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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (9577)	3/6/2004 2:53:25 PM
From: russwinter	Read Replies (1) \| Respond to of 110194

<Disruption of their supply will cripple or completely shut down Delphi's production in one or two days," the filing reads, causing "catastrophic losses totaling millions of dollars per day to Delphi and its customers."> This Delphi supply link daisy chain mess says it all. These stories will spread like wild fire world wide over the next several weeks. IMPORTANT READ, there will be a quiz! I received a copy of a price increase letter from a friend of mine. The company that received the letter is a distributor of finished products (in this case: pneumatic systems, air make-up units, fryer stack washers, and pumps) to the food processing industry. By the way, so far the distributor is successfully passing these higher prices on to their end customers. The manufacturer had attached a letter (dated Jan. 21, so actually this has gotten worse ) from their steel supplier. The steel supplier really went into the price inflation/shortage transmission issue. "There is no doubt that the domestic steel is encountering market conditions that haven't been experienced in thirty years. Although much has been written about current conditions, we believe that they may not be aware of the developing volatility in the market. Mill lead times: Since early December, lead times have exploded. There have been several occasions where mills have moved lead times out several weeks, in a single day. Some mills have closed their order books in an effort to determine their lead times, as they were not able to enter orders as fast as they were received. Others have cancelled back orders they had previously accepted, due to availability, and they are not accepting any new business (ALLOCATION). With the quick escalation in lead times, there was no time to build inventory . This happened while the automotive companies in North America has their lowest November production since 1993. What will happen as production ramps up in the 1st quarter of 2004? Follow-up on that last question: news.ft.com Steel making costs: Most of the recent mill price increases can be attributed to higher costs of making steel. The rapid escalating cost of raw materials is the major topic of conversation in and around the US steel industry today. Energy, scrap, coke, iron ore, etc, have been increasing at unprecedented rates. These increases are influenced by global and supply circumstances clearly beyond the control of most US steel producers. Energy: Mainly natural gas, used by the steel industry to fuel furnaces has increased 45% over the past 12 months. Scrap: a resource needed to make steel, is now at an all time high. Scrap prices have escalated since last fall and continue to rose rapidly. Currently, scrap prices are 48% higher than a year ago. The integrated mills use 25-30% to make steel. This severely impacts the mini-mills as they solely rely upon scrap (100%) to make steel. Metallurgical coke (processed coal) is used in conjunction with natural gas to fuel the furnaces and is also in short supply. China has stopped exporting coke to the US because demand is strong in Asia and our dollar is weak . There is also a domestic shortage because of the PinnOak coalmine fire. On Dec. 10 Pinn Oak declared force majeure, announcing it could no longer supply contracted amounts of coal to US steel companies. Due to the limited supply of coke, the mills must either reduce production 15-18% or use more natural gas. Iron ore: is another element needed to produce steel. The international market is in short supply principally because exports to China have increased to 150 million tons this year versus 110 million tons in 2002. Deliveries to China in 2004 are estimated to climb over 180 million tons. In the past, our domestic steel producers found it more cost effective to buy iron ore offshore, than to mine it in the US. Due to the limited supply of iron ore and the shortage of ocean vessels, and the willingness of China to pay top price, our domestic steel industry has been forced to buy short supplied domestic ore at a much higher price. Foreign steel: Presently, there is little foreign steel being offered to the US due to the low dollar value and the increase demand for steel by other countries. Countries that have steel to offer are opting to send it to Asia, where their currency is much stronger . The European steel industry has reduced their offerings to the US because many mills in Europe cannot, or will not, restart idle blast furnaces because of shortages of scrap, coke, iron ore, and the difficulty of getting pig iron into their countries due to the shortage of ocean vessels. My comment: THIS EUROPEAN IDLE MILL REVELATION REALLY BLOWS THE BOGUS OUTPUT GAP OR EXCESS CAPACITY THEORY OUT OF THE WATER!! Domestic freight costs: The new Federal Hours of Service regulations, effective January 4th will raise freight costs in 2004. The regulations are expected to cause steel haulers to lose 15-20% efficiency. There is already a shortage of truck and rivers so this loss of efficiency will further impact deliveries. In addition, freight rates will be increased once the costs of regulations are calculated. My comment: This was written 1/21 before the recent run-up in gasoline prices. The letter goes on with a list of price increases from this company's competitors, and concluded by advising the customer to expect even worse.