Steel suppliers business keeps booming despite price surge

By LORI COPE | East Texas Edition

Cutline: Farmers and ranchers are counting out more money these days with higher gas, diesel, fertilizer, and steel prices. Theories vary on reasons for the various price surges, as well as to when prices will begin declining. -- Staff photo by Cope

April 1, 2004 -- A strong economy may be the one thing that has kept the tremendous increase in steel prices from severely affecting steel-related businesses, according to Texas entrepreneurs.

Since December 2003, steel prices have rapidly increased by as much as 66 percent, according to various news sources. Reasons range from China buying vast amounts of U.S. scrap metal to surging energy prices in America.

But business hasn't slowed down much, if any, for many steel and metal businesses.

"We've had a marvelous year so far. We've had no drop in our sales," said Brenda Williams, co-owner of Tommy Williams Steel located near Sulphur Springs. "I'm surprised it's been good. But you sure don't know about the future."

Many are feeling the effects of high steel and metal prices, but with a strong economy, and low interest rates, "people are not shying away" from having fences, barns, or other metal structures built, offered John Embry, president of Pioneer Steel and Pipe in Waco.

"Increased steel prices affect a lot of people, especially those in agriculture," Embry added. "It's affected the price of everything -- even barbed wire to steel posts."

Adding to that, Keith Thaemar, general manager of Tri-County Barns in Tomball, noted people have been kept abreast of the rising steel prices. Even with steel prices about double what they were four or five months ago, commerce involving steel projects is not declining.

"I haven't seen where it's hurt our business," Thaemar continued. "It's pushing people to make a decision now instead of waiting (to build a metal barn or purchase metal corrals, pens, etc.) ... Of course, we deal with a higher level of clientele.

"I hate for it (prices) to go up. It might push people, who were borderline, out," he said. "If it keeps up, it could have a negative effect."

Some of the negative effects are being faced by independent contractors, who offer a bid on a metal or steel project, then return to buy the metal and find the price has climbed even higher -- sometimes as soon as the next day.

"I don't know how contractors are making it," said Williams. "They give a bid today, and prices go up tomorrow."

Embry said they forewarn their customers that there is "a strong possibility of the cost going up. ... It's really hard on the contractors. They are in a tough position. I feel bad for that."

Williams and Embry agree they have never seen a situation such as this.

"I've never seen it jump this quick since we've been in business (since the late 1970s)," Williams said. "I've seen it maybe go up three-quarters (of a cent) or penny in a six-month period, but now ... metal is just like gas!"

Embry added, "I've been in the business my whole life and I've never seen it do this -- rise so quickly. Overall, we've had a 30 to 50 percent margin in the last 90 to 120 days."

Because of the rapidly-increasing prices, many steel and metal business can offer only a short-term, if any, guarantee on the price they quote today.

Williams said her business can offer no guarantee on their prices, "unless we have it on hand," Mrs. Williams said. "And we just don't know ... prices could go up next week, and next month."

Embry said Pioneer is currently offering seven days on price quotes, such as for metal buildings. "And they (steel manufacturers) guarantee us there will be another price increase in April."

Thaemar said they, too, are quoting steel building jobs with only a seven-day price guarantee. "And it used to be 30 days."

On March 10, the U.S. House Small Business Committee conducted a hearing to investigate the surge in steel and metal prices. Among those testifying at the hearing was Emanuel Bodner, president of Bodner Metal and Iron Corp., Houston. Bodner spoke on behalf of the Institute of Scrap Recycling Industries, Inc. (ISRI) whose 1,200-member companies process 65 to 70 million tons of ferrous scrap annually.

"There are some who ... believe that scrap is the primary cause of the current situation and that the solution would lie in some regulation of scrap. But the high prices we currently see are coming from many sources," Bodner said. "Some may want to blame the current situation on China. ... China is taking the largest portion of ferrous scrap currently."

Yet, ISRI is concerned about regulatory relief plans for scrap export controls.

Bodner pointed out the current price pressures are caused by global demand for steel rather than an assumed lack of domestic supply of scrap. "Demand is high, prices are high, but there is no physical shortage of obsolete scrap."

The U.S. House Small Business Committee met again on March 25 to offer potential remedies to reduce the surging steel and metal prices. Committee Chairman Don Manzullo (R-Ill.) said many events -- foreign and domestic -- have occurred since the beginning of the year to spike the costs of steel and other metals for U.S. manufacturers.

At the March 25 meeting, five potential solutions to the problem were cited: fight unfair foreign trade practices; consider export controls on U.S. scrap steel; lower energy costs for U.S. steel and metal producers; assess the threat to national security; and investigate reported shortages of scrap steel and coking coal.

Reports about the surge in metal and steel prices point out that President Bush's lifting of steel tariffs in December 2003 was expected to trigger a drop in steel prices for U.S. manufacturers, but just the opposite has happened.

Embry commented he believes ending the tariffs has not hurt steel prices.

Is there price relief in site? "It's 'who knows,' a gamble, as to when prices will decrease," Embry said. "Forecasters seem to think possibly we could see some softening in the late third quarter or early fourth quarter" of this year."