Some steel products were reported to have increased 40-50% in the last three-month period, with surcharges skyrocketing as well. Certain steel producers reportedly are refusing to quote prices except at delivery time. Lead times are stretching to months and shortages loom. Adding to the problem are significant freight increases due to demand pressure on global shipping and, domestically, new “hours of service” regulations that will diminish truck driver productivity.
“Mills are receiving major increases almost weekly with no apparent end in sight … Domestic steel lead times have moved out to 12 weeks and prices from the mills are forecasted to increase 15% to 20% from today's prices as a result of global demand,” stated the February edition of ASA's Industrial Piping Div. Commodity Reports. “Increased demand, higher raw material and energy costs and the limited amounts of imported steel available are being blamed for the increases,” the IPD report continued.
The price run-up is a classic example of supply-demand market dynamics. Although caused by an interplay of global forces, most observers point a finger at China as the main culprit for absorbing a disproportionate amount of the world's raw materials and scrap metals.
“China is growing by leaps and bounds building its infrastructure and gobbling up much of the world's supply,” said Dove Matz, president of Matco-Norca, a PVF importer and master distributor. “So demand is up for all these metal-based products. Yet, we've just passed through a period when prices were going down and down, so production has been shut down in a lot of the world because it was not economically feasible. Now, demand is up and prices are up, but you can't get all the producers back on line overnight, so demand is exceeding supply by quite a lot,” Matz explained.
The imbalance is threatening unmistakable signs of recovery in the beleaguered manufacturing sector that is so important to PVF industry fortunes. The Institute for Supply Management's March Report on Manufacturing Business determined economic activity in the manufacturing sector to have grown for the ninth month in a row during February, with increasingly optimistic comments from purchasing and supply managers. Yet, just when U.S. manufacturers are boosting production and on the verge of greater capital investment, they may be forced to pull back because of economic and supply uncertainties.
IPD ReportFebruary's IPD Commodity Reports amount to a litany of astonishment. Here are some excerpts from the outlook for key product sectors:
Carbon Steel ERW Pipe - “Inventory levels at the mills are short to nonexistent, which results in problems for the distributor to maintain a workable level of product at a favorable cost, ever fearful of having excessive levels of high priced inventory on the ground while facing uncertainty as to future resale prices.”
Carbon Steel CW Pipe - “Increases were implemented at the end of September '03 and the beginning of January '04 with future increases announced for February and March, with no assurances of any firmness in the market.”
Carbon Steel Seamless Pipe - “The shortage of scrap coupled with other normal increases in operating costs are likely to make prices very volatile. Some mills are receiving letters of increase almost weekly and recently are being hit with surcharges with no apparent end in sight. This could last anywhere from 90 days to nine months.”
Carbon Steel Weld Fittings and Flanges - “Pricing is changing dramatically (as this report is being written). Announced increases by domestic flange manufacturers ranging from 20-40% are being justified by the cost of scrap and raw material increases.”
Forged Carbon Steel Fittings - “Demand in 2004 is anticipated to increase. A 5% increase has been initiated, but the future is uncertain. Imported product is also being affected by the world demand and overall increase in steel prices.”
Malleable Iron and Cast Iron Pipe Fittings - “The issue of concern for 2004 will be the cost and availability of raw materials, which are not only affecting metal casting companies but also the steel industry in general. Due to the decrease in manufacturing companies in the USA, the source of steel scrap generated by U.S. manufacturing has dried up. This is causing a shortage situation as well as driving the price of steel to all-time highs. This condition will remain unless and until our iron mines are reopened.”
Grooved Fittings - This product sector generated a relatively optimistic review from the IPD committee responsible for the Commodity Reports. However, that may merely be a function of early completion before prices began accelerating full bore.
“Demand for grooved fittings in early to mid-2004 is expected to continue at late 2003 single-digit rates. This increasing demand is in response to the rebound in the U.S. economy, and the anticipated uptick in the nonresidential building market. Modest price increases were reported in late 2003 as prices for global scrap steel continue to rise.”
Stainless WoesStainless steel prices were driven dramatically upward by steep increases in nickel, which has risen faster than any other metal. Explains the IPD Report: “History has shown the pricing of stainless closely follows the cost of nickel. This is due to the fact that while nickel may make up a small percentage of stainless in mass (8%), it contributes upwards of 60% of the cost. (Two-thirds of all nickel mined and produced in the world will make its way into stainless steel.)
“With the United States currently not mining any nickel or ferrochrome, and the U.S. Defense Logistical Agency selling off its strategic stockpile of nickel in 1999, the U.S. is now 100% dependent on foreign imports for these two key ingredients of stainless steel,” reports the IPD.
IPD's stainless product sector reports also reflected pricing shellshock:
Stainless Steel Pipe - “Increases of 10-12% on basic prices, plus a 50%+ increase in surcharges … fill rates are running at 50-60% with lead times out 10-12 weeks on commodity materials. Non-stock specials are quoting 12-16 weeks on standard grades and 16-20 weeks on special grades. With nickel already reaching historical highs and moly staying at higher levels than last year, the surcharges will likely reach 60-70% of the transaction price for pipe.”
Stainless Steel Weld Fittings - “One manufacturer has recently withdrawn all published discount schedules from its price list. Until further notice, they are quoting prices on a net basis with raw material subject to prior sale. They also note that prices are not considered firm until time of order placement.”
Stainless 150 and High-Pressure Fittings - “Foreign product in the U.S. will continue to decline, according to manufacturers, as foreign producers focus on the market in China.”
Stainless Steel Flanges - “… fill rates of 50-80% and lead times from 3-6 weeks. Non-stock specials are running 6-8 weeks and this will continue to get longer. Some exotics are already out to 12-14 weeks …”
“Due to the number of projects outside of the U.S., manufacturers feel that foreign material coming into the U.S. will be shrinking. Foreign manufacturers can make more by staying out of the U.S. … All manufacturers (U.S. and foreign) will be forced to continue with these rising prices.”
Valves, PlasticsValve manufacturers reacted in somewhat more sanguine fashion than the pipe and fittings producers in responding to the metal price surge. “Surcharges or price-in-effect at time of shipment from a valve manufacturer seem less likely than changes in discounts or other adjustments,” according to February's IPD Commodity Reports. “We expect this to be orderly and within the normal notice periods in keeping with the intent of honoring contracts.”
One other sector tracked by the IPD Commodity Reports is industrial thermoplastics, whose producers may be in prime position to steal more market share while the metals markets are in turmoil. Industrial plastic piping products have been growing at a 5-6% annual rate since the late 1990s.
“Although industrial construction has been down by as much as 30% to 40% during the last two years, plastics continue to take share from metal in industrial applications. While resin prices have risen in this period along with the cost to produce (fuel), the price of PVC fittings has not increased since spring of 2001,” reads the IPD report. “The use of large diameter plastic pipe in industrial and commercial applications is expected to see increased growth,” it concludes.
The IPD publishes its Commodity Reports twice a year. They are released to members about a month before being given to SUPPLY HOUSE TIMES. For membership information, contact the ASA/IPD office at 312-464-0090.