximately 80 percent of the nonintegrated steel mills.

* See table 5 for break-down by semi-integrated and nonintegrated companies.

Shipments of steel products reported by American Iron and Steel Institute for the first 6 months of 1948. See appendix 4 for details.

Negligible.

Totals represent some duplications in sheet, strip, and bars where the companies produce their own hot-rolled material for later cold finishing. Likewise drawn-wire capacity is duplicated to some extent in the capacity of wire products.

The importance of the smaller operators in the supply of certain finished products may be noted by the percentage relationship between their output in the first 6 months of 1948 and the output of the industry as a whole. Cold-rolled strip for example accounted for over 43 percent of industry shipments, yet the smaller mills still had enough idle capacity to have increased their output of cold-rolled strip by at least one-third.

The output of the small mills in much-needed plate was 14.5 percent of industry shipments for the first half of 1948, yet these mills report 256,000 tons of idle plate capacity, about half of their output. In pipe and tubing the small producers were important factors in output for 1948, and here again their idle capacity was almost half as great as the output. Considering the great need for pipe, both seamless and butt-weld, it would seem that every effort should be made to put this idle capacity to work and thus contribute some 200,000 tons of this critically short item. The output of the small mills in drawn wire was 26 percent of industry shipments for the first 6 months of 1948 yet the unused capacity in these mills was sufficient to have increased this output by at least one-third had the supply of wire rods been adequate. The nonintegrated mills have been the principal sufferers in this failure to utilize all their steel-finished capacity. Their difficulties are ascribed principally to their lack of semifinished steel. Comments from the questionnaires are abstracted in appendix K, comments by companies on shortages of prime materials. They are completely dependent on the integrated and the semi-integrated producers of steel. The semi-integrated producers, however, have their own needs for their finishing mills which in some cases are greater than their own capacity to supply. These producers also have had to furnish ingots to others in return for scrap to keep their furnaces busy. Both types

of producers of finished steel have been obliged to trade steel for their raw material. These dislocations in customary distribution practices have seriously affected the small businesses that have depended on the small steel mills for their supply of finished steel.

THE COMPETITIVE SITUATION

The three classes of steel producers, integrated, semi-integrated, and nonintegrated, are in competition in the sale of finished steel and in many end products made from steel. When there are adequate supplies of pig iron, scrap, and raw steel the smaller producers can meet their powerful integrated competitors on a reasonably equal footing. In the present market the small steel producers are obviously at a serious disadvantage, which is likely to prove fatal to some of the smaller mills if any material slackening in demand for their products and consequent drop in prices takes place.

The inability of the small companies to obtain enough iron and steel to operate at full capacity and the high cost of such materials as they have been able to obtain has put these producers in a serious squeeze since the war. Further aggravating their situation was an increase in February 1948 in the price of the semifinished steel initiated by the United States Steel Corp. and followed by other producers. This action was briefly explored by the Joint Committee on the Economic Report in a hearing March 2, 1948, at which Mr. Fairless, president of the United States Steel Corp., and Arthur B. Homer, president of the Bethlehem Co., testified concerning the actions of their companies in raising the price of semifinished steel about $5 per ton. They contended that the increase could be absorbed by the smaller plants out of their high profits. Mr. H. G. Batcheller, president of Allegheny Ludlum Steel Corp., one of the largest and most prosperous of the semi-integrated companies, testified to the effect that they could not absorb such increased cost so had raised their prices on finished steel accordingly.

The present market in which every ton of steel finds a ready buyer, almost regardless of price, has enabled the small producers to pass along these increased costs, even though this has only meant trading dollars in many cases so that the financial position of the small producer has not been enhanced. This condition will not last, and when it ends the smaller operator may not find himself better off for the steel boom; in fact he may be much worse off than he would have been had supply been more closely gaged to demand.

APPENDIXES

APPENDIX A

REMARKS BY SENATOR KENNETH S. WHERRY, OF NEBRASKA, CHAIRMAN OF THE SENATE SMALL BUSINESS COMMITTEE UPON INTRODUCTION OF A RESOLUTION TO EMBARGO THE EXPORT OF STEEL PIPE FOR PURPOSES OUTSIDE THE WESTERN HEMISPHERE, EXCEPT UPON CERTAIN CONDITIONS AND FOR CERTAIN PURPOSES OF THE EUROPEAN RECOVERY PROGRAM, MAY 10, 1948.

Mr. President, I wish to introduce to the Senate today, a resolution, which in my opinion represents a last resort, in an effort to get several executive agencies of the Government to show reasons for their discretionary actions, and to show some concern for the domestic economy of the United States.

