Volatility of Steel Pricing Impacts Water Market
The rising cost of stainless steel is beginning to have an impact on the price of products used in the water and wastewater industry. The impact is starting to show itself in cast stainless steel material as well.
By Bill Didden
The rising cost of stainless steel is beginning to have an impact on the price of products used in the water and wastewater industry. The impact is starting to show itself in cast stainless steel material as well. Based on industry information, increases for carbon steel materials for both cast and fabrication components is not far behind.
The following is a brief narrative as to what is behind these increases. It is important that our customers understand the reasoning behind surcharges being added to today's product offerings.
The basic pricing for carbon steel and stainless steel has been somewhat depressed the last five to 10 years as demand has been held in check by the overall economy. However, the general economy is picking up around the world.
Countries that were once major exporters of steel, specifically China, India and the former Soviet Union, are now becoming users. Consumption of steel and stainless steel in China alone is growing at a rate of 10%. India has become an importer of steel to support its own economic growth. The states of the former Soviet Union will reportedly cut their export of steel products by roughly half to support their own internal demand.
Domestically, an increase in natural gas prices has significantly contributed to the increases in production costs. There are several other factors contributing to the increased costs. These include:
1. A weak dollar against many foreign currencies, especially the Euro and the Yen.
2. The increased cost of ocean freight driven up by a) increased foreign demand, b) the requirements of the U.S. Government for cargo to support our efforts in Iraq and Afghanistan and c) the escalating cost of bunker fuel.
3. Rising labor and health care costs in the steel making industry.
The centers of demand and usage have changed. The growth in demand in China and India has outpaced the growth in the U.S., Europe and Japan. Demand for stainless materials in components has shifted from the historical industries like process and power to transportation as well as industrial building and construction.
The increases in stainless steel are typically blamed on the price of nickel. Nickel prices began to rise in 1999 based on a belief that there was some short term speculation going on in the metals markets. Demand for this metal did start to increase in 2000 and prices continued to push upward.
The price of nickel has gone from approximately $2.70 per pound in early 2002 to more than $7 per pound at the beginning of this year. In addition to nickel prices, the costs for other major elements such as chrome and molybdenum in US dollars are escalating as well
Some of the factors driving up the prices of carbon steel are obvious, others are a little more subtle. An obvious one to those who live in the U.S. is the substantial decrease in the number of mills left in the U.S. that produce raw steel. Many of the "mini-mills" that have been built only supply special shapes or specific grades of steel.
The production of raw steel relies on coke for production. The cost of coke increased 200% during 2003 and the U.S. environmental laws restrict the cost effective production of this essential raw material.
A more subtle cause is the cost of scrap. Scrap is now a worldwide commodity. As more and more scrap is drawn off to China and the other producing nations, the price keeps climbing higher. The price of scrap here in the U.S. has increased 50% in the last two months and doubled overall over the last six months.
These are among the factors that are contributing to the volatility of the price increases and surcharges of stainless steel and carbon steel products. We are in a global economy that forces manufacturers to react to demand. It is simple economics that we all learned in school that when demand expands faster than supply, the net result is increasing prices as consumers vie for what is available.
Our company, like other WWEMA member companies, is doing its very best to hold any price increases in check. Volume commitments in purchasing cast products will help, but only in the short term. Unless the supply of the basic materials that go into the making of either material increases to relieve the price pressure, the increases will be with us for some time.
About the author:
Bill Didden is Director of Sales, Separation Products at Hayward Industrial Products, Inc., a WWEMA member company that manufactures filtration systems and fluid handling equipment supporting industrial and commercial customers worldwide.