Tank trailer, truck builders struggle with steel prices, component shortages
Oct 1, 2004 12:00 PM
SOARING steel prices may have been one of the biggest challenges for tank trailer builders and truck manufacturers over the past year, but it's not the only material-based problem they faced. Tires are emerging as another issue.
Tire concerns cropped up in the second half of the year and have been a big topic of discussion at recent truck shows. Original equipment manufacturers (both truck and trailer) report being put on allocation by some of the largest tire suppliers to the industry.
“Within the past 60 days, our company was put on allocation,” one trailer manufacturer said during the International Trucking Show in September in Anaheim, California. “In fact, Bridgestone has cut off our tire supplies for the rest of the year. Michelin says they have plenty of widebase tires but only limited supplies of standard size truck tires. It's been a long time since we've seen component shortages on this level.”
With regard to steel, historically high prices have been the chief problem. US Cargo tank builders report that they have been able to get enough sheet and plate to meet demand, but raw material price increases are adding $4,000 to $6,000 to a stainless steel tanker.
“We saw stainless steel prices climb 70% to 100% this year, which translated to a 10% to 15% increase in the trailers we built,” says Bruce Wadman, president of Brenner Tank LLC. “Steel prices are the highest I've seen in 15 years in this business.
“We think we might see some moderation in steel prices in 2005, and supplies should be adequate. If any shortages do occur, we should see them first in carbon steel, which is widely used throughout the world for cargo tanks and many other products.”
Terry Taylor, president of Bulk Resources Inc, adds that his company was able to get as much 316 and 304 stainless as it needed this year. There were also good supplies of 22-gauge bright stainless steel jacketing.
“We didn't experience any shortages, but we certainly paid hefty prices,” he says. “Type 316 stainless has a base price of more than $1 a pound. Stainless steel dipped to about 75 cents in June and July but were back up to 89 cents in August.”
Higher steel prices cut into demand for new stainless steel tank trailers in 2004. Wadman says demand was off by 10% to 20% from what he believes it could have been.
Steel component availability is another issue that hurt demand, according to both tank trailer and truck builders. Mack Truck officials report that steel wheel hubs have been in such short supply that the company has been providing aluminum hubs at no extra cost to some customers. Shortages of steel axles, valves, and manways also are being reported.
“We're definitely seeing delays in getting steel components,” says Todd Vincent, West-Mark sales manager. “We're facing lead times of as much as 12 weeks right now for components such as axles. However, we're still able to deliver a new trailer within about 90 days.”
The surging steel prices and product shortages caught many truck and trailer manufacturers by surprise. After all, lower steel prices were expected after President Bush removed the tariffs on imported steel in December 2003.
A number of factors are blamed for shortages of some types of steel and overall higher prices:
Worldwide demand for steel has increased dramatically, especially in China, where the economy has been superheated in order to improve the country's infrastructure leading up to the Beijing Olympics in 2008. Last year, China's demand for steel increased by 38 million tons — more than the total used by Mexico and Canada annually. Although some Chinese commercial banks temporarily suspended lending in April and the government said it would curb investment in roads and bridges, China's steel prices did not drop significantly and US prices continued to rise.
China's steel demand is expected to continue growing in the near term. In an effort to meet the demand, every steel manufacturer in the world, including those in the United States, is shipping product to China, helping to create a global shortage. Industry experts say it will be at least three years before enough new production capacity comes on line in China to offset the demand for imported steel.
A weaker US dollar has made foreign steel more expensive in this country at the same time it is favoring the export of US-made steel. In the past, imported steel helped protect truck and trailer manufacturers from price competition.
On the international front, prices for 300-series stainless steels are at lofty levels. For instance, prices in Europe for grade 304 hot rolled stainless steel are up 46% over 2003, and price hikes for grade 304 cold rolled have been comparable.
Consolidation of US steelmakers has cut capacity in the United States. This is another factor reducing the overall availability of steel in the United States, which means more customers than product.
Price increases have been posted for the raw materials used to make steel. One reason is that a coalmine fire in West Virginia in 2003 reduced by 25% the US output of coke, which is made from coal and is used to make steel. Coke prices tripled in the wake of the fire.
Scrap steel is in short supply, and scrap prices also have tripled. This has raised costs for the mini-mills that recycle scrap steel.
Supply shortages remain for nickel and chromium, both of which are ingredients in stainless steel. The shortages in these metals seem likely to extend well into 2005.
US steel mills across the board have been impacted by higher energy prices, especially natural gas. Now that crude oil has hit $50 a barrel, it's unlikely that energy prices will abate anytime soon.
Steel producers responded to the domestic and international challenges with higher prices, surcharges, and allocations. The surcharges, adopted early in the year, appear to have had the biggest impact on truck and trailer builders.
According to a survey by the Precision Metalforming Association, 85% of steel users said they were forced to pay a surcharge, and 90% said suppliers raised their base prices. Almost half said at least one supplier canceled an order in January.
US Steel, citing higher costs for natural gas and raw materials, reportedly added a surcharge of $30 per ton. Nucor, the largest US steel producer, took it even further, announcing a surcharge in February of $93 a ton on reinforcing, merchant, and structural products, and a surcharge of $100 a ton for special bar products that became effective March 1.
Many of the surcharges appear to be giving way to overall price increases that could remain in place for quite awhile. “US steel manufacturers have been become very aggressive at grabbing higher prices,” Wadman says. “We have little choice but to pay those prices.”
He adds that one of the big questions is what will the US steel manufacturers do with the increased revenues? Will they just reap the profits without taking adequate steps to improve and modernize their operations to be more competitive, efficient, and productive in the future?
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