STEEL PRICING IN A RECESSION: AN ANALYSIS OF UNITED KINGDOM AND E.C.S.C. EXPERIENCE1
| Date | 01 February 1965 |
| Author | D. L. McLachlan,D. Swann |
| Published date | 01 February 1965 |
| DOI | http://doi.org/10.1111/j.1467-9485.1965.tb00747.x |
STEEL PRICING IN A RECESSION: AN ANALYSIS
OF
UNITED KINGDOM AND E.C.S.C. EXPERIENCE’
D.
SWANN
AND
D.
L.
MCLACHLAN
I
INTRODUCTION
THE
recent judgment of the Restrictive Practices Court condemning
the price fixing agreement between makers
of
heavy steel products
has, officially at any rate, brought to an end a long and important
phase of the industry’s policy-a phase that was dominated by the
view that price competition was not appropriate to the conditions
of
the steel industry. The Court’s judgment assumes an added signifi-
cance as it was given at a time when the high level of steel imports
was provoking widespread comment. The case turned upon the asser-
tion by the respondents that in a falling market, such as developed
between
1960
and
1963,
price competition would become
so
severe
as to erode the industry’s resources, adversely affect its ability
to
raise capital in the market, and thereby jeopardise expansion and
modernisation projects. By rejecting this view, the Court has estab-
lished a presumption in favour of price competition in the steel
industry-at least for as long as it continues to operate within the
present framework.
It is, therefore, of some interest to compare the reactions to the
recent recession of the relatively monopolistic United Kingdom Steel
Industry and the regime of the European Coal and Steel Community
that makes a prominent feature of price competition-due allowance
being made for other factors that influenced the course of the reces-
sion in each of the two markets.
In
studying what happened as
a
cyclical peak gave way to a trough, we believe we are examining
an important aspect
of
the economics of the steel industry.
To
set
the comparison in perspective, however, it is first necessary to describe
briefly some of the main trends in the world steel market as a whole
over the last few years as these have not only had
a
considerable
‘This article originated in connection with a larger research project into
the economic policy
of
the European Communities that is being sponsored
by the Royal Institute
for
International Affairs and the Carnegie Trust for
the Universities
of
Scotland.
We
should like to thank experts connected with
the industry, both here and in Europe, for
the
help they have given
us
in dis-
cussing problems and supplying data, although we alone are responsible for
the arguments and views expressed.
81
G
82
D.
SWANN
AND
D.
L.
MCLACHLAN
impact upon the past working of the two markets but may be expected
to continue to make their influence felt for some time to come.
THE
&ONOMIC
BACKGROUND
TO
THE
WORLD RECESSION
Between
1960
and
1963
the steel industry in many parts
of
the
world declined from
a
cyclical peak into a serious recession. The
impact and timing of the recession varied as between the individual
markets, but in
1964
a recovery was generally discernible. Although
the most severe phase of the recession is now past, there is general
agreement that, for the world as
a
whole, the basic problem of an
excess of capacity in relation to probable demand, and a consequent
pressure on prices, is likely to remain for some time to come. A
recent estimatea suggests that world demand in
1965
may be in the
order of
466
million tons while world capacity at the same date
may be sufficient to provide for an output of
537
million tons (although
it must be admitted that of the expected surplus some
47
million
tons is accounted for by American plant that it unlikely to be reacti-
vated).
What forces combined to produce the recent recession and the
continuing threat to the market? The answer must clearly lie in the
fact that world capacity has outstripped world demand. Why has this
occurred?
Let us take the capacity side first of all. Major producers such as
the United States, the
E.C.S.C.
and the United Kingdom have in
recent years been continuously expanding their productive capacity,
part of which has been laid down with a view to supplying the steel
requirements of countries that have been traditionally steel importers.
However, these traditional importers have themselves simultaneously
been laying down capacity to meet their own needs.
An
illustration
of this tendency is the fact that the annual average rate of expansion
of capacity in the traditional importing countries has doubled as
between
1953-1958
and
1958-1962.'
As
a
result, the demand for the
exportable surplus of the major producers as a whole has not increased
as much as would otherwise have been the case.
A
second factor that has added to the supply of steel in the world
market has been the extremely rapid growth of the export-orientated
Japanese steel industry. In the period from
1960-1963
Japanese crude
European Coal
and
Steel
Community,
High Authority Document,
No.
6943/63f,
Memorandum
No.
2
pour le Conseil de Ministres.
La
situation de
la Communaictt dans I'economie sidtrugique mondiale,
29th
October
1963,
p.
10.
Ibid.,
p.
2.
To continue reading
Request your trial