I refer to the export of large quantities of steel pipe and other vital steel materials for the construction of 1,100 miles of pipe line across the desert of Saudi Arabia. Last summer, the Oil Subcommittee and the Steel Subcommittee of the Senate Small Business Committee were holding hearings on problems of supply and distribution of those two vital products.

Smaller, independent business in both fields were suffering for lack of materials and consequent distribution disturbances.

The shortage of steel pipe and tubular goods became a major point of investigation with both subcommittees.

At that time, it was discovered that the Department of Commerce had approved a shipment of 20,000 tons of steel pipe to Saudi Arabia for the fourth quarter of 1947. This was the initial shipment on an allotment of 480,000 tons of steel which would be shipped in succeeding quarterly periods.

Such tonnage of steel represents the major portion of yearly exports of steel pipe and tubular goods out of this country. Obviously such tonnage could not be accommodated within current quotas, and had to be granted on the basis of a "special project."

A strong protest against this shipment and against the whole special project was registered by the Senate Small Business Committee.

There followed a series of hearings by the Oil Subcommittee, which has succeeded in unraveling an involved tale-that sounds at this date very much like an Arabian pipe dream.

First, in closed session, the committee was told by Secretary of Defense Forrestal, Secretary of Commerce Harriman, and Assistant Secretary of State Lovett that the Saudi Arabian pipe line was necessary "in the national interest." I have still to find out what that national interest is.

The decision to approve the allotment of 480,000 tons of steel for the Saudi Arabian pipe line boiled down to a discretionary action that was made at Cabinet level.

It is interesting to note that the Secretary of Commerce, who has the last word, according to law, in deciding upon an export license, overrode the initial advice of officers of the Office of International Trade, who told him and this committee that the export of such tonnage of pipe steel to Saudi Arabia could not be supported in the face of domestic needs.

The Department of Interior came into the picture with a plea that there is a world shortage of tankers, and that the relief of tanker transportation by the building of the trans-Arabian pipe line would be great.

However, at about the time of that statement, the Maritime Commission was busy selling 100 United States tankers to foreign nations and nationals, on the basis that they were surplus.

The Oil Subcommittee entered into a long-drawn-out fight to keep those tankers under American flag-in order to serve our national needs--but in spite of all our efforts, a decision by the Attorney General approved 83 of the tankers for foreign sale.

Recently information has appeared in the press that the administration is now proposing a huge shipping program, of which 100 new oil tankers are a part. Eighty-three perfectly good tankers have been sold to foreign purchasers for the average price of $1,500,000 per vessel. The report is that it will cost $8,000,000 each, to replace these tankers.

How deep are the pockets of the American taxpayer.

Responsible Government officials have repeatedly emphasized the fact that Middle East oil, particularly Arabian-American oil, is vital to relieve the needs of western Europe and thus lighten the pressure on United States and Western Hemisphere resources.

No one has debated the advantages of having Middle East oil available for those purposes.

No one on this committee has seriously argued that oil equipment to increase the production of Middle East refineries on the Persian Gulf should be withheld. But not one pound of steel used to build the Saudi Arabian pipe line will increase this production.

The refineries of the Arabian-American Oil Co. are yielding an estimated 350,000 barrels of oil per day.

No evidence has been submitted to this committee that shows that the building of 1,100 miles of pipe line across the Arabian desert will add one more barrel to that production.

It will provide a more convenient and less expensive method of transportation for the owning oil companies. It cannot be completed for at least 2 years. Tankers are now being used for Middle East oil transportation-and will continue to be used.

What it will save is the additional 16 cents per barrel that it costs the Texas Company, the Standard Oil of California and the Standard Oil of New Jersey to bring the oil from the Persian Gulf through the Suez Canal to the Mediter

ranean.

That is a consideration to those companies.

But that has nothing to do with the shortage of steel-and its effect upon various segments of industry in this country.

For almost a year the Oil and Steel Subcommittees have been holding hearings, on oil and steel shortages. Hearings in Washington and in many field locations have persistently shown shortages of steel pipe and oil-field equipment, which are seriously hampering production of oil and operation of the smaller, independent producer.

Steel is needed for tank cars, for tankers, and for all forms of manufacture. Independent producers in all areas of oil production in the country have shown that in many cases, operations are at a complete standstill because of a lack of oil pipe and casing.

In the Midwest, pipe for oil fields and pipe for watering systems is in desperate short supply.

Shortages of fuel oil and tractor oil to run the machines for food production in all of our great agricultural areas are basically attributable to shortages of steel for oil development and oil transportation.

Sixty-seven thousand more oil wells could have been drilled in the United States in the past 5 years, if oil pipe and casing had been available.

Secretary of Interior Krug, told this committee on April 2 that oil production in this country could be increased 15 percent, if sufficient oil pipe was to be had. I think that is a modest estimate.

