|Copyright 2014 by Virgo Publishing.|
|By: Teri L. Lanza|
|Posted on: 03/01/2004|
This is our annual legal issue, but I have chosen not to address that here. In light of recent changes to the steel market, which impact professionals across the spectrum of the self-storage industry, I thought it better to share with you a letter from one of our respected industry vendors. This is an issue of which we should all be aware. Please feel free to submit questions or comments to the magazine.
Dear Industry Professionals:
I am writing to keep you up-to-date in the significant and rapid changes unfolding in the steel market. As you have already seen, we builders have had to announce various price increases as a result of sudden swells in the price of steel. We project that steel prices will continue to rise to record highs over the next few quarters. Many of you have commented that this is counter-intuitive, based on the fact that steel tariffs have been removed on the importation of foreign steel. While this may seem true on the surface, the following will provide you a brief overview as to what is fueling the price increases:
1. The value of the U.S. dollar vs. the euro and major Asian currencies has fallen far below the value of the tariffs. Foreign steel producers are not interested in selling steel in the United States, because when they convert their revenue back to their home currency, they make less money than when they sell the steel in Europe or Asia. The opposite is true for U.S. producers. They have a strong economic incentive to export their steel out of the States rather than selling it here.
2. China is consuming, by some estimates, more than 20 percent of the world’s steel supply. This may not be a long-term issue, but it will impact world supply for at least the next year or two. China’s strong demand is driving steel prices upward on a global basis.
3. A coke shortage is impacting domestic mills’ ability to continue production at current levels. Consequently, some are citing force majeure on part of their order books and curtailing some production. The mills have already hit us with a surcharge on existing orders and are telling us to expect more beginning in April. Many of them are running at more than 90 percent capacity and not accepting orders right now.
4. Steel production is an energy-intensive industry, and the cost of energy has gone up significantly.
5. Fueled by strong housing demand, appliance producers are consuming large quantities of similar gauges of steel used in the construction industry.
6. Automotive demand in the United States still remains quite strong on a historical basis.
These reasons combined have created the “perfect storm” that will continue to press steel prices upward—dramatically. On top of all of this is an additional cost all companies that ship over the road are forced to bear due to changes in trucking regulations. With the reduced hours truckers are allowed to drive under federal regulations, transportation companies cannot turn their trucks around as often and are passing along the resulting increases.
While I don’t want to sound alarmist, I do want to keep you informed of situations that impact all of us. We expect to have to pass along monthly price increases at least through the first half of 2004. As soon as we are able to provide additional guidance on those increases, we will.