April 1, 2004

3 Min Read
Steel's Price Craze


WASTE EQUIPMENT manufacturers are being squeezed by the surge in steel prices and customers hungry for lower prices. From scrap to finished steel, prices are soaring because of increased demand in China and reduced supplies worldwide. The price per ton of hot-rolled steel, for example, increased from approximately $270 in January 2003 to $480 in March 2004, and the Washington, D.C.-based Waste Equipment Technology Association (WASTEC) expects the price to reach $580 by June.

According to WASTEC, steel accounts for between 65 and 95 percent of material in waste equipment, and between 40 and 65 percent of the total manufacturing cost. So if a company sells only steel dumpsters, it's more likely to be hurt by the steel economy, but if a business manufactures such products as trucks, it will not be burned as much because there are other parts in the equipment that detract from steel's costs, says Ron McCracken, president and CEO of Easley, S.C.-based RJM Waste Equipment Co. (RJM). But either way, customers will most likely be paying higher prices for products because it is not economical for manufacturers to absorb all of the increased costs, he adds.

There are several reasons for the price hike. In March 2002, President George W. Bush imposed up to a 30 percent tariff on steel imports, then lifted the tariffs 18 months later when the international community threatened to impose retaliatory fees on U.S. exports to their countries. While the tariffs existed, steel companies consolidated and restructured. This saved the industry billions of dollars, according to a letter from 48 steel companies urging the administration to maintain the tariffs. Meanwhile, the waste industry and some market analysts believed that if tariffs were relinquished, “unrestricted prices usually stimulate supply, which [would] bring down prices,” according to a report presented to the House Committee on Small Business by New York-based Morgan Stanley.

“When the tariffs were in place, steel prices started to rise gradually. Once the steel tariffs came off, prices were expected to become cheaper. Instead, prices climbed radically,” McCracken says, noting that other factors came into play. “In October, RJM was paying 18 cents per pound for sheet steel, and today, the same [product] is 39 cents per pound. Virtually all of this increase has occurred within the past 90 days.”

A main reason for the radical cost increase is China's voracious steel appetite, according to experts. The country's gross national product has increased by approximately 8 or 9 percent annually. China also is consuming more raw steel-making components, such as coking coal. Coke is in short supply worldwide because China, usually a cheap source for the material, has reduced its exports to fulfill domestic needs. Simultaneously in America, a fire at a West Virginia coal mine has reduced supplies.

But blaming China altogether is shortsighted, especially because the price increase has occurred during the past nine months, according to Morgan Stanley. The weak U.S. dollar value also is affecting the market. As the dollar value has decreased, the cost of imports has increased, which has protected the U.S. steel industry, according to the firm.

“The weak dollar hurts. It means more domestic steel is exported and limits foreign steel coming into the United States,” McCracken says.

Finally, factors such as higher energy costs also are affecting steel prices, and some analysts believe a relatively poor return on shipping is pushing up costs, as well.

The good news is that it's impossible for prices to maintain their current levels. Steel is an internationally traded commodity that is subject to basic supply and demand rules — what goes up, must come down, Chuck Carr, communications director for the Institute of Scrap Recycling Industries, Washington, D.C., says.

“Spot prices have gone down in U.S. markets,” Carr says. “In general, prices have lowered [recently] … and history shows that it's about time for them to come down.”

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