Help is on the way for hard-pressed farm machinery manufacturers who need public relations cover for what would otherwise be indiscreet displays of pricing power*. Steel prices are set to explode.
The worst-case scenario could be a repeat of 2004, when manufacturers of many products, from automobiles to washing machines, faced severe steel shortages and record-high prices.My sources talk about farm equipment price increases of 9-12% within days by heavy steel users. And the blame can be legitmately handed off to steelmakers, and then to ore producers.
That's not happening yet, but there's plenty to worry about, according to some industry experts.
The price of hot-rolled steel, a product frequently used by metal- product companies, has increased about 6 percent in the last two weeks. Currently, some steel suppliers will guarantee price quotes for only a short period of time because they aren't sure what prices will be after only a few weeks.
Nationwide there is less than a three-month supply of some materials, and sources of imported steel have dropped dramatically.
"We see the United States entering another period of really disrupted steel prices and availability," said Bill Gaskin, president of the Precision Metalforming Association, a Cleveland trade group.
"People are seeing significant increases in prices. We have seen some reports of anticipated shortages, or nervousness, coming out of the Twin Cities area," Gaskin added.
Steel is the main raw ingredient for many manufacturers. Increased costs can translate into higher prices for manufacturing companies and, ultimately, consumers.
The price of stainless steel has more than doubled since 2003 and has remained stubbornly high for months. [More]
Part of the problem is the increased use of stainless steel - which we all love, judging from the washer and dryer we just bought to put our tax rebate in circulation patriotically. [Have you priced a washer lately? Yikes!!]
"Everyone agrees that prices are moving up gradually. There is positive momentum," Rantanen told Reuters. "We still see very good end-user demand."Another hint of this emerging issue was the surprising Producer Price Index figure released today.
Much stainless steel was going into big energy-related projects such as for liquefied natural gas and oil production.
"I don't believe these types of projects will be impacted by the financial crisis," Rantanen said. [More]
On Tuesday the government announced the Producer Price Index rose 1.0% in January, while core inflation, stripping out food and energy costs, rose 0.4%. The PPI measures inflation pressures before products reach the consumer.
The results match the core inflation increase in February 2007, and the last time it was higher than that was November 2006. Economists polled by Thomson's IFR Markets had expected overall wholesale inflation to rise just 0.3%, while core inflation was expected to increase 0.2% in the month.
"It was a lot worse than expected," said David Wyss, chief economist at Standard and Poor's, "and it shows the problems the Fed has with fighting inflation while also fighting recession." To keep the economy from slowing too much, the Federal Reserve has been cutting interest rates, but in doing so it risks creating a monetary environment conducive to inflation. [More]
These price pressures and the prospect of likely interest rate decreases are signaling money may be one of the worst ways to hold wealth. For many, this is anathema - cash is synonymous with sound business thinking. But maybe the painful lessons some of us learned in the 70's and 80's about inflation will help us overcome the love of money to protect our true wealth.
* To understand pricing power, see: wheat, spring.