there is a very fundamental error in the price/cost comparison with steel

 It appears, however, that there is a very fundamental error
in the price/cost comparison. The price series is for carbon
steel products i but the cost ser ies is, as Schneider emphasizes,
"for all steel products. (27, p. 17) (emphasis his). Alloy
and stainless steel sel Is for a much higher pr ice than carbon
steel. In April 1976, for example, the month in which PMM
figures show cost to exceed pr ice by the greatest amount, the
average of the monthly f.a.s. pric~ estimated by PMM is $206.25
per net ton (PMM accept Schneiders' $254 as the average cost
of production). The:average f.a.s. value of Japanese stainless
and alloy steel arriving in the United States, however, 

2/ A simple arithmetric average of the monthly prices in
Japanese fiscal year 1975 is about two percent below the
estimated cost for that year and, for the first eight months
of fiscal 1976, about: 13 percent below. For individual
months the PMM ser iesl shows pr ice below cost by as much
as 15 percent in fiscal 1975 and 18 percent in fiscal 1976.
about $886 per net ton. 31 If PMM had included stainless and
alloy steel when computing their price series, stainless and
alloy steel would have had to make up only 7.1 percent of total
Japanese production to cause the average pr ice level, as
computed, to exceed the estimated average cost. il In fact,
.special. steel production in Japan averaged over 9 percent
of total product ion in 1975 and 1976. ~

Thus, PMM have estimated the costs af~aking all steel
and compared these costs with the price of carbon steel alone.
Ignoring special steels in the price series results in a
serious bias in favor of finding below cost pricing. Since
PMM have not removed this bias from their data and estimates,
one cannot conclude from their estimates that below cost pricing has occurred.
The PMM study presents somewhat different evidence that the
Japanese priced below cost in 1968. The essence of their argument can be presented as follows: PMM estimated the average
31 Computed from U.S. Department of Commerce, Bureau of
the Census, Report FT 135, which is the same source used
by PMM for carbon steel prices.
41 (.071)($886) + (.929)(206.25) = $254.51. Steptoe and
Johnson detail errors in Schneider's cost estimate which
indicate that it overstates Japanese costs by $23 per net
ton during this period. If $231 is accepted as the correct
cost, stainless and alloy could have been only 3.7 percent
of Japanese production and the average price would have
exceeded cost. (.037)($886) + (.963)($206.25) = $231.40.
51 Computed from Japanese Iron and Steel Federation output
figures. .Special. steel is pr imar ily stainless and alloy
but does include some carbon structural steel which is not separately quantified.

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