Development of new oil resources in this country and in the entire Western Hemisphere is at a slow-down because of a lack of steel tubular goods.

The answer is obviously greater production of these materials, and in fact a better distribution of what we have. But while new facilities are in the throes of increasing their production, we must make the best use of what can be supplied. Three hundred and sixty thousand tons of steel pipe destined for Saudi Arabia would go a long way toward relieving the need for carrying lines and installations in both oil and gas-producing fields in this country.

The other 100,000 tons or so of sheet and structural steel is exactly what is needed to keep smaller steel fabricators in the Middle West in business, for the rest of this year.

Sheet steel is in equally short supply in this country today-due in no small part to large and uncontrolled shipments in export.

This committee has failed to get a satisfactory answer, either in closed or in open hearing, from the national-defense establishment as to the necessity for the pipe line as a national-defense measure. Nor could we get a statement as to its defensibility under present unsettled world conditions.

Secretary Forrestal told the Oil Subcommittee on October 9, that the development of Middle East oil was more important than the development of any project in the United States or the Western Hemisphere.

On January 19 he came before the House Armed Services Committee and stated that the development of Middle East oil could not be regarded with the same security as developments of oil in the Western Hemisphere.

Mr. Forrestal has, of course, repeatedly emphasized that there must be access to Middle East oil for the needs of western Europe.

I submit, gentlemen, the "access" is there--by tanker from the Persian Gulfas it will have to flow, pipe line or no pipe line for the next 2 or three years. Shipments of steel to Saudi Arabia have continued into 1948. Thirty thousand more tons were shipped in the first quarter.

On March 17, the committee learned that a second quarter shipment of 55,000 tons of steel was under consideration by the Department of Commerce.

Secretary Forrestal, Secretary Harriman, and Assistant Secretary of State Thorp were asked to advise the committee on the latest aspects of the Saudi Arabian pipe line.

Mr. Forrestal hedged-Mr. Harriman hedged-Mr. Thorp hedged.

Mr. Forrestal thought he might be better able to advise the committee after the Italian elections. He also stated that there was also under discussion a consideration to use the steel for the pipe line to build more tankers.

Mr. Harriman said he would be guided by the decision of the Military Establishment.

Mr. Thorp had already gone on record in the press as believing that the steel for the Saudi Arabian pipe line should be reviewed in the light of current events. Although the full second-quarter shipment has not been permitted to go forward -3,000 tons of it were authorized for shipment in April.

In checking on this shipment, we were first told the 3,000 tons were to complete an installation at the eastern terminal. Later, at a hearing on April 30, it was stated that the 3,000 tons would be used to begin construction of the main pipe line. The instance shows the confusion evident in the whole pipe-line allocation. This steel is going forward in spite of the fact that the pipe line cannot at this time be continued across part of its route, even if the steel pipe were available to build it. The committee was told on March 17, by the Vice President of the Arabian-American Oil Co., Mr. James Terry Duce, that his company did not have ratification by the Syrian Parliament for building the pipe line through Syria. Gentlemen, the time has come to take the matter out of the realm of conjecture and personal judgment.

The law requires that the control of exports shall be under the jurisdiction of the Secretary of Commerce, who shall have due regard for domestic needs in setting export quotas.

Under this delegated authority, the Secretary of Commerce has set up an Export Advisory Committee composed of officials of his own staff, as well as National Defense, State, Interior, Agriculture, and the Office of Defense Transportation. The administration of this authority has deteriorated to the point where the advice of this review board is not sought-nor followed when it is sought.

I doubt, at this point, if even the Department of State has been permitted to have much to say regarding continued shipments of steel to Saudi Arabia.

My able colleague, Senator Brewster of Maine, has within the past week told the Senate a story of Arabian-oil shenanigans, with particular respect to the sale of Arabian-American oil to the Navy. I will not attempt to duplicate any of the information contained in the very fine report of the Senate War Investigating Committee. Our avenues of investigation did not parallel, except that they involve the same major oil companies and the same corner of the world.

Gentlemen, no one has debated the economic value of building a Saudi Arabian pipe line, under private ownership, if the supplies of steel were available.

But, now when steel is scarce, resources of oil in our own country and vast new resources in the Western Hemisphere are lying fallow because there is not sufficient pipe to start drilling.

If national defense is an argument-and it is not clear to me that it is-how can the safety of the Middle East pipe line be compared with resources in the Western Hemisphere?

Oil experts have estimated that between 10 and 20 billion barrels of oil are possible of development in Mexico.

The largest other single-country oil reserve is in Texas, with 11,000,000,000 barrels.

Independent American producers who can get contracts to develop oil in Mexico have told this committee that purchases of oil pipe and oil-country goods by major