No NFDA Panelists Envision Prices Going Down

John Wolz

The National Fastener Distributors Association put together a panel of industry leaders to discuss “What Happened to the Price of Fasteners in 2004 and Will it Continue?”
None of the seven predicted fastener prices will fall anytime soon.

” Nucor Fasteners controller J.J. McCoy proclaimed 2004 the year of the “Dear Valued Customer” letter. Fastener buyers learned to look quickly to the middle of the page to see how much prices were going up.
McCoy cited strong worldwide demand for steel especially in China as a reason for fastener price increases. In 2003 Chinese demand for steel rose by 38 million tons or equal to the annual usage in Mexico and Canada combined, McCoy noted.
Among other factors have been U.S. exports of scrap steel to China, the weak U.S. dollar and 48 steel company bankruptcies between 1998 and 2003.
Where does pricing go from here? “We”re not seeing any break on steel we use,” McCoy responded.
McCoy described the steel price situation as “basic economics” of supply and demand. There are shortages of coke and iron ore and there hasn”t been a blast furnace built in the U.S. since 1975, he pointed out.
Recent news of some steel price reductions can be deceptive, McCoy cautioned. There is a difference between sheet steel edging down and the special bar quality Nucor Fasteners use. “Sheet gets the most press,” McCoy ventured.

” Nucor”s Jim Witucki pointed out that health care costs have jumped 220% since 2000. Pallets are up 11% to 13%. Packaging is up 8% to 14%. Cans are up 24%. Natural gas jumped 100%.
All those factors contribute to fastener prices going up, Witucki explained.
Steel represents 45% of the cost of a Nucor fastener, Witucki reported.
Distributors should read articles about cost increases and show them to customers, Witucki advised. “The more we understand the more we can take to customers and the more effective we all are.”
Witucki recalled an OEM insisting on a price cut “by Friday morning.” Witucki returned to the office, ran new figures and responded to the OEM that prices are going to go up.
“Negotiate based on your values,” Witucki advised. “Remember, business is only good when you are making money. Maintain your profit motive.”

” “It”s not just steel,” Mike Henry of Hill Fastener emphasized by placing a bright orange pepper on the lectern. “It is everything. It is the world we are living in today.”
In August 2003 you could buy the pepper for $1.50. Today it costs $2.50. Fuel was $1.75 in 2003 and last week $2.38, Henry added.
“It”s everything wrapped around steel,” Henry noted. The state of Illinois recently raised the cost of a truck going through a tollbooth from $20 to about $40. To get fasteners to a plater “you have to put it on a truck. That all adds in.”
Utilities rose 29% in 2004. Insurance, health care and workman”s comp were up 14% to 15%.
Henry noted that while Nucor steel costs may be 45% of the cost of a fastener, smaller manufacturers may be paying 50+%. Tooling also made of steel rose 12% in 2004.

” Barry Porteous of Porteous Fastener Co. terms the price changes of the past 18 months as “corrections” rather than increases.
He recalled that fastener prices fell 20% in 18 months of the late 1990s and remained stagnant for the following four years. At 15� a pound “prices got way too low,” Porteous argued. “You can”t buy dirt for 15� a pound.”
If the price of steel for a fastener is 20 units then the importer pays 40. Then ocean freight, duties, brokerage and other costs raise the landed cost to 50. The importer, who must pay the exchange rate, sells to distributors at 67 and the OEM pays 100.
Porteous pointed out that the Taiwan currency changed 10% in three months as the U.S. dollar weakened. Prices need to reflect currency exchange rates, he said.
Is it the same as 1974 when Japanese quarter inch nuts jumped 200% but fell back the next year? Porteous doubts we will see a fastener price decrease as happened in the mid 1970s. “China”s appetite cannot be satisfied,” he explained. “Thirty percent of the active cranes are in China. There are twice as many families in China starting to consume at middle class levels as there are people in the U.S., Porteous noted.
China Steel recently announced a 6% steel price hike for this quarter and is expected to increase prices again for the third quarter, Porteous reported. “Express that to your customers.”
“I”m not hearing anyone talking about lowering prices,” he concluded.

” Mark Alperin of Vertex Fasteners noted that while steel may be 40% of the cost of Nucor Fasteners, the raw steel represents 60% to 70% of the cost of stainless steel fasteners and that cost is up 60% since 2003.
There are other prices the stainless steel industry watches such as the price of nickel. Though rising since March 2003, nickel prices have “leveled off,” Alperin noted.
Other materials such as molybdenum have skyrocketed from $2 a pound in 2003 to $35.50 today.
Alperin downplayed the possibility of price decreases because of shortages of raw materials from mines. “It takes a long time to reopen mines,” Alperin noted.
Alperin monitors several websites to help forecast what stainless prices will do, including lme.co.uk/datapricespricegraphs.asp and metalprices.com.
Alperin also subscribes to Google Alerts, but cautioned readers to know who the authors of reports are. Company-produced articles are biased but Alperin finds stock analysts from Australia to have “pretty fair opinions.”

” Tony Van Hoozer of Cable Tie Express Inc. declared that “plastics are still a good buy,” but price increases are pending in all categories. “We expect to pass on 4% to 6% increases,” Van Hoozer said. The industry did not pass on increases last year and made up for costs with increased sales as customers “looked to us to offset steel product increases.”
Refinery prices affect plastic manufacturing, he noted.

” David Stone of Yellow Transportation reported container usage is “near or beyond capacity in many areas” and currently there is a shortage of container ships. The Long Beach and Los Angeles ports are congested and ships are having to wait at sea a week or two before unloading. “There is a shortage of workers to unload the ships,” Stone pointed out.
The trucking industry has a shortage of drivers, he added. “We are not getting the 18 to 20 year old people and it takes 12 to 18 months to train drivers.
Air cargo capacity is tightening and airfreight prices are “way up,” Stone observed. Jet fuel has skyrocketed too, he added.
Stone forecast two shipping rate increases during 2005.
Price increases reflect rising expectations, Stone added. Four years ago shipping cross country was expected in three to five days. “It is two days max now.”
Many trade associations “are taking proactive steps to deal with the rising costs of freight.” \ �2005 FastenerNews.com