With the economic recovery still uneven, many steel users find they must absorb the costs because their customers refuse to accept higher prices.
Economists say that, broadly speaking, rising steel prices alone won't derail budding economic growth. But they affect manufacturers still struggling to emerge from the sector's three-year slump.
"I have a fixed cost with my customers. I can't pass costs onto them," he said, which means tighter margins for his 300-employee company.
A group of steel consumers and producers is considering petitioning the federal government to limit exports of steel scrap, which is used as a raw material to make new steel products.
Appliance maker Maytag Corp. said last month it expects to offset rising steel costs in part with savings from a new contract with unionized employees.
General Motors Corp. has resisted paying the surcharges. "It's pretty clear from our end that we have agreements with these companies. When the agreements were signed, everybody knew what the price would be," said GM spokesman Tom Wickham.
Toyota Motor Corp., the Japanese auto maker, said the rise in steel prices since 2002 has raised its cost to produce a vehicle in North America on average by more than $100.
Many service centers, which buy steel from steelmakers and sell it to customers, aren't committing to one-year contracts because prices are rising too rapidly. "We are scrounging near and far, looking for steel," says Mr. Leutwiler, whose staff has to call more centers to locate the types of steel the company needs. He plans to tell his customers parts he builds will be repriced to reflect steel prices at delivery, instead of at the initial order.
Mr. Leutwiler, who is chairman of the 1,200-member Precision Metalforming Association, said member companies managed to survive the recession, but "this sudden run-up in steel prices will be the last straw for many of them." Mr. Leutwiler said he already has cut back employment at one of his Chicago facilities, bringing the company's total employment to 420, down from 500 a year ago, partly because of price increases.
Steel companies and service centers have "been real clear," he says. "They are saying: 'This is the price. Take it or leave it.' " So, Mr. Crawford has started asking customers to pay more money than the contracts specified, an idea that only a few government customers have been receptive to. On new bid proposals, he has disclaimers that prices are good for only seven days.
Washington-based Danaher Corp. is feeling the crunch in its division that makes ratchets, wrenches and socket sets for the Sears Craftsman brand. Steven Babcock, who directs metal supplies for Danaher, said proposed surcharges would increase the company's steel costs on 50,000 tons by seven figures this year. He buys steel on long-term contracts and at this point is telling the steel-makers his company isn't paying surcharges.
"We are resisting as best we can but I think a day of reckoning is coming," he said. His greatest concern is that his customers will begin outsourcing hand tools overseas. "We don't want to give Sears Craftsman a reason to take off their 'Made in the USA' label."
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So we have rising steel prices that add $100 to the price of a car for Toyota, GM refuses to pay surcharges, Maytag offsetting the cost to workers, Sears threatening to move tool making out of the US, Precision Metalworking cutting back on jobs, and in general companies bitching that prices can not be passed on, with smaller companies struggling not knowing what to do.
If demand is so great, why is everyone struggling to pass on these costs?
I suggest supply of finished goods is great and demand only exists at cheap prices and/or for those willing to absorb rising commodity costs.
Mish |
