Global Fastener News

Darling: Warn Your Customers Prices Are Going Up

John Wolz

Prices of imported fasteners are headed up within four months, Bruce Darling of Porteous Fastener Company told the Southeastern Fastener Association annual spring conference.
�Costs are going up,� Darling advised. �Prepare for it. Look at your contracts.�
There is generally a four-month time lag between factory prices rising and distributors beginning to sell the higher-price product.
Since last November low-carbon product prices have jumped as much as 25%, Darling observed. Nuts have risen 18% to 25%; carriage bolts are up 15% to 20%; lag screws 13% to 17%; and hex bolts 11% to 15%.
Medium-carbon products, such as Grade 5 cap screws, are up 8% to 12%, and factories are predicting 5% more.
Last month the government of China increased the price of steel 10% and asked mills to reduce the quantity by 10%, Darling reported.
�We have heard the government plans to increase raw materials by 20%,� Darling added. �Whatever the final effect of this �tinkering,� the cost of parts will increase by about 60% of the final number set by the Chinese government.�
The cost of steel from Korea has risen 18% to 20% this year.
Sources for Porteous estimate additional 5% increases during the third quarter, Darling added.
�Costs continue to change daily,� he observed. �Factories will send us a quote and withdraw it in several days. China is very uncertain with the government tinkering with steel prices.�
The good news is that �prices are still below where they were three years ago,� Darling pointed out.
As Porteous� vice president for materials Darling is responsible for inventories at the company�s 15 North American locations, purchasing products and sourcing mill specials. In 12 years with Porteous and 20 years with RB&W Logistics, Darling has toured 425 fastener plants in nine countries, including 190 factories in China.
Higher Prices Are Sticking
Thus far customers are paying the higher prices. �Out of financial necessity factories have raised their prices and are holding their market share,� Darling finds.
�Quality could become a major concern if importers switch to little factories with no ISO registrations,� Darling cautioned.
There may be corresponding increases in prices of North American product. �We have had some movement in domestic prices announced and have heard rumblings of others,� Darling noted.
China More Open to Business
Darling predicted more fasteners will come from China.
Fifteen to 20 years ago trading firms and factories were government owned and �thus on the same side,� he recalled.
Darling recalled that in those days Chinese factories were not ready to do modern business. The only fax machine may have been in another building, and there was slow communication. The government would double steel prices without notice. Importers pulled out of China.
Across the Taiwan Straits from China, Taiwanese trading firms � such as Carway, I.F.I., Fastwell and Sunfast, started exporting fasteners from privately owned factories in Taiwan. �They knew how to deal with the U.S. market and were acquainted with our quality demands.�
It was a time that �quality was becoming more than a dinner conversation. The Fastener Quality Act loomed on the horizon, and that changed factories for the better on all sides of the oceans.�
Today the Chinese government is �receptive to privately owned factories,� and Taiwan companies are supporting Chinese plants with tooling, plating and wire drawing.
Among the private Chinese fastener manufacturers today are Chang Yi, China Chun Yu, Chi Tai Metal, Gem Year, Kai Yang Metal, Li Chang Hardware, Shanghai Ben Yuan and Tong Hwei.
Devaluation Leads to Changes
Two years ago 15% to 50% devaluations of Asian currencies, including those of Malaysia, Korea and Taiwan, dramatically affected their exporting business. China did not devalue its currency.
The devaluation �took the entire area by surprise. It had an immediate effect. Most U.S. importers buy in U.S. dollars, and the devaluation caused a short-term profit taking.�
Soon importers �jumped on [Asian] manufacturers like a pit bull on Grandma,� Darling described the situation. �They forced prices down and renegotiated for open P.O.�s. Vendors cooperated to maintain their market share, and prices were reduced.�
Also leading to price changes was the expansion of plant capacity in Taiwan in 1998.
From 1996 to 1999 established factories in China expanded, and new plants opened. Among those were a major addition to Shanghai Ben Yuan, addition of 23 nut machines to China Chun Yu, and Tong Hwei entering the stainless business.
Gem Year is the largest fastener plant Darling has visited. It has 50 bolt formers, compared with Nucor�s 28. Gem Year has 100 nut formers, 200 small screw headers, 3 hot bolt formers, 10 self-drill screw pointers, 12 threaded rod thread rolling machines, 6 zinc plating lines, 1 phosphorus, 1 rack plating for rod and 6 heat treating furnaces.
Current Gem Year production is 12,500 metric tons, and it �is headed to 15,000,� Darling noted.
By last year fastener manufacturing capacity worldwide exceeded demand, Darling calculated. And steel prices rose throughout most of 1999.
�But factories were reluctant to increase prices for fear of lost orders,� Darling explained.
Ocean Freight Problems
Last year steamship lines stood together and raised prices over 75%.
The steamships added a new peak season premium. �When they have the best business, they add $200 per container,� Darling reported.
Not only are shipping prices up, but containers are hard to get, especially for Korea and China, Darling added.
�This year�s negotiations are not starting out well,� Darling lamented. �Maersk took over Sealand, and carriers are asking for additional increases. Reduced westbound freight is making it difficult to get containers back to the Pacific Rim. Carriers are reluctant to move containers inland here. They want them to stay on the West Coast.�
Steel Availability Slightly Short
�Steel availability is adequate to slightly short,� Darling finds.
China Steel earned nearly a half billion dollars last year on production of more than 9 million metric tons. CSC forecasts $635 million this year.
CSC is 47% government owned, 15% officer owner and 38% publicly owned.
China Steel held prices steady during the first quarter, but Darling is forecasting a 5% rise in the third quarter.
Stainless was up about 25% in the first quarter.
�They are investing in other steel mills,� Darling observed. �They have a definite desire to make a profit for stockholders.�
Factories Losing Money
This year �factories see more losses or must increase prices,� Darling noted.
Most foreign producers lost money last year, and he predicted �some bankruptcies or mergers in 2000.�
Darling gave the 1999 results for four publicly held companies: San Shing Hardware lost $US 5.2 million on $143 million in sales, and its stock fell 74%; Chun Yu stock was down 78% from its high after losing $5.5 million on $132 million in sales; and Oriental Fastener was down 73% after losing $1.6 million on $70 million in sales.
Tycoons stock was down 60% from its 1999 high � and down 81% since going public in 1995 � after losing $36 million on $45 million in sales. Darling blamed the massive loss on investments in other fastener companies and on losses at the end of 1998.
Another factor adding price pressure is that the New Taiwanese dollar (NT$) began appreciating in mid-1999, and factories are expecting it to go up 3.2% by the end of July.
�Here�s the dilemma,� Darling summarized. �Factories are losing money. Steamship costs are up and likely to rise again. Steel costs are likely to rise in the third quarter. The New Taiwanese dollar is appreciating.�
Prepare your customers, Darling emphasized.