Steel shock
Higher prices, looming shortages threaten metal shops
By RICK BARRETT
rbarrett@journalsentinel.com
Posted: Feb. 26, 2004
Ron Loos needs nerves of steel when he orders metal for his tool-and-die shop.
Steel Crisis
Photo/Jeffrey Phelps
Machinist George Weber cuts apart bundles of steel rods at Quality Tool & Die Inc. in West Allis Thursday. "It's really scary," the company's owner says of impending shortages.
By The Numbers
$500
The price of a ton of hot-rolled steel now, according to a trade group of steel buyers. That includes a $100 materials surcharge.
$255
Price last June of that ton of hot-rolled steel.
Source: National Tooling and Machining Association
Some metal prices have almost doubled in recent months. Even worse, this summer he might not be able to buy certain types of steel at any price because of looming shortages.
"It's really scary," said Loos, owner of Quality Tool & Die Inc. in West Allis. "If I can't get steel, how am I going to meet the demands of my customers?"
Steel prices have increased because of a weak U.S. dollar, raw-material shortages and strong demand for steel in China and Europe.
The price increases have hit small companies such as Quality Tool & Die especially hard because profit margins are thin, and it's difficult to pass increases on to customers who can get similar products cheaper from Asia, Eastern Europe and elsewhere.
The steel crisis could be the final straw for some metal shops that are just coming out of the recession, said Bill Gaskin, president of the Precision Metalforming Association, a trade group that has 1,300 company members.
About 30% of U.S. toolmakers have closed their doors since 2000, and many more are expected to shut down in the next few years as their work is moved out of the United States.
"Some companies are seriously in jeopardy of going out of business," Gaskin said. "They had two horrible, back-to-back years and then were slammed with these steel prices."
In a survey, almost half of the association's members said steel suppliers had already canceled at least one of their orders. Seventy-seven percent said they had received only partial steel shipments in January.
Loos said his suppliers told him that he probably won't be able to get steel this summer. He asked one of his customers to pay for a year's worth of steel in advance.
"That's one customer taken care of, but with the rest we just go day by day," Loos said. "As a small shop, we generally can't afford to buy large amounts of material in advance."
The crisis comes even after President Bush removed the 30% tariffs on foreign steel in December. Steel buyers who thought prices would come down say the opposite happened.
Some companies say they're facing the most severe steel shortage since the 1970s. Much of the steel that's being made has been reserved by large manufacturers, including automakers. Companies that buy steel in small quantities can place orders, but there's no guarantee they will be filled.
Some steel mills aren't honoring prices in their contracts because of the increased costs of raw materials, said Tom Turner of Good Steel Inc., a Waukesha steel supplier.
"I think everybody is going to have to worry this summer," he said.
Steel mills aren't to blame for the chaos, said Thomas Danjczek, president of the Steel Manufacturers Association in Washington, D.C.
One reason for higher steel prices, he said, is a major coal mine fire in West Virginia that drove down production of coke, a form of baked coal used in making steel. China, a major producer of coke, has taken millions of tons off the market to meet its own needs.
Coke prices have doubled in recent months, and shortages of coke have forced some steel mills to cut production. Nickel, a key ingredient in stainless steel, also is in short supply.
Energy prices have remained high, which has hurt steel mills because they use huge amounts of electricity.
A weakened U.S. dollar has kept foreign steel companies from shipping material to the U.S. because they can get more for it elsewhere.
Exports of U.S. scrap metal to China have doubled in the last several years, putting pressure on domestic mills that also need the material.
Two mainstays of the U.S. economy, construction and automotive manufacturing, face direct harm from higher scrap metal prices, Danjczek said.
"These sharp price increases, and the potential for scrap shortages, are having significant, harmful effects on important manufacturing sectors of the U.S. economy," he said. "We have a very competitive system that's been distorted by China. And it's not just steel. . . . The copper, lead and brass people are having the same problems in that China has the whole world screwed up right now."
U.S. steel mills are running at about 85% capacity because they can't get enough scrap metal, said Gerald Tearney with Tearney & Associates, a Hartland firm involved in the steel industry.
"I have been in the steel business since 1972, and this is the worst I have ever seen it," Tearney said. "I don't blame the small shops for being worried. The next thing that's going to happen is the service centers that supply these small guys with steel are going to start demanding cash in advance or full payment in 30 days. It's going to cause huge problems, because some of these companies have just been through two of the worst years in their history."
Charter Steel Co., a Saukville maker of steel bar, rod and wire products, has been able to fill its customers' orders but is limited in accepting new business, said John Couper, company chief financial officer.
"We are as concerned as our customers about the run-up of steel commodity prices," he said.
As U.S. manufacturing companies have come out of the recession and geared up production, it has made the steel shortage worse.
"Some companies are not out shopping for steel; they're begging for it," said Matthew Coffey, president of the National Tooling and Machining Association.
Rising steel prices and metal shortages are going to accelerate the loss of business and jobs, said Loos with Quality Tool & Die.
"I don't have a real big business, but I have guys working for me with families to support. If we can't get steel, we are all done." |
