Global Fastener News

Darling: Steel Prices to Remain Red Hot

Jason Sandefur

Skyrocketing steel prices have some fastener industry veterans scrambling to remember another time when costs have risen so dramatically.
For Bruce Darling of Porteous Fastener Co., the rapid upswing in steel costs reminds him of 1974, when prices spiked and crashed quickly, producing wholesale fastener shortages that year.
�People were taking whatever they could get to fasten their product,� Darling recalled recently at a dinner meeting of the Los Angeles Fastener Association.
Thirty years later, fastener companies are scrambling once again to cope with blistering raw material prices; by some estimates, steel prices have risen 41% in the past few months, driving fastener prices up 25%.
Those fastener prices have not hit customers yet, because the finished product is still en route. Darling urged distributors to prepare customers for the huge price hike, so they will not feel blindsided.
Darling also advised distributors to confirm mill orders from the last 90 days to ensure the order has been placed with the factory.
�It�s easier to buy it off the shelf today than speculate four months out.�
How Steel Prices Got So High
Darling chronicled the increasingly dire steel situation.
In June 2003, cold-rolled low-carbon steel wire rod was $344 per metric ton in China, and $345 in Taiwan. Four months later, wire rod in China had only increased 1.2% to $348. Within four weeks China prices had gained 7.8% to $375. Darling and others anticipated further cost increases when China Steel Corp. of Taiwan quoted prices for the first quarter of 2004.
On November 21, 2003, China Steel increased prices 2.4% to $364. By December 2 the market steel price in China jumped another 4.5% to $392, while Taiwan prices grew to $397, 9% higher than China Steel�s quote.
By December 29 China prices for wire rod had gained 17.3% to $460, while Taiwan prices hovered at $417 per metric ton.
Darling said a significant cost shift occurred on January 1, when the Chinese government reduced its export rebate to domestic factories by 2%.
�The moment they reduced that, our [factory] costs went up 2% immediately.�
A week later, Taiwan manufacturers of Grade 5 product instituted an immediate 4% price hike. Darling said that while the increase caught his attention, market conditions did not alarm him yet.
Two weeks later, China prices had leveled off at $458, and Taiwan�s price remained unchanged at $417.
�It looked like things were going to settle down,� Darling recalled.
Then Darling began to hear from his vendors that he should expect new price increases after the Chinese New Year. Market rumblings in the days leading up to the announcement indicated a major development, according to Darling. On January 30 Nucor announced a $66 surcharge per ton for new steel shipments. Two days later India boosted threaded rod prices by 25%.
On February 3, 2004, low-carbon parts producers in China revealed an immediate price hike of 11% to 18%, pushing wire rod to $482. That same day the China and Taiwan nut consortium boosted prices by 5%. Within 48 hours the consortium tacked on an additional 10% increase to nuts.
Meanwhile, Taiwan wire rod rates had gained 13.7% to $474.
Darling described feverish market conditions over the next couple of months. On February 17 Nucor increased its surcharge to $110 per ton, and Taiwan Grade 5 producers boosted prices about 20%, according to Darling. Shopping for product started to break down.
�If you don�t have a relationship with the factory, they won�t take your order,� Darling remarked.
The big announcement occurred on February 26, when China Steel Corp. hiked prices 21% for the second quarter of 2004.
�That�s significant,� Darling commented. �There�s no way to absorb that.�
By March, India had raised threaded rod prices an additional 28%, bringing its overall price increase to 53% since February.
What�s Causing Steel Shortages?
The high demand for construction steel in China is devouring more steel than the industry can produce. Darling said China consumes 100 million metric tons more of steel than Chinese mill capacity of 200 million metric tons per year.
Change is everywhere in China, from economic policies to social conditions. Business conditions are changing in China too. In the past, if a company employed 3,000 workers at a factory, the company had to feed and house all 3,000 employees for as long as they ran the facility, Darling explained.
�You can hire and fire people in China now. Ten years ago you couldn�t do that.�
But other needed changes, such as a Chinese currency that floats instead of staying fixed to the dollar, remain elusive.
�Capitalism is a bad word still [in China] � but entrepreneurship is OK,� Darling stated.
To meet growing demand for steel, four new mills were planned in China. But then high steel prices hit, forcing the government to put its plans on hold.
�The price of steel is so high, they can�t afford to build the mills,� Darling noted.
Market To Remain Tough
Steel isn�t the only commodity to see price spikes in recent months, according to Darling. In 2003 iron ore jumped 260% in China, while coal and coke prices rose more than 70% during the year. Zinc ingot gained 30% in 12 months, and electricity rates in China grew 15%. Likewise, ocean freight prices from China rose 30% in 2003.
Taiwan also saw significant commodity price increases during the same period. Iron ore in Taiwan rose 60% last year, while coal and coke prices gained 50%. Electricity rates remained stable in the island nation because the utility is government-owned, but ocean freight rates from Taiwan grew 40% in 2003. Most of those costs factor into hikes in steel prices.
Darling predicted that the steel market will stay strong until at least 2006.
�It doesn�t look like it�s going to tail off like 1974.� \ �2004 FastenerNews.com