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Industry News - Technical Article
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The Increasing Cost of Wire Rod & Steel
posted March 10, 2008
The price of materials has risen in recent months, directly affecting the cost to manufacture spring and metal components. Newcomb Spring strives to keep our costs as low as possible, but the use of quality steel and metal supplies remains an important factor in the manufacture of reliable parts, and these increases have been reflected in some of our costs.
The following bulleting was written by David Ritter, the Chicago district sales manager for Industrial Steel and Wire, who is one of Newcomb Springs's material suppliers:
ISW increased most carbon steel wire prices on February 1, 2008. This increase was the first in a series that will result in dramatically higher prices by the second quarter of 2008. Additional increases in the second quarter will also be necessary.
Wire price increases are being driven by the rapidly escalating price of wire rod. During the fourth quarter of 2007 domestic rod mills announced $60/ton ($.03/lb) price increases. In January, 2008 rod increased another $40/ton ($.02/lb). February increases were initially pegged at $40 - $50/ton ($.02 - $ .025/lb), but a sharp spike in scrap prices in mid-January caused Ivaco and Keystone to increase their February announced increases to $80-$90/ton ($.04 - $ .045/lb). Other large producers Mittal and Gerdau-Ameristeel announced $40 - $50/ton ($.02 - $ .025/lb) February increases. March increases have been announced by all major producers at about $40/ton ($ .02/lb). Although buyer negotiation and volume discounts may have reduced some of the announced increases, by March 3, wire rod will have increased $180-$220/ton ($.09 - $.11/lb) since October 2007. Wire rod increases are due to:
- An increase in the price of steel scrap from $294/ton in early October 2007 to $394/ton on January 18, 2008 (American Metal Market "Shredded Scrap Composite"). Scrap prices have declined to $385/ton on February 15 after holding at $394 for nearly a month;
- Lack of foreign competition due to the weak US dollar, ocean freight costs, good overseas demand, higher prices overseas, and China increasing export taxes on rod.
- Lack of North American production capacity to meet the demands of the market coupled with a rising realization that an export market potentially exists for North American rod due to the weak dollar and higher offshore prices. North American rod producers are fully leveraging this imbalance between supply and demand to increase profit margins.
While some $40/ton ($.02/lb) wire price increases were imposed on ISW in either November or December, 2007 - most mills imposed $40/ton - $60/ton ($.02 - $.03/lb) increases in January. A second round of increases of between $40 - $60/ton ($.02 - $.03/lb) took effect with February shipments. March price increase announcements range from $40/ton to $140/ton ($ .02 - $.07/lb.) In addition to the price increases, we have seen production lead times begin to increase.
Special thanks to David Ritter, ISW Sales Manager - Chicago District, for submitting this bulletin.
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