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Escalating steel prices top $300 per ton

Steel price crises pounding Delta manufacturers

CLARKSDALE – On a recent Thursday afternoon at Delta Wire Corporation in Clarksdale, a world-class supplier of tire bead wire, chief executive Shawn Oliver grew worried. He had just been notified that prices for the steel used to make the company`s 60 million pounds of high-carbon steel wire per year had increased 40% in the last 24 hours. Steel prices had more than doubled in the last year, and there was no relief in sight.

“If something isn`t done about restricting steel prices, a lot of Mississippi companies are going to be financially troubled,” said Oliver. “I’m leaving today to go to Akron, Ohio, to try to get price increases from tire companies. We are taking the loss, and the tire companies haven`t incurred a penny of increase.”

Terry Hays, owner and general manager of Standard Industrial Corporation in Clarksdale, manufacturer of metal press brakes, presses and shears, said he is “shocked by the ridiculous increasing costs…simply complicated by political disruption.”

“What has really surprised us is that the political disruption, which supposedly ended with the removal of the tariffs, has to our dismay caused the steel market itself to have been so badly traumatized that the supply was no longer there, and because it has been consumed massively by China,” he said. “No company can survive this kind of shock over the long term and survive.”

Mississippi Manufacturers Association president Jay Moon said the steel crisis is another blow to manufacturers who have struggled to compete against cheap labor costs offshore.

“China has been absorbing a lot of the scrap steel that is melted down into new product,” Moon explained. “We don`t have as much steel production in this country because of the environmental restrictions of mining coke. A lot of the coke was coming from China, but they’re using it instead. They’re also absorbing huge amounts of petroleum products to fuel their operations.”

Moon recently led a delegation to Washington, D.C., to discuss the steel crisis with Mississippi`s congressional delegation.

“We pressed the point of wanting free trade, but also wanting fair trade,” he said. “China is doing all it can to enhance its capabilities and the country has free access to our markets while we don`t have access to theirs. American manufacturers have a lot of additional costs placed on them that the Chinese don`t have, like healthcare, lawsuit issues, rising energy, transportation and environmental costs.”

Standard Industrial Corporation, which produces a small number of large machines weighing from 30,000 to more than 140,000 pounds each, has laid off approximately 14% of its workforce because of the steel crisis, said Hays.

“In our case, the Chinese buying up scrap doesn`t really affect us,” he said. “We do not buy the material that is produced from scrap. We use heavy plate steel up to 10 inches thick that is typically made from new minerals.”

The company generally produces about 10 machines a month year-round; production is off about 30%, said Hays.

“We are still producing machines to stock in anticipation of sales in order to compete with the quick delivery of foreign machines,” he said. “Four or five years ago, we did not do that.”

All possible options for survival have been considered, said Hays.

“The steel problems of a year and a half ago prevented us from operating profitably at that time, and it continues today,” he said. “We are doing everything we can to cut costs, redesign product, and use less steel, and are looking at a great variety of sources all over the world for this material.”

In addition to producing the various regular and high tensile bead wires used by leading tire manufacturers, Delta Wire, a QS-9000 certified company, produces a wide range of hose, spring, bobby pin and specialty wires. Long steel rods made of the finest quality steel, with scrap sometimes used as filler, is required for production, said Oliver.

“There`s no substitute,” he said.

President George W. Bush lifted tariffs on imported steel in early December to avoid the threat of a looming trade war with Europe and Asia. The tariffs were imposed in March 2002 to protect the U.S. steel industry, which had been pummeled with bankruptcies and thousands of job losses because of cheaper imports. Since the tariffs have been lifted, steel scrap prices have escalated rapidly, moving to $302 per ton in February. In January 2002, steel scrap prices were about $60 per ton.

Thomas Danjczek, president of the Steel Manufacturers Association, representing mini-mills that produce more than half of the steel in the U.S., said prices have not increased because of tariffs, but rather because raw material prices have increased.

“I can list five reasons for the increase in steel prices,” he rattled off. “One, the insatiable appetite of China for all raw materials, and this isn`t just the scrap industry, it`s going on in the paper, copper, lead and energy industries. Two, a weaker dollar. Three, scrap exports have doubled in the last three years. Four, we do not have export restrictions on scrap material, but they do exist in other countries like China, Venezuela, Belarus, Moldavia, the Ukraine and, to a degree, Korea. The fifth reason is actually a good one: a pickup in demand. Business is better these days.”

Danjczek, who noted that tariffs collected over the 20-month period amounted to about $400 million, according to U.S. Customs, said it was legitimate to speculate that ships dropped steel elsewhere during the time tariffs were imposed. “But I don`t think I would agree that it`s entirely because of tariffs,” he said. “It`s based more on selling prices around the world.”

Robert J. Stevens, president of the 1,300-member Emergency Steel Scrap Coalition, and CEO of Impact Forge Inc., in Columbus, Ind., said that U.S. companies “are facing a dire situation due to the sharp increase in scrap and steel prices.”

“Companies are defaulting on their contracts and suffering heavy and growing losses,” he said. “We are facing a crisis in many critical American manufacturing sectors, and something must be done right away.”

The problem in a nutshell, Stevens explained, is that steel prices are skyrocketing because of rising U.S. steel scrap exports.

“The primary causes of this problem are clear,” he said. “Steel scrap exports from the U.S. are increasing due to surging foreign demand. At the same time, other countries are limiting or even prohibiting their own scrap exports. This fundamental market imbalance must be corrected.”

The solution, Stevens offered, lies in existing U.S. law, which provides a potential remedy for injurious increases in steel scrap exports: the temporary imposition of export restrictions by the U.S. Secretary of Commerce.

“According to the law, Commerce may prohibit or curtail the export of scrap, if several conditions are met,” he said. “To simplify, you need to show that scrap exports have increased, that domestic prices have increased, that the exports caused the increase, and that there has been significant harm to the U.S. economy or domestic industries as a result. All of those tests are met, and the harm to our economy is growing every day. Even a Department of Commerce investigation, which I am told can take place in a matter of months, may take too long for many U.S. companies. Our coalition…needs a rapid solution to this crisis before the damage worsens.”

In Mississippi, manufacturers are asking Gov. Haley Barbour for help.

“I would ask Gov. Barbour to use his influence with the Bush administration to look at some sort of restrictions,” said Oliver. “The situation we’re in is serious. It`s a chaotic runaway market right now.”

Contact MBJ contributing writer Lynne W. Jeter at mbj@thewritingdesk.com

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