FOX Business’ Gerri Willis on how producers are currently doing and Biden’s upcoming ‘Buy American’ plan.
A faster-than-expected recovery in U.S. manufacturing leads to supply disruptions and higher costs for materials used in products, which meet greater demand.
Prices for steel, aluminum, wood and other materials are rising due to higher order volumes. Operating supply chains are now clogged with orders, causing some producers to add weekend hours and overtime for employees. Orders filled a week or two during the summer need six to eight weeks, according to the manufacturers who require the long waiting times for essential supplies.
“The lack of availability is what kills you,” Mark Verhein, president of Church Metal Spinning Co., a Milwaukee steel parts manufacturer, told major industrial engines. “If you can not get the material, it’s annoying.”
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When many factories shut down for more than a month this past spring to limit the spread of the coronavirus, the production of industrial commodities also declined. Stocks evaporated, and suppliers were wary of increasing production during a slow recovery for manufacturing in a U.S. economy that entered a recession in February. But demand for durable goods picked up in late summer and gained momentum during the fall, even as Covid-19 infections rose to record levels.
Consumers who could not spend money on holidays, dining out, concerts and various services, opened their wallets for cars, appliances, recreational vehicles and home improvements and construction. As a result, prices for some industrial merchandise, including steel and copper, have risen to their highest levels in years.
The price of paper used in corrugated cardboard has risen, along with the demand for boxes used to supply e-commerce goods. Printed oil prices recently recovered in a seven-week rally that helped push standard crude oil to more than $ 50 a barrel.
US commodity producers have also benefited from the strengthening of global prices, especially for aluminum. According to S&P Global Platts, its cash price on the London Metal Exchange is 39% higher than in April. The local price for the production of new steel waste has risen by 60% since November, helped by greater overseas demand. Turkey has been looking for US exports, and also recently China, which is importing scrap for the first time in almost a decade.
“We can sell everything we have,” said Brad Serlin, president of United Scrap Metal Inc., near Chicago. “Steel factories that were suddenly out of the market are making big orders.”
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Household steel mills in need of waste began accepting on Saturdays at the end of October for the first time in years, said Mr. Serlin said.
Mr. Verhein of Church Metal said he had to delay the delivery of some orders because the parts manufacturer could not obtain enough steel, and what the company was able to buy, cost twice as much as six months ago.
He said he wanted to make less profit on some products for the time being, rather than pass on higher steel prices to his customers. For other products where the margins were already thin, Mr. Verhein said he has no choice but to raise Church prices to lose money.
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Some manufacturers have stored materials to protect against a lack of availability in the future. They reckon they can recover the extra cost of more inventory than usual with increased sales.
Optimas OE Solutions LLC, a manufacturer of bolts and fasteners, recently piled up $ 2 million worth of steel wire at its Wood Dale, Illinois plant, up from $ 250,000 before the pandemic broke out in the US in March last year.
“It will give us an edge,” said CEO Marc Strandquist. “The supply chains everywhere are running boring now. We can suffocate our customers with service.”
Mr. Strandquist said orders for fasteners from the commercial truck industry and manufacturers of farm machinery have been strong in recent times as demand for such equipment recovers from a slump that began before the pandemic.
Although demand is improving, some manufacturers say they have not been able to recover all of their higher material costs.
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By Northwest Hardwoods Inc. the orders for wood used in kitchen cabinets, floors and the decoration of doors and windows are about 15% higher than a year ago due to increasing construction of new homes. However, the company said the cost of acquiring and processing maple and oak trees is rising by more than the prices it could charge for finished boards. Production at sawmills is also limited by labor shortages.
“It’s not good on our margins,” CEO Nathan Jeppson said. “I do not know of anyone who makes a lot of money.”
Since November, the company Tacoma, Wash., Has been working under bankruptcy protection attributed to collapsing orders from the pandemic last spring and declining exports to China due to retaliatory tariffs on U.S. timber imposed in 2018.