Continued From March Newsletter
"Worries Ripple Over Steel"

A stainless steel product that would have cost about $19,000 a year ago now costs $26,000, according to Kahlenberg Brothers. The price difference is entirely in raw materials, said Erick Kahlenberg, company vice president.

"It's been incredible how much stainless steel prices have gone up. It really is making a difference in the cost of our products," he said.

Fortunately for Kahlenberg Brothers, which tested the ship whistles recovered from the Titanic and went on to build several replica sets, its competitors also face high steel costs.

"Everybody is dealing with the same supply crunch and cost increases, so it doesn't necessarily hurt our competitiveness," Kahlenberg said.

Imports decline

Much of the steel that U.S. manufacturers use comes from overseas, further complicating matters. Some foreign steel supplies have all but dried up, putting further pressure on prices.

In 2007, imports of hot-rolled steel were down almost 50% from the year before, according to the Precision Metal forming Association.

China's recent decision to place an export tax on raw steel, while welcomed by U.S. steel producers, sent a chilling message to U.S. manufacturers that rely on imported raw materials.

A continuing decline in steel imports is worrisome, Gaskin said.

"If the economy was booming now, it would be like 2004, when there was panic buying and terrible shortages," he said. "Right now, the shortages are regional. There are problems in the Twin Cities, for example, but there aren't problems in Chicago."

A weak U.S. dollar has resulted in U.S. steelmakers shipping more material overseas, where it fetches higher prices. U.S. steelmakers also have curbed production in order to keep supplies tight and prices high.

"We are expecting steel prices to continue increasing into the summer, especially with low imports and moderated output by the domestic producers," Gaskin said. "Price wise, we are getting a repeat of 2004."

Some Milwaukee manufacturers have reported that steel prices, while high, have remained steady in recent months.

It's kind of like gasoline; "we have all become conditioned" to paying more, said Michael Uzelac, president and owner of Uzelac Industries, which operates Industrial Metal-Fab Specialties in Greendale.

In the shortages and panic buying in 2004, steel prices were valid for only about seven days. That's how fast they went up, Uzelac recalled. It's not like that now, though manufacturers are mindful of what could happen.

"You can never really be confident about steel pricing. The only thing that's certain is there's going to be uncertainty," Uzelac said.

Some steel suppliers have said they might not be able to meet normal delivery schedules.

Nucor Corp., one of the world's largest steelmakers, already has closed its order books for April, Gaskin said.

"Supplies are tightening quite a bit," he said. "Manufacturers that are lucky enough to get new work now are going to the spot market to buy steel, and prices have gone up a lot there. Depending on the material they need, they're finding it difficult to be assured of delivery."

If there's good news for manufacturers caught up in rising steel prices, it's in the value of scrap material.

About 20% of every ton of steel used in a metal forming plant is left over in scrap. In some cases, plant managers say they're getting more than $400 per ton for high-quality scrap material.

"If you get a good price for scrap, that's nice. But it won't recover the high cost of the original material," Gaskin said.